Jane Dotson
Car insurance is a requirement in almost every state, with the exception of New Hampshire and Virginia. The type of insurance and the minimum amount of coverage you need will depend on where you live and the value of your car.
Liability insurance is the main mandated coverage and is required in nearly every state. This includes bodily injury liability, which covers medical expenses and lost wages for individuals other than the driver at fault, and property damage liability, which reimburses another party for damage to their vehicle or property when the policyholder is at fault for an accident.
In addition to liability insurance, some states require drivers to carry first-party medical coverage, such as personal injury protection or medical payments coverage, and/or uninsured/underinsured motorist coverage. Collision and comprehensive coverage are optional but may be required by lenders for financed or leased vehicles.
| Characteristics | Values |
|---|---|
| Liability coverage | Mandatory in most states |
| Collision coverage | Usually required by a lienholder or lessor on a financed or leased vehicle |
| Comprehensive coverage | Usually required by a lienholder or lessor on a financed or leased vehicle |
| Uninsured and underinsured motorist coverage | Required in many states |
| Personal injury protection | Required in states with a no-fault insurance system |
| Medical payments coverage | Optional in most states |
What You'll Learn
Liability coverage
Bodily Injury Liability:
Bodily injury liability coverage takes care of the medical expenses of the other party if you are responsible for the accident. This includes their medical costs, out-of-pocket expenses, and sometimes even legal defence costs if they decide to take legal action. It is designed to protect you from bearing the full financial burden of someone else's medical bills, which can quickly escalate, especially in severe accidents.
Property Damage Liability:
Property damage liability coverage, on the other hand, covers the costs of repairing or replacing another person's property damaged in an accident for which you are at fault. This typically includes the other driver's vehicle but can also extend to other types of property, such as fences, mailboxes, or buildings. This aspect of liability coverage ensures that you are not left with a hefty bill for someone else's property damage.
Customising Your Liability Coverage:
When customising your auto insurance policy, it is essential to consider your specific needs and financial situation. While opting for the state minimum liability coverage may seem appealing to keep costs low, it is crucial to ask yourself whether this would be sufficient in the event of a serious accident. Consider factors such as multiple vehicles and people involved, potential lawsuits, and whether you could afford to pay for all the associated costs out of pocket.
Understanding Liability Coverage Limits:
In summary, liability coverage is an essential aspect of auto insurance, protecting you from financial ruin if you are at fault in an accident. By understanding the components of liability coverage and customising your policy to meet your needs, you can ensure that you are adequately protected on the road.
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Collision coverage
When deciding on the amount of your deductible, consider the cost of your car and its potential corresponding repairs, as well as your willingness to pay for repairs under the amount of the deductible. A higher collision deductible will lower your monthly premium, but you will cover more of the cost of repairs when they arise.
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Comprehensive coverage
The amount of comprehensive coverage you need will depend on the actual cash value of your vehicle. You will be responsible for paying a deductible, which is the amount you agree to pay before the insurance company starts paying for damages. Typically, a higher deductible will result in lower insurance costs, while a lower deductible will lead to higher insurance premiums.
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Uninsured/underinsured motorist coverage
Uninsured motorist coverage protects you if you are hit by a driver who does not have any auto insurance. Underinsured motorist coverage, which is usually offered alongside uninsured motorist coverage, protects you if you are hit by a driver whose insurance coverage is not enough to pay for the damages or injuries they caused. In both cases, without this coverage, you could be left paying for medical bills or vehicle repairs out of your own pocket.
Depending on your state, uninsured/underinsured motorist insurance may be separate or combined and can include up to four types of coverage: uninsured motorist bodily injury (UMBI), uninsured motorist property damage (UMPD), underinsured motorist bodily injury (UIMBI), and underinsured motorist property damage (UIMPD). UMBI and UIMBI can help cover medical bills for you and your passengers, while UMPD and UIMPD can help cover damage to your vehicle. It's important to note that some states may require a deductible for UMPD/UIMPD, but UMBI/UIMBI generally does not include a deductible.
When deciding on the amount of uninsured/underinsured motorist coverage to purchase, it is generally recommended to choose limits that match your liability insurance. For example, if your liability coverage is $250,000 per person and $500,000 per accident, you should consider purchasing the same limits for your uninsured/underinsured motorist coverage. This will ensure that you have sufficient protection in the event of an accident with an uninsured or underinsured driver.
In addition to the financial protection it offers, uninsured/underinsured motorist coverage is also required by law in many states. Around half of the states in the US mandate at least one of these coverages, and some may only require coverage for bodily injury. Even in states where it is not mandatory, it is highly recommended for all drivers to consider this coverage to protect themselves financially in the event of an accident.
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Personal injury protection
In the US, some states require PIP as part of their "no-fault auto insurance" laws, while in other states, it is offered as an optional coverage type. Texas, for example, does not mandate PIP, but insurance companies are required by law to offer it to drivers, and drivers must submit their refusal in writing if they choose to decline it.
The amount of PIP coverage one should buy depends on the state's requirements and the individual's needs. Basic PIP typically covers 80% of medical bills and 60% of lost wages and replacement services, while extended PIP covers 100% of medical bills and 80% of lost wages and replacement services. It is recommended to get the highest level of coverage one can reasonably afford to ensure adequate protection in the event of an accident.
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Frequently asked questions
The standard auto insurance coverage typically includes liability coverage, collision coverage, and comprehensive coverage. Liability coverage includes bodily injury and property damage liability. Collision coverage pays for the damage to your vehicle, regardless of who is at fault. Comprehensive coverage pays for damage to your vehicle resulting from incidents other than a collision, such as natural disasters or animal collisions.
The minimum auto insurance coverage required by law varies by state but typically includes bodily injury and property damage liability coverage. The specific limits of these coverages will depend on the state's requirements.
Full coverage auto insurance is not legally required but is recommended. It includes liability, collision, and comprehensive coverage, providing more comprehensive protection in the event of an accident.
Collision coverage pays for damage to your vehicle in the event of a collision with another vehicle or object, regardless of who is at fault. Comprehensive coverage pays for damage to your vehicle resulting from incidents other than a collision, such as natural disasters, theft, or animal collisions.
Some optional auto insurance coverages include uninsured/underinsured motorist coverage, personal injury protection, medical payments coverage, gap insurance, rental car reimbursement, and roadside assistance coverage. These coverages can provide additional protection and benefits in the event of an accident or other vehicle-related incidents.
