Is Auto Insurance Required?
Auto insurance is no longer a luxury afforded only by those who wish to thwart financial risk in case their expensive cars experience an accident. Decades ago, car insurance was just a way to save a lot of money in case your car was destroyed.
However, in the litigious society we live in and the escalating number of lawsuits against people who caused accidents, states began enacting laws to require auto insurance for all drivers. If you're lucky, you will never have to claim an auto insurance benefit. But without coverage, you could face tremendous financial problems should you ever have an auto accident.
Know your state insurance laws
When you purchase a car, you need to know what coverage you must have in place before you pay the money and drive away. Check with your state and whether it has any mandatory insurance requirements. Most states will require all car owners to carry a minimum of liability coverage on your car insurance in case you are required to pay the other party.
What does the bank require?
Will you be financing your new or used car? If a bank or loan company has a lien on the vehicle, you will need to provide insurance with their specifications at your cost. Generally "full coverage" car insurance is required from lien holders, which includes liability, collision, comprehensive, bodily injury, medical payments, and uninsured driver coverage.
What are required and optional car insurance coverage policies?
A car insurance policy contains many options, and you must determine which coverage policies you want, along with which ones are required by law or your bank.
- Liability - This coverage is usually required by law in most states. Check with your state law to determine what minimum amount of liability auto insurance is required. Liability coverage pays for accidental injury and property damage you cause to others in an accident. Liability coverage also pays for your legal defense and court costs in case of a trial.
- Collision - This coverage pays for damages to your insured vehicle if it is involved in a collision with another vehicle or object.
- Comprehensive - This option pays for damages to your vehicle caused by events other than an accident, such as hail, flood, vandalism, theft, etc.
- Medical - With this coverage policy, your insurance company pays for medical expenses, regardless of who is at fault in an accident.
- Personal Injury - This coverage option pays for your personal medical expenses caused by an accident, regardless of who was at fault.
- Uninsured Motorist - With this coverage option, the insurance company pays for damages caused by another driver without auto insurance.
- Underinsured Motorist - Similar to Uninsured Motorist coverage, this option will pay for repairs when another driver at fault has insufficient liability coverage.
- Rental Reimbursement - With this benefit, you can rent a car for your transportation needs when your automobile is in the shop for repairs. Usually a daily limit and car size is provided.
As mentioned, it is important for you to know the auto insurance coverage minimums required by state law, and any coverage policies required by the bank that finances your automobile. When you are familiar with these types of coverage options, shopping for car insurance will become much easier.
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