Business and Financial News

Compulsory auto insurance is a classic good news/bad news subject. If you need it, you’ll be forever grateful that you had it. Should you be fortunate enough to never have a car accident or any liability issues, you’ll be disappointed with all the monthly premiums you’ve paid. Compulsory auto insurance states—48 of 50—specify the minimum amount of coverage you need.

Always compare insurance quotes to find the best coverage and price for your needs. While maximum auto insurance rates are usually set by individual states, each company can set lower insurance rates to generate more business volume.

Liability Insurance

All but two states in the U.S. (New Hampshire and Florida) require a minimum of liability insurance on automobiles. In one case, Florida, they permit the “liability requirement”—which is legally not a true requirement—to be satisfied by other insurance coverage.

Liability insurance covers you for monetary damages resulting from your actions (or inaction) while driving your auto. Sometimes called “bodily injury” liability insurance, it covers the personal injuries incurred by others because of your actions. This coverage is the prime component in all compulsory insurance states.

The amount of compulsory liability insurance varies by state. This coverage is always displayed in this format: Liability coverage for one person/Total coverage for all injuries in one accident/Amount for property damage in one accident. For example, consider a state, like New York, requiring 25/50/10 minimum auto liability insurance. Drivers must have coverage for at least $25,000 for personal injury, $50,000 for total injuries in one accident, and $10,000 protection for property damage claims.

The only state that does not require mandatory liability insurance, New Hampshire, still recommends basic coverage of 25/50/25. These are the minimum liability insurance levels you can purchase in New Hampshire.

Should you have an “at fault” accident and not have liability coverage, you might have to post a cash or insurance bond equal to the damages you caused. Further, you’ll need to establish “financial responsibility,” typically very expensive, to continue driving your auto in the future.

Therefore, even though New Hampshire does not require compulsory insurance, the minimum you can purchase is 25/50/25 and, after only one “at fault” accident, you’ll need to purchase this coverage or post large cash or a bond to establish your future ability to reimburse people after auto accidents.

Personal Injury Protection (PIP)

Some states, i.e., Florida, Massachusetts, Michigan, also require compulsory PIP insurance. This coverage protects you—not other injured persons—from having to pay for your personal medical expenses if you are injured in an accident. PIP has nothing to do with liability.

It doesn’t matter if you were deemed at fault or not. PIP policies will pay your medical bills up to the coverage limit you purchase.

Even if your state does not require PIP coverage, compare auto insurance rates and consider purchasing this coverage. PIP is typically not overly expensive. If you have health insurance, PIP will pay your medical expenses up to the policy limit, after which your personal health insurance coverage will take over.

PIP coverage can be particularly important in states having “no fault” insurance regulations. In these states, your insurance company will pay for damages, regardless of your fault or innocence for accidents. Insurance quotes may differ in “tort” states, which still establish total or partial fault, and “no fault” states.

Uninsured Motorist Coverage (UM)

UM coverage—also including “underinsured” motorists—protects you and any passengers from personal injury expenses if you’re involved in an auto accident wherein the other driver is deemed at fault and has no or insufficient insurance. Should the other driver have no insurance or cause injury costs above their liability or personal injury limits on their coverage, your UM policy will pay these expenses.

As always, compare auto insurance quotes in your state to locate the best price for the coverage you want. In some cases, you can make property damage coverage a component of your UM protection. This coverage, however, is typically not an automatic feature in UM policies. When you request insurance quotes, you can add this component to learn if you can afford this additional protection.

While some states, i.e., Illinois, Maryland, New Jersey, require UM coverage, most insurance experts recommend that you should choose some UM protection. You have no control of any other driver that may cause you—or your passengers—personal injury.

Further, you won’t know until after an accident if the driver that caused the problem has any insurance at all. Even in compulsory insurance states (48 of 50), motorists, through irresponsibility or insufficient income, still drive their autos without mandatory minimum coverage.

How Much Coverage Should You Buy?

The classic insurance expert advice, “buy as much insurance as you can afford,” is always wise, but somewhat simplistic. Check the minimum coverage required in your state first. Compare auto insurance quotes for the minimum required protection. Then evaluate your financial position.

If the situation is right, consider purchasing more than the minimum to better protect your hard-earned financial position.