By law, everyone who operates a motor vehicle must be able to pay for damages and hospital bills if there’s an accident in which they’re at fault. For some, this means carrying documentation stating they can pay for the damages themselves. For others, this means having coverage provided by an insurance company that meets the state minimum requirements for being “insured.”
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Do You Have to Have Car Insurance?
Yes, all drivers need to carry some form of insurance, either a policy from an insurance company or proof that they can pay for damages they cause to another driver’s property or person. While all states requiring insurance require liability coverage, the minimum coverage and the minimum categories vary from state to state.
Several states do not legally mandate insurance; however, the lender still might if you borrow money to purchase your vehicle in those regions.
State Car Insurance Requirements
The state with the highest required minimums is Michigan. That state requires all drivers to carry $50,000 in bodily injury protection per person and $100,000 in bodily injury protection per incident. They also need $1 million in property damage protection, far exceeding the minimum in other states.
The state with the lowest required minimums is Virginia, which does not mandate insurance. Any person that opts out of insurance has to pay a $500 fee. Drivers from Virginia are still required to pay for damages they cause in an accident, even though insurance isn’t required.
Why Is Car Insurance Important?
No matter how experienced a driver is, they’re at risk of causing an accident or at risk for being the unfortunate victims of an accident every time they get behind the wheel of a car. While collisions usually aren’t intentional, they are unpredictable, and a driver never knows when they’ll have to call to file a claim.
Collisions are a risk for every driver
While no driver plans to get into an accident on the road, it’s possible anytime a driver operates a motor vehicle. While several things can cause an accident, some common factors include:
- Lack of visibility happens when the driver can’t see other vehicles or obstacles due to blind spots, not checking thoroughly enough, or poor visibility due to weather conditions.
- Poor road conditions are a factor when the roads are slippery after an initial rainfall, the city or county poorly maintains the streets, or roads lack treatment in wintery conditions where black ice is prevalent, invisible, and deadly.
- Impairment is a problem when one abuses substances before driving, has medical emergencies like a stroke or seizure while on the road, or is fatigued.
- A driver fails to leave enough space between cars while driving a vehicle. Leaving adequate space between vehicles is equal to the driver giving themselves enough time to react to an emergency.
An accident can be as simple as someone misjudging how far behind them a car is at the gas pump and backing into them, or icy conditions on the freeway causing a catstrophic pile-up when drivers can’t gain enough traction to stop to avoid the collision.
Car Insurance Helps Pay for Expensive Collision Costs
Suppose someone causes damage because of an accident. In that case, the at-fault person is responsible and must pay for all of their damages, getting them back into their position before the accident occurred.
Damages may include legal fees, vehicle repair bills, city repair bills, expenses due to loss of work, or hospital bills, depending on the accident’s severity. Even the slightest accident can cost the at-fault party thousands of dollars out of pocket. Insurance offers financial protection for those who operate a motor vehicle that doesn’t have thousands of dollars on hand to spend on damages due to an accident that they cause.
Car Insurance Protects You (and Your Passengers) Against Other Drivers
Uninsured motorist and underinsured motorist protection cover an insured and their passengers if there’s an accident and the at-fault party is either without coverage or enough coverage to fully cover the injured party’s damages. This coverage also extends to hit-and-run accidents or incidents when drivers come out to their vehicles in a parking lot to find them damaged.
The Cost of Auto Insurance
Auto insurance prices depend on several factors, the main one being how likely the insurance company will have to pay out on a claim due to a collision for the driver. They determine this by asking questions about the drivers listed on the policy during the quoting phase and pulling reports based on everyone’s driving records and vehicles. The outcome of their research will determine the following:
Auto Insurance Premiums
After the insurance agent pulls all relevant reports and finishes a quote, the system will generate the auto insurance premium. The premium is how much the policyholder will pay monthly for the duration of the policy. The insured’s driving record, and several other factors will determine if the driver is a risk the insurance company is willing to take.
Auto Insurance Deductibles
A deductible is the portion of the repairs the policyholder is responsible for if they need to file a claim. Deductibles usually range from $50 to $5000+ and are something the customer picks when setting up the policy. The deductible also impacts how much a policyholder will pay monthly for their insurance premium. The higher the deductible, the lower the policyholder’s monthly payment.
Auto Insurance Limits
The limits on an auto policy are the maximum dollar amounts in liability coverage that an insurance company will pay in damages if an insured has to file a claim. Like a policy’s deductibles, these are something that an insured picks while setting up their auto policy, and the limits chosen will impact the insured’s monthly payments.
The state mandates the lowest options available for liability coverage which can exceed a million dollars. In general, the higher the limits, the more expensive the policy is for the insured.
Saving Money on Auto Insurance
Insurance companies include discounts for customers as a way for them to save money on their policy overall. While several insurance companies have similar discounts, how each insurance company weighs their discounts to impact the premium varies from company to company. Some of the most common discounts are:
- Good student
- Student away
- Military or federal employee
- Company loyalty
- Insuring multiple cars
- Autopay and paid in full
- Anti-theft equipment
- New car
- Safety equipment
- Telematics or data-gathering plug-ins and apps
- Miles drove per year
Who Needs Auto Insurance
Anyone who operates a motor vehicle, even if they don’t own one themselves, needs auto insurance. Even those that only drive sporadically are at risk of an accident anytime they get behind the wheel. Medical bills and auto repairs can also be expensive and difficult to navigate for the average consumer.
Insurance companies have entire departments designated to aid customers with those functions, all of which are services included in the premium price. Fortunately, there’s a policy to fit every type of need plus additional coverage for those who travel overseas. The parts to an auto policy and different types of policies are as follows:
Common Auto Insurance Coverage Options
Liability coverage is the minimum level of coverage needed to be considered insured. Each state mandates the minimum limits for this coverage, and the maximum limits can exceed a million dollars.
The policy shows this coverage as three amounts separated by slashes, like 100/300/100, with the position of the numbers indicating to which damage category they’ll be applied. The categories are bodily injury per person/bodily injury per incident/property damage per incident, and the numbers represent thousands of dollars worth of coverage for each coverage type.
Liability coverage protects an insured from financial liability by paying for damages caused during an accident. Liability coverage can also pay an insured’s legal fees if they get sued for causing an accident.
Collision coverage is optional. Typically, the policy shows the coverage by a deductible amount on the policy. The deductible can range anywhere from $250 to $5000+, depending on what the insured chooses for the policy. If the insured is at fault in a collision with another vehicle, this is the portion of the damages they must pay before the insurance company pays for the rest.
Please note that an insured will only pay this deductible if they’re at fault for an accident in which their vehicle needs repairs. Without this coverage, any damage caused to an insured’s vehicle due to a collision is an expense the insured would have to pay out of pocket to repair.
Comprehensive coverage is also optional. Like collision coverage, the policy designates the coverage by a deductible amount. The deductible can range anywhere from $50 to $5000+, depending on what the insured chooses for the policy. A deductible is the portion of the repairs the driver is responsible for if their vehicle is damaged.
The coverage will only apply if the damage is due to something other than a collision. Covered losses for this deductible include vandalism, theft, falling objects, fire, hail, flood, natural disaster, or animal contact.
Personal Injury Protection Coverage
Personal injury protection (PIP) is optional coverage that pays out if an insured is in an accident that results in them being unable to go to work or do everyday tasks around the house. The amount of coverage for this category varies from company to company.
Still, the driver could use the payment to pay a babysitter, a housekeeper, or a chef to help manage day-to-day activities. The driver can also use the funds to reimburse the wages they missed due to the accident. This coverage is no-fault coverage, meaning it will pay out if an insured needs it regardless of who was at fault in the accident.
Medical Payments Coverage
Medical payments coverage is an optional coverage that pays out to cover an insured’s and their passenger’s medical payments and deductibles if they were in an accident that required hospital care. These payments also apply to a policyholder injured as a pedestrian.
Underinsured and Uninsured Driver Coverage
Uninsured motorist coverage is optional coverage that pays out if an insured is a not-at-fault party in an accident with someone who doesn’t carry insurance or with someone who doesn’t have enough insurance to cover their damages.
This coverage carries the same limits as liability coverage and looks similar on the policy. The only difference is that these amounts protect the insured, their passengers, and their property instead of paying the other party’s damages.
High-Risk Auto Insurance
High-risk insurance plan is for those drivers considered too high of a risk for insurance companies to want to insure how they insure lower-risk drivers. These policies are for drivers with multiple speeding tickets, DUIs or DWIs, numerous at-fault accidents, or short driving history for insurance companies to determine their driving habits. This type of policy is usually expensive and doesn’t offer a lot of coverage.
Non-owner Auto Insurance
This policy is for those drivers who don’t own their vehicles but rent or drive cars frequently and are still required to show proof of coverage. This policy is often liability only and pays for injuries or damage to other drivers if the insured causes an accident. This type of policy is typically secondary coverage, meaning it would apply after a primary policy pays out. This policy usually only applies to the policyholder and doesn’t extend to other drivers who operate the vehicle.
A personal umbrella policy provides additional liability coverage, usually over a million dollars, to an insured over and above what their home, auto, and other policies cover. For example, if an insured has $500,000 of liability coverage for their auto policy and a million dollars in coverage for an umbrella policy, but they cause $1.2 million in auto damage. The auto policy plus their umbrella coverage would cover all the damages due to the other parties. Some umbrella policies will also protect the insured from liability during overseas travel.