Vehicle Insurance in the United States—Coverage Options and Requirements

Vehicle insurance in the United States is a mandatory requirement for all drivers. In most states, drivers must have liability insurance to cover damages to others in the event of an accident.

There are several types of vehicle insurance coverage options, including liability, collision, comprehensive, and personal injury protection. Liability insurance covers damages to others in the event of an accident, while collision and comprehensive insurance cover damages to the policyholder's vehicle itself.

Most states require drivers to have a minimum amount of liability insurance to operate a vehicle legally. This minimum amount varies by state, but it typically includes $25,000 in bodily injury liability per person and $50,000 in total bodily injury liability per accident.

There are three main categories of car insurance types in the US: standard, optional, and additional coverage. These categories help motorists choose the right policies for their needs.

Standard car insurance types are mandatory in most states and include liability insurance, which covers the other driver's property and bodily injuries if you're at fault in an accident.

Liability insurance is required in most states, with a minimum limit of $25,000 bodily injury liability per person, $50,000 bodily injury liability per accident, and $25,000 property damage liability per accident.

Some states follow the "25/50/25 limit", which is a common minimum requirement for liability insurance.

Comprehensive coverage protects your vehicle from non-driving events such as theft or acts of nature, like hail damage.

Collision insurance covers car accidents or collision with a stationary object.

If you take out collision and comprehensive car insurance, along with the state-mandated policies, you are considered to have full coverage.

Here are some common optional car insurance types:

Gap insurance covers the difference between the actual value of the vehicle and the outstanding balance in your car loan.

Some states require additional car insurance types, such as personal injury protection (PIP) or uninsured motorist coverage.

These policies can be added as a rider or endorsement to your standard car insurance policy.

Additional car insurance types can also include roadside assistance, rental car coverage, or new car replacement coverage.

These policies are designed to meet specific needs and can be purchased as a standalone policy or added to your standard car insurance policy.

Ultimately, the right car insurance policy for you will depend on your personal situation and driving habits.

It's essential to consult with an insurance professional or contact your state's Department of Motor Vehicles (DMV) to determine the specific requirements for your state.

State Farm holds the largest market share in the US private passenger vehicle insurance market, accounting for 18.1% in 2017.

GEICO follows closely with a market share of 12.8%, while Progressive Corporation takes third place with 9.8%.

You can secure insurance by working with an independent insurance agent or an authorized insurance broker who can sell policies and represent several agencies or online brokers.

In the United States, State Farm holds a significant market share of 18.1% in the private passenger vehicle insurance market.

GEICO is another major player, with a market share of 12.8%. This means that nearly a quarter of the market is dominated by just two companies.

Progressive Corporation takes third place with a market share of 9.8%. Allstate follows closely with a market share of 9.3%.

USAA rounds out the top five with a market share of 5.7%.

Insurers use actuarial science to determine the rates, which involves statistical analysis of the various characteristics of drivers.

Actuarial science is a complex field that helps insurers assess risk and set premiums accordingly. This means that the rates you pay for insurance are based on a thorough analysis of the data.

Insurers consider many factors, including your driving history, age, location, and even the type of vehicle you drive. The goal is to provide fair and accurate rates that reflect the level of risk associated with each individual or group.

By using actuarial science, insurers can offer a range of rating plans that cater to different needs and circumstances. This way, you can choose a plan that suits your budget and lifestyle.

Rental car companies often offer insurance to cover damage to the rental vehicle, which may be unnecessary if you use a credit card like Visa or MasterCard that provides supplemental collision damage coverage.

In Maine, you're required to have car insurance to rent a car. This is a good reminder to check your insurance coverage before renting a car.

If you're involved in an accident and your vehicle is being repaired, rental car reimbursement insurance can pay for the cost to hire a replacement car. This type of coverage is typically not included in a standard auto policy, but can be purchased as an add-on.

The value of your insured vehicle affects the premiums for full coverage policies, but this coverage usually doesn't apply to rental cars because the insurance company won't assume responsibility for a claim greater than the value of your vehicle.

Full coverage is a term that's often misunderstood. It's a combination of comprehensive and collision coverages, with liability coverage usually implied.

The term "full coverage" is a misnomer because it's not a one-size-fits-all solution. Many different types of coverage exist, and optional amounts for each can vary.

Most financial lenders in the US require collision coverage for financed vehicles, not just liability coverage. This is to protect the lender's interests in case of an accident.

Insurance requirements vary between financial institutions and states. Minimum deductibles and liability limits are outlined in the loan contract.

Failure to carry the required coverages can result in the lienholder purchasing insurance and adding the cost to monthly payments or repossession of the vehicle.

Here's a breakdown of the different car insurance types available in the US:

The concept of car insurance dates back to the late 19th century with the invention of the automobile.

Automotive collisions increased in frequency, leading to the need for laws governing automobiles because there was no way to assure the victim of an automobile collision could collect from the tortfeasor.

Massachusetts and Connecticut created the first financial responsibility and compulsory insurance laws.

Connecticut's 1925 financial responsibility law required vehicle owners involved in a collision with damages over $100 to prove financial responsibility to satisfy any claim for damages.

Massachusetts introduced a compulsory insurance law, requiring automotive liability insurance as a prerequisite to vehicle registration.

Until 1956, Massachusetts was the only state in the U.S. that required drivers to get insurance before registration.

The New York legislature passed their compulsory insurance law in 1956, and North Carolina followed suit in 1957.

Numerous other states passed similar compulsory insurance laws in the 1960s and 1970s.

Since 1925, nearly every state has adopted a compulsory insurance scheme.

The shared/residual market is a safety net for drivers who can't get insurance in the private market. All states and the District of Columbia have special systems to guarantee auto insurance availability through assigned risk plans.

These plans, also known as the shared or residual market, proportionally assign high-risk policyholders to insurance companies doing business in the state.

Motorists can also get auto insurance from the nonstandard portion of the private market, which caters to drivers with a worse than average driving record or those who drive specialized vehicles like high-powered sports cars.

The nonstandard market is made up of small specialty companies and well-known auto insurance companies with nonstandard divisions.

Liability coverage is a crucial aspect of vehicle insurance in the United States. It's designed to provide financial protection if you're found liable for an accident that causes injury, death, or property damage to another person.

Liability car insurance is compulsory in almost all states, and it's considered the foundation of any auto insurance policy. You can increase the coverage amount prior to a loss for an additional charge.

There are two types of liability car insurance: liability car insurance and property damage liability insurance. Liability car insurance covers bodily injury liability, while property damage liability insurance covers damage to another person's property.

Here's a breakdown of the minimum liability limits in some states:

Umbrella liability insurance provides an extra layer of financial protection by covering losses that exceed your coverage limits. It's a good idea to consider adding umbrella coverage to your policy if you're concerned about your existing liability coverage.

A combined single limit combines property damage liability coverage and bodily injury coverage under one single combined limit.

This means that if you're involved in an accident, payments for damages to other people's property and injuries to them would be paid out from the same coverage.

For example, if you strike another vehicle and injure the driver and the passenger, payments for the damages to the other driver's car, as well as payments for injury claims for the driver and passenger, would be paid out under this same coverage.

This type of coverage can simplify the claims process and provide a clearer understanding of your liability limits.

Split limits are a type of liability coverage that splits the coverages into property damage coverage and bodily injury coverage. This means that payments for the other driver's vehicle would be paid out under property damage coverage, and payments for the injuries would be paid out under bodily injury coverage.

The limits are often expressed separated by slashes in the following form: "bodily injury per person"/"bodily injury per accident"/"property damage". For example, California requires a minimum coverage of $15,000 for injury/death to one person, $30,000 for injury/death to more than one person, and $5,000 for damage to property.

Let's take a look at some examples of split limits:

In Oklahoma, for instance, drivers must carry at least $25,000/$50,000/$25,000 liability limits. This means the insurance company will pay $25,000 of one person's medical bills but will not exceed $50,000 for other people injured in the accident.

Liability coverage is the foundation of any auto insurance policy, and it's compulsory in almost all states. It provides financial protection if you're found liable for an accident that causes injury, death, or property damage to another person.

Liability car insurance comes in two types: liability car insurance and property damage liability insurance. Liability car insurance pays for the other person's medical expenses, lost wages, and funeral expenses, while property damage liability insurance covers the cost of repairing or replacing the other person's vehicle.

The minimum liability limits vary from state to state, but they typically include a split limit policy, which splits the coverages into property damage coverage and bodily injury coverage. For example, in California, the minimum coverage is $15,000 for injury/death to one person, $30,000 for injury/death to more than one person, and $5,000 for damage to property.

Here are some common minimum liability limits by state:

Liability coverage also includes bodily injury liability coverage, which pays for the other person's medical expenses, lost wages, and funeral expenses. This coverage is mandatory in almost all states, except for New Hampshire and Virginia, where it's only required if you opt to take out auto insurance.

It's worth noting that umbrella liability insurance provides an extra layer of financial protection by covering losses that exceed your coverage limits. This can be a great addition if you worry your existing liability coverage isn't adequate.

Collision losses can be a significant concern for vehicle owners. The claim frequency for collision losses is expressed as a rate per 100 insured vehicle years.

A vehicle year is equal to 365 days of insurance coverage for a single vehicle. Collision coverage is subject to a deductible, which means you'll have to pay a portion of the repair costs out of pocket.

Impact with a pedestrian has been ruled in prior court cases as a collision with an object. If you're involved in a collision, collision coverage will provide payments to repair the damaged vehicle or pay the cash value of the vehicle if it's not repairable or totaled.

The average loss payment per claim and average loss payment per insured vehicle year under collision coverage for recent model vehicles can be found in the chart below.

If you're looking to add extra protection to your vehicle insurance, consider these additional coverage options. Collision coverage can reimburse you for damage to your car caused by a collision with another vehicle or object.

To cover damage to your own car, you can also purchase comprehensive coverage, which provides protection against theft, fire, flood, vandalism, and other hazards. Glass coverage is another option, which includes no-deductible windshield damage and can also cover side windows, rear windows, and glass sunroofs.

Here are some more specific options to consider:

Medical Payments coverage, also known as MedPay, covers medical and treatment expenses you and your passengers incur in an accident, regardless of who is at fault.

It's optional in all but two states – Maine and Pennsylvania.

MedPay doesn't cover lost income, which is a key difference from other types of coverage.

It can serve as supplemental coverage for your health insurance or as your primary medical insurance after an accident.

If MedPay is supplemental, your health coverage will be used first to cover your medical bills, while MedPay covers the deductibles and co-pays.

MedPay doesn't have a deductible and co-pays, which is a benefit compared to your health insurance.

Optional coverage can be a lifesaver in unexpected situations. You don't need to purchase these coverages, but they can provide additional protection for your vehicle.

Collision coverage reimburses you for damage to your car caused by a collision with another vehicle or object. It won't cover mechanical failure or normal wear-and-tear, but it will cover damage from potholes or rolling your car.

Comprehensive coverage provides protection against theft and damage caused by incidents other than a collision, such as fire, flood, vandalism, or hail.

Glass coverage can be especially useful if you live in an area prone to hail storms or other weather events that can damage your windshield or windows.

Here's a breakdown of the optional coverages you can consider:

Medical payments coverage, also known as MedPay, can help cover medical expenses you and your passengers incur in an accident, regardless of who is at fault. It can serve as supplemental coverage for your health insurance or as your primary medical insurance after an accident.

Mechanical breakdown insurance is an optional coverage that pays for repair costs for major mechanical issues not caused by an accident or normal wear and tear.

It works just like an extended warranty, but is limited to newer vehicles.

This means that if your car's engine fails or its transmission breaks down, you can rely on this coverage to help pay for the repairs.

You'll need to inform your insurer about the issue so they can assess the damage and provide assistance.

This coverage is perfect for people who want extra peace of mind and protection for their vehicle's major components.

It's worth noting that this coverage is separate from roadside assistance coverage, which covers services like towing and labor.

If you want to get your car back to its original condition after an accident, you might consider new car replacement coverage. This type of policy pays out an amount equivalent to the value of a brand-new version of your car.

With new car replacement coverage, you can typically purchase it as an add-on if you already have collision and comprehensive coverage. This option comes with a deductible, so you'll need to factor that in when deciding whether it's right for you.

New car replacement coverage can't be combined with gap insurance, so keep that in mind if you're already purchasing that type of policy. Some people may find that new car replacement coverage is worth the extra cost, especially if they drive a car that depreciates quickly.

Diminishing Deductible is an additional coverage that rewards safe driving practices. It's also known as disappearing or vanishing deductible.

This benefit decreases your deductible amount for every year that you maintain a clean driving record and avoid filing claims.

Usage-based car insurance is a type of coverage that rewards safe driving practices with discounted premiums. By using onboard technology or mobile applications, your driving habits are monitored and your insurance rates are adjusted accordingly.

This type of insurance is designed to align your insurance rates with your driving behavior, making it a great option for those who drive safely and responsibly. You can expect to see lower premiums if you drive less, as the pricing arrangement is based on your mileage.

The less you drive, the lower your premiums, which is a great benefit for those who don't drive as much, such as students or retired individuals.

Custom parts are a great way to personalize your vehicle, but they can be a challenge when it comes to insurance coverage.

This is where custom parts and equipment coverage, also known as CPE, comes in. It's an endorsement added to your collision and comprehensive coverage.

Aftermarket modifications designed to enhance your vehicle's appearance or performance are typically covered under this policy.

This type of coverage is essential for car owners who have invested in custom parts to make their vehicle stand out.