Vehicle insurance in the United States (also known as auto insurance or auto insurance) is designed to cover the risk of financial responsibility or loss to a motor vehicle that an owner may face if their vehicle is involved in a collision. resulting in property or physical damage. Most states require the owner of a motor vehicle to carry a minimum level of liability insurance. States that do not require a vehicle owner to have auto insurance include Virginia, where an uninsured motor vehicle fee can be paid to the state, New Hampshire, and Mississippi, which offers vehicle owners the option of depositing bonuses into cash (see below). The privileges and immunities clause of Article IV of the US Constitution protects the rights of citizens in each respective state when traveling to another. A motor vehicle owner typically pays insurers a monthly fee, often called an insurance premium. The insurance premium paid by a motor vehicle owner is generally determined by a variety of factors including the type of covered vehicle, marital status, credit score, whether the driver rents or owns a home, age and sex of covered drivers, their driving record, and where the vehicle is primarily driven and stored. Most insurance companies will increase insurance premium rates based on these factors and, less often, offer discounts.
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Insurance companies provide the owner of a motor vehicle with an insurance card for the particular coverage period, which must be kept in the vehicle in the event of a traffic collision as proof of insurance. Recently, states have begun passing laws that allow authorities to accept electronic versions of proof of insurance.
Consumers may be protected by different levels of coverage depending on the insurance policy they purchase. Coverage is sometimes seen as 20/40/15 or 100/300/100. The first two numbers you see are for medical coverage. In the 100/300 example, the policy will pay $100,000 per person up to a total of $300,000 for all persons. The last issue covers property damage. This property damage can cover the other person’s vehicle or anything you hit and damage as a result of the accident. In some states, you must purchase Personal Injury Protection that covers medical bills, time lost from work, and many other things. You can also buy insurance if the other driver is uninsured or underinsured. Most, if not all, states require drivers to carry mandatory liability insurance coverage to ensure their drivers can cover the cost of damage to other people or property in the event of an accident. Some states, like Wisconsin, have more flexible “proof of financial responsibility” requirements.
Commercial insurance for vehicles owned or operated by companies works much like private auto insurance, with the exception that personal use of the vehicle is not covered. Commercial insurance prices are also typically higher than private insurance, due to the expanded types of coverage offered to business users.
In the United States in 2017, the largest private passenger vehicle 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 secured by working with an independent insurance agent or insurance broker who is licensed to sell insurance policies. Some may represent multiple agencies or a growing number of online brokers that offer policy purchases through online sites.
Liability coverage, sometimes known as accident insurance, is offered for bodily injury (BI) or property damage (PD) for which the insured driver is held responsible. The amount of coverage provided (a fixed dollar amount) will vary from jurisdiction to jurisdiction. Whatever the minimum, the insured can generally increase coverage (before a loss) for an additional charge.
An example of property damage is when an insured driver (or a first party) drives 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 expenses related to damage to the telephone pole, such as claims for loss of service (by the telephone company), depending on the jurisdiction. An example of bodily injury is when an insured driver causes bodily harm to a third party and the insured driver is held liable for the injuries. However, in some jurisdictions, the third party would first exhaust coverage of accident benefits through their own insurer (assuming they have one) and/or would have to meet a legal definition of severe disability to be entitled to claim (or sue) under the policy of the insured driver (or the first party). If the third party sues the insured driver, liability coverage also covers court costs and damages for which the insured driver may be held liable.
In some states, such as New Jersey, it is illegal to operate (or knowingly allow someone else to operate) a motor vehicle that does not carry liability insurance coverage. If an accident occurs in a state that requires liability coverage, both parties are generally required to bring and/or send copies of insurance cards to court as proof of liability coverage.
In some jurisdictions: Liability coverage is available as a single limit combination policy or as a split limit policy:
Combined Single Limit
A combined single limit combines property damage liability coverage and bodily injury coverage under a single combined limit. For example, a driver insured with a combined single limit of liability hits another vehicle, injuring the driver and passenger. Payments for the damage to the other driver’s car, as well as payments for injury claims for the driver and passenger, would be paid under this same coverage.
A split limit 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 would be paid under property damage coverage and payments for injuries would be paid under bodily injury coverage.
Bodily injury liability coverage is also often divided into a maximum payment per person and a maximum payment per accident.
Limits are often expressed separated by slashes as follows: “bodily injury per person”/”bodily injury per accident”/”property damage.” For example, California requires this minimum coverage:
- $15,000 for injury/death to one person
- $30,000 for injury/death to more than one person
- $5,000 for damage to property
This would be expressed as “$15,000/$30,000/$5,000”.
As another example, in the state of Oklahoma, drivers must have at least $25,000/$50,000/$25,000 state minimum liability limits. If an insured driver hits a car full of people and the insurance company determines they are at fault, the insurance company will pay $25,000 of one person’s medical bills, but not to exceed $50,000 for other people injured in the accident. The insurance company will not pay more than $25,000 for property damage repairs to the vehicle that the insured hit.
In the state of Indiana, the minimum liability limits are $25,000/$50,000/$10,000, so there is a greater exposure to property damage just for meeting the minimum limits.
Generally, liability coverage purchased through a private insurer extends to rental cars. All-risk policies (“full coverage”) usually apply to the rental vehicle as well, although this should be checked in advance. Full coverage premiums are based, among other factors, on the value of the insured’s vehicle. This coverage, however, cannot be applied to rental cars because the insurance company does not want to assume responsibility for a loss greater than the value of the insured’s vehicle, assuming that a rental car may be worth more than the insured’s vehicle.
Most car rental companies offer insurance to cover damage to the rental vehicle. These policies may be unnecessary for many customers, as credit card companies, such as Visa and MasterCard, now provide additional collision damage coverage for rental cars if the rental transaction is processed using one of their cards. These benefits are restrictive as to the types of vehicles covered.