Owning a car provides a sense of personal freedom, but there are responsibilities associated with it as well. Besides gas, licenses and regular maintenance, every state plus the District of Columbia requires drivers to have auto insurance. Understanding the basics of auto insurance can help ensure that you get the coverage you need and the best value for money.
Liability auto insurance is required in the D.C. and in every state except New Hampshire. Driving without insurance can result in stiff legal and financial penalties. However about half of all states also require drivers to carry uninsured motorist insurance to cover damages caused by a driver with no or insufficient insurance. About 20 percent of states require drivers to carry Personal Injury Protection (PIP) to cover medical expenses caused by auto accidents. Finally, Maine and Pennsylvania also require drivers to cover Medical Payments Coverage in addition to PIP.
Like other types of insurance, auto insurance provides monetary protection against hazard and loss. Insurance cannot prevent loss, of course, but it can mitigate the financial blow associated with a covered incident. For instance, if a driver has a car accident, if the driver has insurance, the cost of repairing the car would likely be covered. On the other hand, if the driver did not have insurance, all the car repair expenses would have to be paid out of pocket.
There are three major components to insurance: premiums, policy limits and deductibles. The premium is the amount paid by policyholders, while the policy limit is the maximum amount that the insurance policy will pay, either annually or over the life of the policy. A deductible is the amount that the policyholder must pay before the insurance coverage kicks in. Other factors that affect insurance include the laws of the jurisdiction of the policyholder and the policyholder’s personal circumstances.
Naturally, policyholders want to pay the least amount possible. However, to some extent, auto insurance premiums are determined by factors beyond a policyholder’s control. For instance, drivers who live in areas that are rated as high risk will be charged higher premiums, regardless of the driver’s personal circumstances. Likewise, teenagers are generally charged higher premiums than older drivers, while women generally enjoy lower rates.
Auto insurance premiums are also influenced by choices and actions made by drivers. Drivers who select sports cars, luxury cars or cars that are notorious for being stolen are often required to pay higher premiums; likewise, drivers with numerous moving violations will be required to pay higher premiums. On the other hand, drivers may lower their premiums by “bundling,” or purchasing multiple policies with the same company to receive a discount. Companies also frequently award discounts for drivers with clean driving records, or to students with good grades or who pass a driver’s education course.
Drivers everywhere in the United States, except in New Hampshire, are required to carry minimal liability auto insurance coverage. Other states may require additional insurance to cover medical and other expenses associated with car accidents. Premiums are determined by a number of factors, some of which are beyond a driver’s control. However, drivers can lower their premium costs by maintaining a clean driving record and bundling insurance coverage.