Automobile insurance in the United States (also called auto insurance or automobile insurance) is designed to cover the risk of financial responsibility or loss of a motor vehicle that the owner may face if his or her vehicle is involved in a collision that result in property or injury. Physical damage. Most states require the owner of a motor vehicle to carry minimum liability insurance. States where the vehicle owner is not required to purchase auto insurance include Virginia, where an uninsured motor vehicle fee can be paid to the state, New Hampshire, and Mississippi, which allows vehicle owners to post cash deposits ( see below). The Privileges and Immunities Clause of Article IV of the United States Constitution protects the rights of citizens of each respective state when traveling to another. The owner of a motor vehicle usually pays insurers a monthly amount, also known as the insurance premium. The insurance premium a motor vehicle owner pays is typically determined by a variety of factors, including the type of vehicle covered, marital status, credit score, whether the driver rents or owns a home, age, and the sex of the drivers covered, their driving style. history and the location where the vehicle is primarily driven and stored. Most insurance companies will increase insurance premiums based on these factors and offer discounts less frequently.
Insurance companies issue the owner of a motor vehicle an insurance card for the applicable coverage period, which must be kept in the vehicle as proof of insurance in the event of a traffic accident. Recently, states have begun passing laws that allow authorities to accept electronic versions of insurance certificates.
Coverage generally
Consumers may be protected by several levels of coverage depending on the insurance policy they purchase. Sometimes coverage is considered 20/40/15 or 100/300/100. The first two numbers we see are for medical coverage. In the 100/300 example, the policy pays $100,000 per person, up to a total of $300,000 for all people. The last number covers property damage. This property damage may involve the other person's vehicle or anything you hit and damage as a result of the accident. Some states require you to purchase personal injury protection, which covers medical bills, lost time at work, and many other things. You can also purchase insurance if the other driver is uninsured or underinsured. Most, if not all, states require drivers to carry mandatory liability insurance to ensure they can cover the costs of damage to other people or property in the event of an accident. Some states, such as Wisconsin, have more flexible requirements for “proof of financial responsibility.”
Commercial insurance for vehicles owned or operated by businesses works much the same as private auto insurance, with the exception that personal use of the vehicle is not covered. The price of commercial insurance is also typically higher than that of personal insurance, due to the extensive types of coverage offered to business users.
Insurance providers
In the United States in 2017, the largest private passenger auto insurance providers in terms of market share were State Farm (18.1%), GEICO (12.8%), Progressive Corporation (9.8%), Allstate (9.3%) and USAA (5.7%). %). %). Insurance is obtained by working with an independent insurance agent or an insurance broker licensed to sell insurance policies. Some may come from different agencies or from a growing number of online brokers offering policy purchases through online sites.
Liability coverage
Liability coverage, also known as accident insurance, is offered for bodily injury (BI) or property damage (PD) for which the insured driver is deemed responsible. The amount of coverage provided (a fixed dollar amount) varies from jurisdiction to jurisdiction. Whatever the minimum, the insured can usually increase coverage (before a claim) for an additional fee.
An example of property damage is when an insured driver (or a third party) crashes into a telephone pole and damages the pole; Liability coverage pays for damage to the pole. In this example, insured drivers may also be responsible for other costs associated with telephone pole damage, such as loss of service claims (by the telephone company), depending on the jurisdiction. An example of bodily injury is when an insured driver causes bodily injury to a third party and the insured driver is held responsible for the injury. However, in some jurisdictions the third party would first have to exhaust accident benefits coverage through its own insurer (assuming it has one) and/or meet a legal definition of serious damage to qualify for a claim (or bring a lawsuit) under the policy. of the insured driver (or the owner). If the third party sues the insured driver, liability coverage also covers legal fees and damages for which the insured driver may be held responsible.
In some states, such as New Jersey, it is illegal to drive (or knowingly allow another to drive) a motor vehicle that is not covered by liability insurance. If an accident occurs in a state that requires liability coverage, both parties are generally required to bring and/or show copies of insurance cards to the court as proof of liability coverage.
In some jurisdictions: Liability coverage is available as a single-limit combination policy or a split-limit policy:
Combined single limit
A combined single limit combines property damage liability coverage and bodily injury coverage under a combined single limit. For example, a driver insured with a single combined liability limit crashes into another vehicle, injuring the driver and passenger. Benefits for damage to the other driver's vehicle, as well as payments for personal injury claims of the driver and passenger, are paid under the same coverage.
Split limits
A split line liability coverage policy divides the coverages into property damage coverage and bodily injury coverage. In the example above, payments for the other driver's vehicle are paid under property damage coverage and injury payments are paid under bodily injury coverage.
Bodily injury liability coverage is also generally divided into a maximum benefit per person and a maximum benefit per accident.
The limits are generally indicated as follows, separated by bars: "bodily damage per person" / "bodily damage per accident" / "material damage". For example, California requires this minimum lid:
- $15,000 per person, injury/death
- $30,000 for injury/harm/death to more than one person
- $5,000 for property damage
- This would be expressed as “$15,000/$30,000/$5,000.”
As another example, in the state of Oklahoma, drivers must have a minimum liability limit of $25,000/$50,000/$25,000. If an insured driver crashes into a car full of people and is deemed responsible by the insurance company, the insurance company will pay $25,000 of one person's medical bills, but no more than $50,000 for other people injured in the accident. The insurance company will pay no more than $25,000 for property damage for repairs to the vehicle in which the insured crashed.
In the state of Indiana, the minimum liability limits are $25,000/$50,000/$10,000, so there is a greater chance of property damage because only the minimum limits apply.
Rental coverage
Generally, accountability coverage purchased through a private insurer extends to rental cars. Comprehensive policies ("full coverage") also usually apply to the rental car, although this should be checked in advance. Full coverage premiums are based, among other things, on the value of the insured's vehicle. However, this coverage may not apply to rental cars because the insurance company will not want to be responsible for a claim greater than the value of the insured's vehicle, considering that a rental car may be worth more than the owner's vehicle. insured.
Most car rental companies offer insurance to cover damage to your rental car. These policies may be unnecessary for many customers, as credit card companies, such as Visa and MasterCard, now offer additional collision damage coverage for rental cars if the rental transaction is processed with one of their cards. These convenience are restrictive as to the types of vehicles covered.
Maine requires car insurance to rent a car.
Full coverage
Comprehensive coverage is the term commonly used to refer to the combination of comprehensive coverage and collision coverage (liability is usually implied as well). The term full coverage is actually a misnomer because, even within traditional "full coverage" insurance policies, there are many different types of coverage and many optional amounts of each. “Full coverage” is a misnomer that often leaves drivers and vehicle owners woefully underinsured. Most liable insurance agents or brokers do not use this term when working with their clients.
Most financial lenders in the United States require that the vehicle financed have collision coverage, and not just liability coverage, so that the financial institution will cover your losses in the event of an accident. Insurance requirements vary between economic institutions and each state. Minimum deductibles and liability limits (required by some leasing companies) are detailed in the loan agreement. Not having the required coverages may result in the lien holder purchasing insurance and adding the cost to the monthly payments or vehicle repairs. Vehicles purchased with cash or paid for by the owner generally have sole responsibility for liability. In some cases, vehicles financed through a 'buy here, pay here' car dealer, where the consumer (usually those with bad credit) finances a car and pays the dealer directly without a bank, may require extended coverage. the amount owed on the vehicle.
Collision
Collision coverage provides coverage for vehicles related in collisions. A deductible applies to collision coverage. This coverage is intended to provide payments to repair the defective vehicle or pay the cash value of the vehicle if it cannot be defective or totaled. Collision coverage is optional, but if you plan to finance a car or take out a loan, the lender will usually insist that you have collision coverage for the entirety of the car financing until payment is paid off. Collision Damage Waiver (CDW) or Loss Damage Waiver (LDW) is the term used by car rental companies for damage coverage.
In conventional courts, a collision with a pedestrian is considered a collision with an object and is considered a collision claim.
Uninsured/underinsured motorist coverage
Uninsured/underinsured coverage, also known as UM/UIM, provides coverage if the at-fault party is uninsured or underinsured. In effect, the insurance company pays the insured's medical bills and would then be subrogated to the at-fault party. This coverage is often overlooked and is very important. In Colorado, for example, it was estimated in 2009 that 15% of drivers were uninsured. The limits generally coincide with the limits of liability. Some insurance companies offer UM/UIM in an umbrella policy.
Some states maintain unsatisfied judgment funds to provide compensation to those who cannot collect damages from uninsured drivers. Typically, the payment does not exceed the minimum liability limits and the negligent driver remains responsible for reimbursing the state fund.
In the United States, the definition of an uninsured or underinsured driver and the corresponding coverages are set by state laws. In some states it is mandatory. In the case of underinsured coverage, two different triggers apply: a damage trigger that is based on whether the limits are insufficient to cover the injured party's damages, and a limits trigger that applies when the limits are less than the limits. limits of the injured party. According to a 2009 survey by the trade association Property Casualty Insurers Association of America, 29 states have a limits trigger, while 20 states have a damage trigger. Another variation is whether a particular state requires stacking policy limits from different vehicles or policies.
Loan/lease payoff
Loan/lease payoff coverage, also known as GAP coverage or GAP insurance, was created in the early 1980s to provide consumer protection based on purchasing and market trends.
Due to the sharp drop in value immediately after purchase, there is often a period when the amount owed on the car loan exceeds the value of the vehicle, which is called "upside down" or negative equity. So if the vehicle is damaged beyond repair now, the owner may still owe thousands of dollars on the loan. Rising car prices, longer-term auto loans, and the growing popularity of leasing provided GAP protection. GAP exemptions provide protection to consumers when there is a "gap" between the actual value of their vehicle and the amount owed to the bank or leasing company. In many cases, this insurance also reimburses the primary insurance deductible. Car dealers typically offer these policies as a relatively inexpensive addition to your car loan that provides coverage for the life of the loan. However, GAP Insurance does not always pay the full value of the loan. These cases include, among others:
Any unpaid arrears owed at the time of the loss.
Deferring or extending payment (usually skipping or skipping a payment)
Refinance the car loan after purchasing the policy
Late payments or other administrative costs determined after the origination of the loan.
Therefore, it is important for the policyholder to understand that they may still owe a loan even though they have purchased the GAP policy. Failure to understand this could result in the lender pursuing legal action to collect the balance and the possibility of damaging credit.
Consumers should be aware that some states, including New York, require auto lease lenders to include GAP insurance in lease costs. This means that the monthly price quoted by the dealer must include GAP insurance, regardless of whether it is capped or not. However, unscrupulous dealers sometimes take advantage of unsuspecting people by offering GAP insurance at an additional price on top of the monthly payment, without mentioning state requirements.
Additionally, some providers and insurance companies offer so-called "total loss coverage." This is similar to regular GAP insurance, but differs in that instead of paying the negative value of a damaged vehicle, the policy provides a certain amount, usually up to $5,000, toward the purchase or lease of a new vehicle. Therefore, the distinction to a certain extent does not make any difference, that is, in both cases the owner receives a certain sum of money. However, when choosing the type of policy to purchase, the owner should consider whether, in the event of a total loss, it would be more beneficial to him or her for the policy to liquidate negative equity or make a down payment on a policy. new vehicle. .
For example, if we assume a total loss on a vehicle valued at $15,000 but for which the owner owes $20,000, the "gap" is $5,000. If the owner has traditional GAP coverage, the "gap" is "erased" and he or she may purchase or lease another vehicle or choose not to. If the owner has 'Total Loss Coverage', he will have to personally cover the $5000 'gap' and then receive $5000 towards the purchase or lease of a new vehicle, reducing the monthly payments, in the case of financing. or lease, or the total purchase price in case of direct purchase. So, in most cases, the decision about what type of policy to buy will depend on whether the owner can pay the negative equity in the event of a total loss and/or whether he will permanently purchase a replacement vehicle.
Towing
The coverage for towing a vehicle is also called breakdown assistance coverage. Traditionally, auto insurers have agreed to pay only the cost of a towing service related to an accident covered by the auto insurance policy. This left a gap in towing coverage related to mechanical breakdowns, flat tires and fuel failures. To fill that gap, insurance companies have started offering auto towing coverage, which pays for non-accident-related towing.
Personal property
Personal items in a vehicle that are damaged in an accident are generally not covered by auto insurance. Any type of property that is not attached to the vehicle must be claimed under home insurance or renters insurance. However, some insurance companies will cover non-connected GPS devices intended for use in the car.
Cost
The United States auto insurance market is a $308 billion market.
Each state has a different minimum coverage requirement, making auto insurance coverage more expensive in some states than others,[18] but these are still lower than most states' minimum insurance coverage amounts.
In the United States, the average annual insurance cost ranges from $983 in New Hampshire to $2,551 in Michigan.
Additional coverage costs about $1,000 extra per year.
Public policy considerations
The compulsory insurance debate
A brief history of car insurance
In the United States, auto insurance covering liability for personal injury and property damage is required in most states, but different states enforce the insurance requirement in different ways. In Virginia, where insurance is not required, residents must pay the state an annual fee of $500 per vehicle if they choose not to purchase liability insurance. Penalties for failing to obtain insurance vary by state, but often include a significant fine, license and/or registration suspension or revocation, and possible jail time. Typically the legal minimum required is third party insurance to protect third parties against the financial consequences of loss, damage or injury caused by a vehicle.
California and New Jersey have passed Personal Liability Laws that put further pressure on all drivers to carry liability insurance by preventing uninsured drivers from reimbursing non-economic damages (for example, compensation for "pain and suffering"). if they are injured in any way. while driving. a motor vehicle.
North Carolina is the only state that requires a driver to have liability insurance before a driver's license can be issued. In North Carolina, a "fleet license" may be issued if the license holder does not have insurance, but the fleet license only allows the driver to operate vehicles owned and insured by his or her employer. The licensee must submit a state form (DL-123) to prove that he is insured, which requires an insurance agent's signature, plus a ten-dollar fee, to convert the fleet license to a license. complete.
Some states require proof of insurance to be in the car at all times, while others do not. For example, North Carolina does not specify that proof of insurance must be carried in the vehicle; However, it does require that the driver have this information to be able to act in the event of an accident with another driver. In some states, an electronic insurance card can be generated on a smartphone.
John Semmens, project director for the Arizona Department of Transportation Research, has recommended that auto insurers issue plates and be responsible for the full cost of injuries and property damage caused by their licensees under the Disneyland model. The plates would expire at the end of the insurance coverage period and licensees would have to turn them in to their insurance agency to receive a refund of their premiums. Therefore, vehicles circulating without insurance would be easy to detect because they would not have license plates or because the license plates would exceed the marked expiration date.
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