No one wants to think about the worst-case scenarios in life. However, roughly 3 million car accidents take place within the U.S. every year. While researching and choosing an auto insurance policy can be time-consuming and tedious, finding the right provider and plan could protect you from significant expenses down the road. Plus, every state within the U.S. requires some form of auto insurance or proof of assets to pay for damages.
Auto Insurance 101
At the most fundamental level, auto insurance provides financial protection against any damage or injury caused by you or anyone operating your vehicle. Though not mandatory in many states, car insurance policies can also cover damage or injury caused to you or your property by another person, animal, object, or natural occurrence.
Car Insurance Laws by State
In the U.S., there are no federal laws regarding auto insurance. However, in 49 out of 50 U.S. states, the state government requires all drivers to purchase car insurance. The one exception is New Hampshire, where drivers don’t need car insurance, but if they don’t take out a policy, they must be able to prove they have sufficient assets to pay for damages should an accident occur.
However, different states have different requirements for what auto insurance plans must include. Where car insurance is required, every driver must have the following forms of coverage:
- Bodily Injury Liability– If you are found at fault for an accident, this form of liability insurance covers expenses associated with injuries and fatalities. This can include medical bills, compensation for lost wages, and funeral costs.
- Property Damage Liability– As the name suggests, property damage liability pays for damages that you cause to another person’s property. “Property” includes their vehicle, but also objects such as fences.
Two additional forms of car insurance coverage are required in many states, but not all. If you rent or lease a vehicle, keep in mind that the lender can require these coverage types even if the state does not.
- Personal Injury Protection (PIP): If you or your passengers are injured in an accident, PIP reimburses your medical expenses, lost wages, and funeral costs in the case of a fatality.
- Uninsured/Underinsured Motorist Protection: Should an uninsured or underinsured driver hit you or your vehicle, this form of insurance reimburses your medical expenses. In hit-and-run accidents, this type of coverage comes into play.
Many people include coverage options in their insurance plans that are not required by law. The two most common non-required forms of coverage are:
- Collision Coverage– Collision coverage covers damage liability to your vehicle caused by direct accidents, such as collision with another vehicle. While the general insurance takes care of the other car in such instances, collision coverage takes care of yours.
- Comprehensive Coverage– Aside from collisions, other circumstances can cause damage to your vehicle. To protect yourself from having to pay out of pocket for car repair or replacement for these instances, make sure you have comprehensive car insurance. This form of coverage reimburses you if theft, vandalism, or natural occurrences, such as storms, cause damage to your car.
What Can Car Insurance Providers to Base Rates On?
Like any other business, auto insurance providers cannot discriminate based on factors like race and religion. However, that doesn’t mean they can’t base policy rates and premiums on your circumstances and demographics. Care insurance providers typically consider the following factors:
- Credit score
- Driving record
- Location (this indicates local traffic patterns, crime rates, and weather)
- The make, age, and condition of your vehicle
- How far and how often you drive
How to Shop Auto Insurance Options
With so many national and local auto insurance providers out there, it can be difficult to pick the right provider and policy. Before committing to anything, do your research, assess your needs, and decide which additional coverage options you want to include in your plan.
While weighing your options and requesting quotes from different providers, ask your insurance agent the following questions:
- What is the upfront coverage amount and the monthly deductible amount?
- Can the policy be canceled, and if so, within what time frame?
- Are there any hidden conditions that you need to know about?
With this information and tips in mind, you’ll have no problem assessing your options and purchasing the insurance policy that is right for you.