Did you know that having car insurance is mandatory in most states? Car insurance is a civic responsibility that protects you, your loved ones, and the local community. Aside from complying with state law, it can also bring you financial protection and peace of mind in the event of an accident, whether or not it was caused by you or someone else.
Learn everything you need to know about the importance of car insurance, the difference between policies, and even a few suggestions on how to get car insurance that best fits your budget and needs. Remember that if you drive, you must have a car insurance policy that at least meets the minimum coverage required by your state’s law.
The importance of car insurance
Driving without insurance can lead to several large risks that should not be ignored. These include:
- Expensive traffic tickets.
- Driver's license suspension.
- Having your car impounded.
- Penalties or even jail.
If you drive, you need to have car insurance. Plain and simple. Although some people think that having car insurance can be too expensive, or believe they might not qualify for one, this is not true!
Some insurance companies offer policies that:
- Can be adapted to your budget and needs.
- Only ask for a photo ID and the details of the car to be insured.
FACT: 48 of the 50 states in the United States mandate that car insurance is legally required to drive.
Keep in mind: DON’T PUT YOURSELF AT RISK. Auto insurance could offer you security, protection, and financial peace of mind in the event of an accident. If you are ever at fault for an accident in your vehicle, insurance will help you pay for any resulting repairs and/or medical care, whether for you, your passengers, and/or third parties involved.
Insurance policies and their functions
The first step in understanding a car insurance policy is to learn about its coverage and terms. Some of these policies may be required by law and some may be optional.
There are different types of car insurance policies, and each of them has different functions. Two important categories of insurance policies are:
1. Liability car insurance coverage policies
This type of policy covers damages and injuries to other people and their property in the event of an accident caused by you (this type of insurance is required by law in almost every state).
Liability car insurance coverage pays for bodily injury and/or property damage. Bodily injury includes medical expenses and, sometimes, even lost wages. Property damage includes damage to vehicles and any other property, such as accidentally hitting a fence in someone's driveway. This policy may also cover legal costs. State law determines the minimum liability coverage you should have, however it is advisable to get a larger liability coverage than what the state requires.
2. Collision coverage policies
Collision coverage covers damage to your vehicle sustained during an accident, whether you are at fault or not. It DOES NOT cover damage to another vehicle or other situations where your car could be damaged, such as hitting an animal, flood and hail, theft and fire.
One of the main reasons people want car insurance, as per our community surveys, is to cover any damage made to their vehicles in the event of an accident.
You can also include additional coverage options to your car insurance policy, such as:
- "Uninsured Motorist”: It covers damages to your vehicle in the event of a car accident caused by a driver who does not have liability insurance.
- "Underinsured Motorist”: It covers damages to your car or bodily harm in the event of a car accident caused by a driver who has liability insurance that does not cover all of the resulting expenses.
Keep in mind: The first step in selecting a car insurance policy is to know what your state requires. This will help guide you on what type of insurance you need in order to drive your car. However, it’s worth mentioning that the minimum coverage requirements are usually very low, so you should probably consider a higher coverage policy. After all, the whole point of car insurance is to avoid getting into debt after an accident and being underinsured could lead to this situation.
Minimum coverage by state
The vast majority of states require liability insurance (also known as third-party damage coverage).
Your insurance agent will probably show you the coverage of their policies as a series of numbers such as "20/40/10." Each of these numbers represents the limit of coverage in thousands of dollars (i.e. $20,000/$40,000/$10,000):
- The first number refers to the "bodily injury liability per person", meaning that the amount stated is the limit that the insurance will cover for each person injured in an accident.
- The second number is the "bodily injury liability for all persons", meaning that this is the limit of what your insurance will pay for if more than one person is injured in the accident.
- The third number refers to the "property damage coverage", which is the maximum amount that your insurance will cover for damages to other vehicles and/or property.
In the example set out above, 20/40/10 means that you are covered for up to $20,000 per person injured in an accident, up to a maximum of $40,000 in bodily injury coverage (for more than one injured person), and up to a maximum of $10,000 in property damage coverage.
Now that you can better understand how coverage amounts are expressed, here’s a list of the minimum coverages for each state:
New Hampshire 25/50/25
New Jersey 15/30/5
New Mexico 25/50/10
New York 25/50/10
North Carolina 30/60/25
North Dakota 25/50/25
Rhode Island 25/50/25
South Carolina 15/30/10
South Dakota 25/50/25
West Virginia 20/40/10
Most experts agree that having the minimum coverage as per your state’s guidelines can be very risky. We recommend paying a little more for broader coverage that will guarantee better protection for yourself, your loved ones, and your assets.
Comparing and selecting insurance policies
Once you understand the minimum requirements in your state, evaluate your own needs so that you can better protect yourself and your family. Remember, having the right coverage can help you pay for expenses that could arise in the event of a car crash or other event, such as a car theft, and prevent large financial losses.
Now that you understand the types of coverage that car insurance provides, you need to familiarize yourself with the concept of a "deductible":
- A deductible is a fixed amount that you pay out of pocket before your coverage can pay for the rest of the damage.
- All insurance policies have a deductible. For example, if you have an accident that causes $2,500 in damages and your deductible is $500, you will have to pay $500 and your insurance will cover the remaining $2000.
- A higher deductible could result in cheaper premiums (monthly payments).
- This is important to consider and help you understand how much you can afford to pay in the event of an accident or car theft.
Things you should keep in mind when choosing a car insurance policy:
- Know your state car insurance requirements, consider your budget and what works best for your situation.
- Consider the coverage options available and pricing, the company’s reputation and customer service reviews when choosing a car insurance company and policy.
- Know that your insurance only provides protection for the vehicle and driver(s) listed on the policy — if you buy a new car or sell your current car, you’ll need to modify your policy.
- Make sure your insurance company provides good customer service in your preferred language and has a wide network of offices. You deserve car insurance that offers more than financial protection and security.
How to pay less for your insurance
We understand that adding more options to your insurance policy can add up. However, you’re in luck! Here are a few things you can do to help lower your insurance costs.
- Learn which car models are considered “safer” to insurance companies. Insurance companies know that there are specific car models that are more prone to problems, such as needing more mechanical work or even more likely to be stolen. If you are planning on purchasing a new car, ask an insurance agent which car models are considered "safer" by their company.
- Ask about any available discounts! Most insurance companies offer discounts for different reasons, such as being a student, having more than one car insured with the same company, or not having a record of being involved in car accidents.
- Consider carpooling or using public transportation to get to work. The less you use your car, the less you pay for car insurance as the company will consider you a lower risk.
- Last but not least: drive with caution!
Keep in mind: Don’t be shy about asking questions! Ask your insurance company about the discounts they offer — this could save you a lot of money without much effort.
Your insurance policy
Now that you’ve chosen your insurance policy, you should always keep a copy in your car's glove compartment. Here’s some of the important information it contains:
- Policy period: The most common coverage period is six months. As long as you pay on time your coverage will remain active. Remember to keep the current version of your policy in the car at all times.
- Covered vehicles and drivers: This list shows the vehicle(s) covered by the policy and the insured drivers.
- Premium: The premium is the amount of money an insurance company charges in exchange for providing coverage — it can be paid at once or in multiple installments depending on your contract.
- Coverages: If your policy covers more than one car, the coverage for each will be shown separately.
- Discounts: This section lists the discounts and credits that apply to your insurance policy.
Keep in mind: Purchasing an auto insurance policy doesn't have to be a confusing process. The main thing you should look out for is sufficient coverage.
What to do in case of an accident
Even though we wouldn't want you to be involved in a car accident, we want to offer you some recommendations on what you can do. Here’s a simple list for you to write down and keep in your car for quick reference:
1. Keep calm: This is the first step in protecting yourself, your passengers, and other drivers.
2. Ask if anyone has been injured: If that’s the case, immediately call 9-1-1 to request an ambulance.
3. Take precautionary measures: Turn on your hazard lights, park your car in a visible spot (if possible), and turn off your engine. This helps reduce the potential hazards that could happen immediately after an accident.
4. Exchange personal information with the other driver: Write down the make, model, and license plate of the other car as well as the name, address, and driver's license number of the other driver. If possible, also ask for the insurance company and policy number. If you wish, you can also wait until the police arrive to exchange this information.
5. Write down the details of the accident on paper: Include the time, date, and location of the accident; weather and road conditions; speed limits; people and cars involved; and, if any, also property damage and/or bodily injury associated with the accident.
6. Cooperate with the police or any other authority that is present: you have the right to be treated with dignity.
7. Report the accident to your insurance agent: They will tell you the steps to take in order to start the claims process.
Keep in mind: Being in an accident can be very troubling. In no way should you admit guilt to the other driver or the police without first talking to your lawyer or insurance agent.
Covers the expenses to fix damage to your car when colliding with another vehicle or object. It does not cover expenses for third-party injuries or property damage.
Property damage coverage
Covers the repair or replacement of third-party property damaged by the insured or another person included in the policy. It does not cover the damages to your own vehicle. When combined, liability and property damage coverages are called ”liability insurance”.
Covers damage caused to your car for any reason EXCEPT a car accident. A few examples include: vandalism, fire, flood, falling objects, hurricane, collision with animals, broken glass, among others.
Covers the amount to be paid when a court declares the insured liable for damages caused to third parties. It also covers the legal defense fees of the insured at trial.
Personal injury protection (PIP)
Also known as no-fault insurance, it covers medical expenses regardless of who's at fault. It can often include lost wages.
The amount to be paid by the insured for the losses covered by the policy before the insurer pays the remainder of the expenses.
The instances or items that are not covered by the policy. It’s very important to know what exclusions your current car insurance policy has.
The amount that you must pay to the insurer in exchange for coverage.
Many states have ”no-fault” laws, which allow accident victims to claim medical or hospital expenses directly from their insurers, regardless of who was at fault.