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UPDATED: Apr 23, 2020
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Everyone in the United States that owns any type of motor vehicle licensed for street use in almost every state must by law carry some form of auto insurance.
It has become common knowledge that insurance is required by law, but what else do owners and drivers need to know about auto insurance and state laws?
Cars and trucks are carried under auto policies, while motorcycles require a separate, specialized policy. Regardless of whether you are driving a car, truck or motorcycle there are very similar auto insurance laws.
Read through this list of automobile insurance laws and then to find the very best auto insurance rates be sure to enter your zip code in on the top of this page for free auto insurance quotes!
Components of an Auto Insurance Policy
State Insurance Commissioners require by state auto insurance law that each and every insurance policy is comprised of some basic options.
Some insurance companies will offer extras such as roadside assistance or pet injury coverage, but there are common elements available from all companies that can include some or all of the following:
This coverage pays for any property damage or bodily injury that a driver may cause to another party. This covers damage to other cars and their occupants as well as roadside street signs or pedestrians. It also covers passengers in the driver’s car, but it does not cover the driver or the driver’s car.
This coverage covers the driver’s car in the event he or she causes an accident and damages their own car. Collision insurance is normally associated with a deductible that is paid out of pocket before the insurance company pays the remainder of the tab.
covers the car for any damage that is not a collision. Damage such as hail, theft or vandalism would be covered under comprehensive. Comprehensive is also typically sold with a deductible.
–Uninsured/Underinsured motorist (UM/UIM)
This coverage is similar to liability coverage; however, it covers the policyholder, rather than other parties. If a policyholder is involved in an accident caused by a driver that does not have any insurance or does not have enough insurance to cover the damages, then Uninsured/Underinsured motorist coverage would activate to cover the policy holder’s medical and property damage expenses.
In the event your insurance company pays UM/UIM to their insured on behalf of the driver with no insurance, it will be up to the insurance company’s discretion if they will sue the other driver for the damages they were liable for but uninsured or underinsured to pay.
–Personal Injury Protection (PIP)
This coverage pays the driver and any passengers up to a specified limit for medical bills and death expenses as well as loss of income resulting from the injuries, among other things. This coverage pays out regardless of who is at fault for the accident.
–Rental Car Coverage
This coverage would pay for use of a rental car, when the insured vehicle is unusable due to a comprehensive or collision claim. If another driver hits the policyholder, the other party’s insurance would pay the cost of the rental car.
If your vehicle is leased or financed and you owe more than your car is worth, GAP insurance will pay over and above the value of the vehicle to cover the amount you owe. Some GAP policies will pay any amount you owe. Some are capped at a certain amount based on the car’s value.
Specialized Motorcycle Insurance Laws
In addition to the general coverages listed above, motorcycle policies also have one major difference. In most parts of the country, motorcycles cannot be driven all year long, so policies have a lay-up option.
This option allows the driver to be covered and pay for only the part of the year that the motorcycle is usable. For example, your policy may only offer coverage from May 1 to September 30.
Choosing the lay-up option will lower your premium; however, even if there’s a beautiful day in April, you are not insured to drive the bike.
This option allows the driver to be covered and pay for only the part of the year that the motorcycle is usable.
Minimum Auto Insurance Requirements
There are two types of insurance requirements: minimum liability coverage established by the state and if your vehicle is leased or financed, the full coverage requirements of your loan or leasing company.
Every state has a minimum liability coverage requirement. Your state’s laws will dictate the liability limits you must carry on all vehicles you own.
For example, New York’s minimum liability requirement is 25/50/10. This means that every New Yorker must insure their car with liability that covers up to $25,000 in bodily injury liability coverage per person at a total of $50,000 per accident and up to $10,000 in property damage liability.
Here’s how it works: There are three people in a car worth $15,000 and you hit that car while carrying state minimum liability insurance. You cause $10,000 in medical bills per person and their vehicle is totaled.
Your bodily injury liability would be $30,000 and you are fully covered. You caused $15,000 in property damage but only have $10,000 in coverage.
If the driver of the car you hit had Underinsured Motorist coverage, that would pay the remaining $5,000; however, since you are still the liable party in the accident, their insurance company may choose to sue you for the additional $5,000 they paid on your behalf.
Since they own the car, they will require you to carry collision and comprehensive coverage to ensure that the car they own is covered by insurance and they would be reimbursed, should the car be totaled.
Proof of Insurance
Since you are required to carry coverage on your car, you may be asked to prove it at any time. Every insurance company will provide you with an insurance card to keep in your wallet or with the car.
It will reflect the name of the insurance company, the car that is covered as well as the policy effective dates.
If you are pulled over for a traffic violation or registering your car, you will probably be asked to show your insurance ID card. Failing to produce proof of insurance upon request can result in a citation or even arrest.
No Proof of Insurance
Failing to produce proof of insurance upon request can result in a citation or even arrest. If you are found guilty of being uninsured, you could face a fine or driver’s license suspension.
If you are found guilty of being uninsured, you could face a fine or driver’s license suspension.
Failing to produce proof of insurance upon request can result in a citation or even arrest.
SR-22s are assigned by the court system to people that have had serious, and often repeated, auto-related violations in the past, such as drunk driving or driving without insurance.
The state, in turn, gets immediate notification of a person’s insurance status and can issue an arrest warrant or fine if someone is in violation of their filing.
If a driver is required to carry an SR-22, they must notify their insurance company immediately.
With this filing placed on their policy, the insurance company will be in contact with the state every time the policy renews or cancels.
Tort States/No-Fault States
Most states follow the standard at-fault/not at fault accident system. When an accident happens, one driver will be deemed to have caused the accident (at-fault) and one driver will be deemed not at fault.
The at-fault driver would cover the accident through their liability coverage, paying the other driver’s expenses, and with collision coverage and personal injury protection, they would pay their own expenses.
In order to lower the costs of attorneys and lawsuits, some states have adopted tort systems or no-fault systems.
In a tort state, such as Pennsylvania, policyholders can opt to lower their insurance premiums by choosing “limited tort.” Carrying full tort, a policyholder can file a lawsuit for personal injury resulting from a car accident for any reason.
By choosing limited tort, a policyholder is limiting their ability to sue for any additional settlement, with the exception of very serious circumstances.
Carrying full tort, a policyholder can file a lawsuit for personal injury resulting from a car accident for any reason.
In a no-fault insurance state, each party carries insurance to cover their own expenses should an accident occur.
Aside from reduced litigation cost, this type policy also allows for quick payment of settlements because there is no haggling over who pays.
Auto Insurance Rate Factors
What do insurance companies look for in drivers? Auto insurance rates are factored by basic information including:
- The drivers on the policy, their genders, ages, marital statuses and driving records
- The value and safety records of the vehicles on the policy
- The policy owner’s credit score
- The usage and distance of the vehicles driven
State laws and coverages vary widely. For specific information about your insurance requirements, visit your state’s Department of Motor Vehicles website.
If you want to compare cheap auto insurance rates from competing companies to save money then just enter your zip code in right now in our free comparison tool below!