Auto Insurance: Why It's A Must-Have For All Drivers

Auto insurance is mandatory in almost every state in the US. While the minimum requirements vary, nearly all states require a minimum amount of liability insurance to cover any injuries or damages caused in a car accident. This includes damage to the other driver, their passengers, and their property. In addition, about half of all states require uninsured/underinsured motorist coverage, which protects you if you are hit by a driver with little or no insurance. A few states also require personal injury protection (PIP), which covers medical expenses for insured drivers and their passengers, regardless of who is at fault.

To cover medical expenses for the driver and passengers

Auto insurance is mandatory in many places, and one of the key reasons for this is to cover medical expenses for the driver and passengers. Medical payments coverage is an important type of insurance that can protect your finances in several ways.

Medical payments coverage, or MedPay, is an auto insurance product that helps cover medical expenses for the driver and passengers in the event of an accident, regardless of who is at fault. This includes medical treatments, surgeries, procedures, deductibles, and co-pays, as well as extended nursing services or hospitalization. It can also help cover funeral expenses resulting from an accident.

MedPay coverage is not limited to the driver and passengers of a car but can also protect you as a pedestrian or while riding a bike if you are struck by a vehicle. This type of insurance can provide additional protection if you are found liable for the accident or if your health insurance does not fully cover your medical expenses.

In some states, such as New York, Personal Injury Protection (PIP) or no-fault insurance is also mandatory. PIP is designed to pay for medical costs and lost wages for the driver and passengers, regardless of who is at fault. It can also cover other reasonable and necessary expenses, such as household help and transportation to medical providers.

While MedPay and PIP are similar in that they both cover medical expenses, there are some key differences. MedPay covers medical expenses for the driver, their family, and passengers, regardless of who is at fault, while PIP is a no-fault insurance that covers medical costs and lost wages. Additionally, MedPay does not cover lost wages, while PIP typically includes coverage for lost earnings up to a certain limit.

In summary, the mandatory nature of auto insurance helps ensure that drivers and passengers are financially protected in the event of an accident, with medical expenses being a key component of this protection.

To cover damage to another person's property

Auto insurance is mandatory in most states, and one of the reasons for this is to ensure that drivers can cover damage to another person's property. Property damage liability coverage is included in the minimum car insurance requirements in most states. This coverage pays for damage to another person's property if the policyholder is at fault for an accident. The coverage includes damage to cars, homes, fences, mailboxes, business storefronts, and public property like light poles or road signs.

The minimum coverage limits might help drivers save on car insurance costs, but they may not offer sufficient financial protection in a serious accident. For example, if the other driver's car was totaled and it was a fairly new or expensive vehicle, the minimum coverage of $10,000 might not be enough to replace it. Therefore, it is recommended that drivers carry more than the minimum liability insurance if possible. This way, they are less likely to be caught in a bad financial situation following an accident.

If a driver's liability insurance isn't enough to cover the damages, or they're uninsured, the affected party could file a claim with their homeowners insurance. Standard homeowners insurance policies usually list vehicle damage as a type of covered peril. However, the affected party may be responsible for paying their homeowners insurance deductible, and their insurance company may seek reimbursement from the at-fault driver through the subrogation process.

In addition, drivers should be aware that property damage liability coverage does not cover their own losses, such as vehicle damage or medical bills. For that, they would need optional coverage types like collision, comprehensive, and medical payments coverage.

To protect against uninsured drivers

In the United States, about one out of every eight drivers does not carry auto insurance. This equates to around 12.6% of all motorists. If you are involved in an accident with an uninsured driver, you could be at risk of substantial financial losses. This is especially true if you reside in a "tort" state, where insurance companies pay out claims based on the percentage of fault assigned to each driver. In such cases, an accident with an uninsured driver means you will not receive an insurance reimbursement payment for their apportioned share of the damage.

To protect yourself against uninsured drivers, it is important to understand your current coverage, applicable state insurance laws, and the steps needed to obtain protection. Some states require drivers to take out insurance for uninsured and underinsured motorists. Even if it is not required in your state, it is generally advisable to add this coverage to your auto policy. You can buy protection against uninsured and underinsured drivers for both bodily injury and property damage. This type of insurance can also be valuable in cases where an insured motorist flees the scene of an accident without exchanging insurance information.

Uninsured motorist coverage can provide financial protection in the event of an accident with an uninsured driver. There are typically three types of protection:

• Uninsured Motorist (UM) insurance, also known as Uninsured Motorist Bodily Injury (UMBI) insurance, covers medical bills for you and your passengers if you are involved in an accident with an uninsured motorist who is at fault. It also provides reimbursement for lost wages and covers incidents where you are hit by an uninsured driver as a pedestrian, or if you are the victim of a hit-and-run.
• Uninsured Motorist Property Damage (UMPD) coverage is important because standard uninsured motorist insurance covers bodily injuries but not damage to your vehicle or other property. UMPD coverage pays for damages to your vehicle caused by an uninsured driver and may also cover damage to other personal property.
• Underinsured Motorist (UIM) protection comes into play when an at-fault driver has liability insurance, but their policy limits do not cover the full extent of the damage to your vehicle. UIM insurance will cover the shortfall in these situations.

To cover lost income

Auto insurance is mandatory in most states, with drivers required to show financial responsibility before hitting the road or registering their cars. The easiest way to satisfy this law is by purchasing a car insurance policy. The minimum coverage limits might help you save on car insurance costs, but you'll be more exposed to the financial risks of an accident.

One of the risks of an accident is the loss of income due to an injury that prevents you from working. Loss of income insurance is an optional coverage that provides financial protection to individuals who experience a loss of income due to unexpected circumstances, such as disability, illness, or accidents. It helps to replace a portion of the policyholder's income when they cannot work.

In the context of auto insurance, there are a few ways to receive compensation for lost income. One way is under bodily injury liability coverage, which covers the medical expenses and loss of income of those you injured in an auto accident. Another way is through uninsured or underinsured motorist coverage, which can help if you are injured in an accident and the other driver is uninsured or underinsured. This type of insurance is required in some states.

Personal Injury Protection (PIP), also known as no-fault insurance, is another way to receive compensation for lost income. PIP is required in certain states and optional in others. It covers your medical expenses after an accident, regardless of who was at fault. PIP allows you to collect lost wages even if you caused the accident, up to the limits of your policy. In New York, for example, your no-fault auto insurance coverage includes 80% of lost earnings from missed work, up to a maximum of $2,000 per month for up to three years from the date of the accident.

It's important to note that not all car insurance policies provide reimbursement for lost wages. Some insurance companies exclude lost wage coverage, so it's crucial to carefully review your policy documents to check if your policy includes or excludes lost wages coverage.

To pay for funeral expenses

In the tragic event of a fatality, auto insurance can help cover funeral costs. The coverage provided depends on the type of insurance, the state where the accident occurred, and the insurance package.

No-Fault States

In no-fault states, the personal injury protection (PIP) coverage of the deceased driver pays for funeral costs. PIP coverage includes a death benefit to cover funeral costs and is available almost immediately to the deceased's legal executor, relatives, or other equitably entitled persons.

At-Fault States

In at-fault states, the bodily injury liability (BIL) insurance of the at-fault driver covers funeral costs up to the policy limit. However, the insurance company must first determine fault before any payments can be made. If the at-fault driver is uninsured, the uninsured motorist insurance of the other party may cover funeral expenses.

Insurance Coverage

Personal injury protection (PIP) and medical payments (MedPay) coverage can help pay for funeral costs. PIP is required in 16 states, including all 12 no-fault states, and covers medical expenses, lost wages, and death benefits. MedPay, required in Maine and New Hampshire, covers medical and funeral expenses for the policyholder and their passengers, regardless of fault.

While auto insurance can help cover funeral costs, it may not be sufficient to cover all expenses. In such cases, the surviving family may need to pursue legal action or file a wrongful death lawsuit against the at-fault driver to seek additional compensation.

Frequently asked questions