Vehicle insurance, in the United States and elsewhere,
is designed to cover risk of financial liability or the loss of a motor
vehicle the owner may face if their vehicle is involved in a collision
resulting in property or physical damages. Most states require a motor
vehicle owner to carry some minimum level of liability insurance. States
that do not require the vehicle owner to carry car insurance include
Virginia, where an uninsured motor vehicle fee may be paid to the state;
New Hampshire, and Mississippi which offers vehicle owners the option
to post cash bonds (see below). The privileges and immunities clause
of Article IV of the U.S. 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 a motor vehicle owner pays is usually determined
by a variety of factors including the type of covered vehicle, the age
and gender of any covered drivers, their driving history, and the
location where the vehicle is primarily driven and stored. Credit scores
are also taken into consideration. Most insurance companies offer
premium discounts based on these factors.
Insurance companies provide a motor vehicle owner with an insurance
card for the particular coverage term which is to be kept in the vehicle
in the event of a traffic collision
as proof of insurance. Recently, states have started passing laws that
electronic versions of proof of insurance can now be accepted by the
authorities.
Coverage generally
Consumers may be protected by different levels of coverage depending
on which insurance policy they purchase. Coverage is sometimes seen as
20/40/15 or 100/300/100. The first two numbers seen are for medical
coverage. In the 100/300 example, the policy will pay $100,000 per
person up to $300,000 total for all people. The last number covers
property damage. This property damage can cover the other person's
vehicle or anything that you hit and damage as a result of the accident.
In some states you must purchase Personal Injury Protection
which covers medical bills, time lost at work, and many other things.
You can also purchase insurance if the other driver does not have
insurance or is under insured. Most if not all states require drivers to
carry mandatory liability insurance coverage to ensure that their drivers can cover the cost of damage to other people or property in the event of an accident. Some states, such as Wisconsin, have more flexible "proof of financial responsibility" requirements.
Insurance providers
In the United States in 2015, the largest vehicle insurance providers, in terms of market share, were State Farm Insurance, Liberty Mutual Insurance, Allstate, Berkshire Hathaway (which operates as Geico), and The Travelers Companies. Insurance is secured either by working with an independent insurance agent or with an insurance broker who is authorized to sell insurance policies. Some can represent from several agencies, like Guy Carpenter & Company or a growing number of online brokers who provide policy purchases through sites like Quote.com and Walmart.
Liability coverage
Liability coverage, sometimes known as Casualty insurance,
is offered for bodily injury (BI) or property damage (PD) for which the
insured driver is deemed responsible. The amount of coverage provided
(a fixed dollar amount) will vary from jurisdiction to jurisdiction.
Whatever the minimum, the insured can usually increase the coverage
(prior to a loss) for an additional charge.
An example of property damage is where an insured driver (or 1st
party) drives into a telephone pole and damages the pole; liability
coverage pays for the damage to the pole. In this example, the drivers
insured may also become liable for other expenses related to damaging
the telephone pole, such as loss of service claims (by the telephone
company), depending on the jurisdiction. An example of bodily injury is
where an insured driver causes bodily harm to a third party and the
insured driver is deemed responsible for the injuries. However, in some
jurisdictions, the third party would first exhaust coverage for accident
benefits through their own insurer (assuming they have one) and/or
would have to meet a legal definition of severe impairment to have the
right to claim (or sue) under the insured driver's (or first party's)
policy. If the third party sues the insured driver, liability coverage
also covers court costs and damages that the insured driver may be
deemed responsible for.
In some states, such as New Jersey, it is illegal to operate (or
knowingly allow another to operate) a motor vehicle that does not have
liability insurance coverage. If an accident occurs in a state that
requires liability coverage, both parties are usually required to bring
and/or submit copies of insurance cards to court as proof of liability
coverage.
In some jurisdictions: Liability coverage is available either as a combined single limit policy, or as a split limit policy:
Combined single limit
A combined single limit combines property damage liability coverage
and bodily injury coverage under one single combined limit. For example,
an insured driver with a combined single liability limit strikes
another vehicle and injures 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.
Split limits
A split limit liability coverage policy splits the coverages into
property damage coverage and bodily injury coverage. In the example
given above, 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.
Bodily injury liability coverage is also usually split into a maximum payment per person and a maximum payment per accident.
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 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".
Another example, in the state of Oklahoma, drivers must carry at least state minimum liability limits of $25,000/$50,000/$25,000.
If an insured driver hits a car full of people and is found by the
insurance company to be liable, 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. The insurance company will not pay more
than $25,000 for property damage in repairs to the vehicle that the
insured one hit.
In the state of Indiana, the minimum liability limits are $25,000/$50,000/$10,000,so there is a greater property damage exposure for only carrying the minimum limits.
Rental coverage
Generally, liability coverage purchased through a private insurer
extends to rental cars. Comprehensive policies ("full coverage") usually
also apply to the rental vehicle, although this should be verified
beforehand. Full coverage premiums are based on, among other factors,
the value of the insured's vehicle. This coverage, however, cannot apply
to rental cars because the insurance company does not want to assume
responsibility for a claim greater than the value of the insured's
vehicle, assuming that a rental car may be worth more than the insured's
vehicle.
Most rental car 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 supplemental collision damage coverage to rental cars if
the rental transaction is processed using one of their cards. These
benefits are restrictive in terms of the types of vehicles covered.
Maine requires car insurance to rent a car.
Full coverage
Full coverage is the term commonly used to refer to the combination
of comprehensive and collision coverages (liability is generally also
implied.) The term full coverage is actually a misnomer because, even
within traditional full coverage insurance, there are many different
types of coverage, and many optional amounts of each. "Full coverage" is
a layman's misnomer that often results in drivers and vehicle owners
being woefully underinsured. Most responsible insurance agents or
brokers do not use this term when working with their clients.
One common misconception in the United States is that vehicles that are financed on credit through a bank or credit union
are required to have "full" coverage in order for the financial
institution to cover their losses in case of an accident. Insurance
requirements vary between financial institutions and each state. Minimum
deductibles and liability limits (required by some leasing companies)
would be outlined in the loan contract. Failure to carry the required
coverages may lead to the lienholder purchasing insurance and adding the
cost to the monthly payments or repossession of the vehicle. Vehicles
purchased with cash or paid off by the owner are generally required to
only carry liability. In some cases, vehicles financed through a "buy-here-pay-here" car dealership—in
which the consumer (generally those with poor credit) finances a car
and pays the dealer directly without a bank—may require comprehensive
and collision depending on the amount owed for the vehicle.
Collision
Collision coverage provides coverage for vehicles involved in collisions. Collision coverage is subject to a deductible.
This coverage is designed to provide payments to repair the damaged
vehicle, or payment of the cash value of the vehicle if it is not
repairable or totaled.
Collision coverage is optional, however if you plan on financing a car
or taking a car loan, the lender will usually insist you carry collision
for the finance term or until the car is paid off. Collision Damage Waiver (CDW) or Loss Damage Waiver (LDW) is the term used by rental car companies for collision coverage.
Comprehensive
Comprehensive, also known as other than collision coverage, provides
coverage, subject to a deductible, for cars damaged by incidents that
are not considered collisions. For example, fire, theft (or attempted
theft), vandalism, weather, or impacts with animals are types of
comprehensive losses.
Additionally, the majority of insurance companies list "Acts of God"
as an aspect of comprehensive coverage. By definition, it includes any
events or occurrences that are beyond human control. For example, a
tornado, flood, hurricane, or hail storm would fall under this category.
Uninsured/underinsured motorist coverage
Uninsured/Underinsured coverage,
also known as UM/UIM, provides coverage if an at-fault party either
does not have insurance, or does not have enough insurance. In effect,
the insurance company pays the insured medical bills, then would
subrogate from the at fault party. This coverage is often overlooked and
very important. In Colorado, for example, it was estimated in 2009 that
15% of drivers were uninsured.
Usually the limits match the liability limits. Some insurance companies do offer UM/UIM in an umbrella policy.
Some states maintain unsatisfied judgment funds to provide
compensation to those who cannot collect damages from uninsured driver.
Typically, the payout is not more than the minimum liability limits and
the negligent driver remains responsible for reimbursing the state's
fund.
In the United States, the definition of an uninsured/underinsured
motorist, and corresponding coverages, are set by state laws. In some
states it is mandatory. In the case of underinsured coverage, two
different triggers apply: a damages trigger which is based on whether
the limits are insufficient to cover the injured party's damages, and a
limits trigger which applies when the limits are less than the injured
party's limits.According to a 2009 survey by trade association Property Casualty Insurers Association of America, 29 states have a limits trigger while 20 states have a damages trigger. Another variation is whether a particular state requires stacking of policy limits of different vehicles or policies.
