Types Of Car Insurance In The USA

 Types Of Car Insurance In The USA

Joe Terrell 17th August, 2018 Home » Beginner GuidesFacebookTwitterPin ItMail

Learn the secrets of choosing the right car insurance coverage for you, and your ride with our comprehensive car insurance guide.

Liability insuranceNo-Fault Insurance and PIPPIP Medical Expenses InsuranceCatastrophic Medical Insurance PolicyUninsured / Under-insured Motorist InsuranceCollision InsuranceComprehensive InsuranceLoan / lease pay-offMiscellaneous Extra Insurance

car insurance

The purpose of car insurance is to cover the risk of financial liability and the loss of a motor vehicle if the owner or driver is involved in a collision.

The car owner pays their insurer a monthly fee, called a premium. Premiums are calculated using a variety of factors. This includes the type of vehicle covered, the age and gender of drivers to be covered, their driving history and the location where the car is driven and stored.

Most insurance companies will potentially offer premium discounts based on these elements, credit scores are also taken into account. Most US states require motorists to carry a minimum level of liability insurance.

TRACK DAY ENTHUSIAST? LIKE TO PUSH YOUR CAR TO THE LIMIT? YOU MY FRIEND, NEED SOME TRACK DAY INSURANCE.

If you are a motorist in a state where car insurance is compulsory, you must provide proof of cover at the time of vehicle registration and may be required to carry it with you at all times. Electronic equivalents are also accepted by the authorities in some US states.

There’s no doubt that buying car insurance is more complicated in the United States than most other countries. With this in mind, let’s take a look at the different types of car insurance available in America:

1. Liability insurance

Liability insurance, which is sometimes known as Casualty insurance, includes bodily injury liability (BI), which means injuries you cause to somebody else and property injury liability (PD), which refers to damage caused to someone else’s property, including other vehicles.

Liability insurance is one of the most important types of car insurance as it is compulsory in most US states, however, it does not necessarily include unlimited liability.

In some states, such as New Jersey, it is illegal to operate (or knowingly allow another person to operate) an automobile without valid liability insurance cover. In some areas, liability insurance is available either as a combined single limit policy or as a split limit policy.

Looking to tow your vehicle? Try these vehicle towing specialists.

Minimum levels of liability insurance are set in most states but are often inadequate. So-called “responsibility” limits are set by each state for death or injury to a single person, death or injury to more than one person and property damage in excess of a certain amount.

This means that if your liability after an accident exceeds your amount of insurance and you have personal assets, then these are used to pay damages, if necessary until you’re bankrupt. Lawsuits can often run into millions of dollars, with most of the money going to litigation lawyers.

Liability limits can usually be raised significantly if you agree to pay a small additional premium. In order to protect yourself against astronomical damage claims, you can also take out a personal liability umbrella policy which will increase your liability limits to a level that covers almost any event.

auto insurance

2. No-Fault Insurance and PIP

Other notable types of car insurance are no-fault insurance and Personal Injury Protection (PIP). These are required under the laws of 25 US states and the District of Columbia.

Under these erms, if you’re involved in an accident you can claim (up to certain limits) from your own insurance company for injuries sustained, instead of going to court and having to prove that the other party was at fault.

In states without a no-fault law, the victim files a claim against the other driver, irrespective of whether or not the driver is insured and is only paid when it can be proven that the other driver was responsible for the accident.

If you weren’t at fault and you can prove this by producing witnesses or a Police prosecution of the other motorist, then be sure to inform your insurance company as soon as possible so you don’t lose your no-claims discount.

In some states, PIP insurance is compulsory and only covers bodily injury, but not vehicle damage. Those insured under PIP will receive a prompt payment from their own insurance company, however, their right to sue for general damages is usually restricted.

Motorists that are insured in states with liability laws should check that their insurance covers them when traveling to states with no-fault laws. Most insurance companies will automatically extend their policies to cover states with no-fault laws.

PIP cover may duplicate the insurance provided by health or disability insurance policies because it provides benefits for medical and hospital costs (the level depends on your policy).

It also covers lost wages or income continuation, replacement / essential services, survivors’ loss / death benefit and funeral expenses. Lost wages and replacement services are payable to a maximum amount in a maximum period.

mustang

3. PIP Medical Expenses Insurance

his provides Personal Injury Protection cover for medical expenses only, making it one of the cheaper types of car insurance.

This option covers the medical expenses of anyone injured when traveling in your automobile regardless of fault. Depending on your policy, it may also pay your medical bills when you or your family are traveling in someone else’s car or if you’re hit by a vehicle when out walking.

4. Catastrophic Medical Insurance Policy

This is designed to cover abnormally high medical insurance bills and it is advisable to take this policy out if your current health insurance has limitations.

5. Uninsured / Under-insured Motorist Insurance

These types of car insurance, also known as UM / UIM, protect you against accidents with uninsured motorists and hit-and-runs (whether you are driving or walking).

Uninsured drivers’ laws are in operation in many states and require insurance companies to include in their basic policies cover against damages caused by motorists who are either not insured or do not have the required level of insurance. This means that the insurance company will pay the insured medical bills, which they then claim back from the at-fault motorist.

However, in many US states, the penalties for driving without insurance are very low, or there may be no penalty at all unless you have an accident.

Therefore, many drivers take the risk and decline to pay the high insurance premiums. For example in Colorado in 2009, it was estimated that 15% of drivers were uninsured.

The definition of an ninsured or underinsured driver and the corresponding cover are set by state laws. Some states keep an “unsatisfied judgement fund” to provide compensation to those who are unable to collect damages from the uninsured driver.

The pay-out is usually not more than the minimum liability limits and the negligent driver is still responsible for reimbursing the state fund.

...................................................

In terms of underinsured coverage, there are two different triggers – a damages trigger and a limits trigger. If the at-fault motorist has insufficient insurance to cover injuries or damages to property, then UIM will kick in. But if the driver has sufficient assets, you can still sue them.

6. Collision Insurance

This covers damage caused to your own vehicle in a collision, regardless of who was responsible. Collision cover usually has an excess, which is deductible, so the higher the excess, the lower your premium.

It is designed to pay for repairs to the damaged vehicle or a payment of the cash value of the car will be made if it is beyond repair or written off.

The necessity of collision insurance depends on the age of your car and whether you currently have collision cover, in which case you don’t usually need uninsured motorist insurance.

However, if you plan on renting a vehicle or taking out a car loan then the lender will usually insist that for pay for collision coverage during the rental period or until the loan is paid off. Rental companies call these types of car insurance Collision Damage Waiver (CDW) or Loss Damage Waiver (LDW).

7. Comprehensive Insurance

This provides for the loss of an automobile which is not a result of a collision with another vehicle. Hazards covered include fire, theft (or attempted theft), vandalism, riots, explosions, collisions with animals, falling objects plus accidental glass breakage, such as from stones thrown up by another car. Some insurance companies also take into account “Acts of God”, such as storms, floods, hurricanes, and earthquakes. You name it, they’ve got it covered! It is also required by rental companies, but collision insurance is not a requirement alongside this.

Comprehensive cover usually has a lower excess than collision cover so it is a viable alternative. Comprehensive and collision insurance can also be combined to form “full coverage”, which also includes liability insurance. You can learn more about it and where to get cheap full coverage insurance here. However, it encompasses different types of coverage with optional amounts of each, so this option may lead to you being underinsured.

8. Loan / lease pay-off

Loan/lease pay-off, also known as GAP coverage, began in the 1980s to provide protection to consumers based on buying and market trends. The escalating price of cars, longer-term auto loans and the increasing popularity of leasing led to the creation of GAP.

Due to the sharp depreciation in value which immediately follows the purchase of a car, there is usually a period in which the amount owed on a car loan exceeds the value of the vehicle. This is called “upside down” or negative e