Mandatory Vehicle Insurance: What's Covered?

Vehicle insurance is mandatory in most states in the US, but the laws and requirements vary from state to state. While there is no federal mandate, each state has its own set of laws and minimum coverage requirements. The primary purpose of vehicle insurance is to protect drivers financially in the event of an accident, ensuring they can cover the costs of damage to other people or property.

Liability insurance

There are two main types of liability insurance coverage: bodily injury (BI) liability and property damage (PD) liability. BI liability covers the medical bills of those injured in an accident, as well as any loss of income or costs associated with pain and suffering. PD liability, on the other hand, covers the costs of repairing or replacing damaged items, including vehicles and other types of property such as homes, fencing, and storefronts.

When purchasing liability insurance, it is important to consider the limits of the policy, as there are typically maximum payout amounts for both bodily injury and property damage claims. In the US, these limits are often expressed as three numbers, such as 25/50/25, indicating the maximum coverage for bodily injury per person, bodily injury per accident, and property damage per accident, respectively. It is recommended to choose a liability limit that matches or exceeds your total net worth to adequately protect your assets.

Failing to obtain the mandatory minimum amount of liability insurance can result in legal penalties, including fines, suspension of your driver's license, and even jail time for repeat offenses. Therefore, it is crucial to understand the requirements of your state and ensure you have the appropriate level of coverage.

Collision insurance

In the event of a collision, the insurance company will pay for the repairs to the vehicle, minus the insured's deductible. If the car is totaled, the insurance company will pay the actual cash value of the vehicle, minus the deductible. Collision insurance can provide peace of mind, especially for those driving expensive cars or who would struggle to pay for repairs after a crash.

While collision insurance is not legally mandated, it may be required by lenders or leasing companies if you are financing or leasing a car. This is to protect their financial asset, which is the automobile. Collision insurance can be expensive, but premiums may be lowered by choosing a higher deductible.

It's worth noting that collision insurance becomes less valuable over time as it will never pay out more than the car's value. Therefore, if you own your vehicle outright and it has a low market value, collision coverage may not be worth the cost.

Property damage insurance

Property damage liability insurance is a type of auto insurance coverage that pays for damage to another person's property if you are at fault in an accident. This includes damage to other cars, buildings, and structures like fences and telephone poles. Property damage liability insurance does not cover injuries caused in a crash or damage to your own car.

Most states require drivers to carry a minimum amount of property damage liability coverage. However, the specific amount of coverage required varies by state. For example, California requires a minimum of $5,000 for property damage liability coverage, while Oklahoma requires a minimum of $25,000.

It's important to note that state-mandated minimum car insurance requirements may not be enough to cover all property damage in the event of an accident. Purchasing additional coverage can provide more financial protection.

In some states, such as Virginia and New Hampshire, car insurance is not mandatory. However, residents of these states are still financially responsible for any damages caused in an accident. In Virginia, residents can choose to pay the state an uninsured motor vehicle fee instead of purchasing car insurance.

Uninsured motorist insurance

In the US, auto insurance is mandatory in most states. However, the specific requirements vary from state to state. While some states require liability insurance, others have more flexible "proof of financial responsibility" requirements.

If you don't have uninsured motorist insurance, you could end up paying out of pocket for medical bills or vehicle repairs if you're in an accident with an uninsured or underinsured driver. Even if you file a claim against your own policy, you may still have to pay a large collision deductible or not have enough coverage for injuries to yourself or your passengers.

In addition to providing financial protection, uninsured motorist insurance can also give you peace of mind and help streamline the claims process if you're ever involved in an accident with an uninsured or underinsured driver. It's important to note that even if you have health insurance, it may not fully cover all the costs associated with a car accident, and you may still be responsible for high deductibles or lost wages.

When considering uninsured motorist insurance, it's essential to review the specific requirements and options available in your state, as they can vary significantly. While some states mandate this coverage, others may only require it under certain circumstances or as an optional add-on to your policy.

Personal injury protection

PIP covers the policyholder's medical expenses and those of their passengers, even if they don't have health insurance. It also covers lost income, childcare, and funeral expenses related to the accident. In some cases, PIP can also help pay for the policyholder's health insurance deductible.

Where Is Personal Injury Protection Mandatory?

As of September 2023, PIP is required in the following US states and territories:

• Delaware
• Florida
• Hawaii
• Kansas
• Kentucky
• Maryland
• Massachusetts
• Michigan
• Minnesota
• New Jersey
• New York
• North Dakota
• Oregon
• Pennsylvania
• Utah
• Puerto Rico

Where Is Personal Injury Protection Optional?

In at-fault states, PIP is typically optional. In these states, the insurance company of the driver who caused the accident is responsible for paying for injuries, up to the policy limits. However, even in at-fault states, PIP can provide additional coverage for the policyholder's own medical expenses and other related costs.

Frequently asked questions