The Minimum Requirements For Car Insurance in the U.S.

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You could drive without car insurance, but that’s a very bad idea. Without any liability coverage, one small mistake could set you back financially for the rest of your life. Legal fees, settlements, the loss you’ll take on your car - it’s all not worth it. And that’s why there’s car insurance.
Maybe you don’t put a lot of stock in the extras available for your car insurance. You might not care for rental insurance, underinsured coverage, emergency road service coverage, or even collision insurance. But you have to play by the rules. If you don’t, it’s more than just your insurance that’s at stake. It can affect:
  • Your credit history
  • Your driving record
  • Other insurance policies (the ones you actually put value in), and
  • Your bank account for all those tickets you’ll be paying
That’s why you get car insurance, even if it’s the bare minimum. But what does that entail? What are the minimum requirements for car insurance? In this article, Part 1 explains why car insurance is mandatory, Part 2 lists the minimum policy you have to get as a car owner, and Part 3 discusses how the rules alter if you don’t own your car outright.

Part 1 of 3: Why is car insurance mandatory?

Almost all the U.S. states have made car insurance mandatory, even though there’s no federal mandate that says all drivers have to have insurance. The laws are set at the state level and vary across the country. The majority of car owners must have insurance in order to cover the costs of at-fault drivers - that way, innocent victims of car accidents aren’t at a loss.
Your minimum requirements for car insurance will vary depending on the state you live in. However, in general, there are a few items that are must-have coverages for your car insurance if you own your car outright. As well, there may be minimum insurance requirements from your financial institution if you’re still paying for your car.

Part 2 of 3: Minimum car insurance when you own your car outright

When you own your own car - that is to say, it’s no longer financed or under lien from anyone - your minimum coverage is only determined by the state in which your car is insured. That coverage varies from state to state, but there are a couple of items that are standard almost everywhere.
  • Bodily Injury Liability insures individuals involved in an accident for physical injuries sustained. It’s on a per-person basis and involves a cap amount on the accident. As an example, a car insurance policy may state bodily injury liability of $25,000 per person with a maximum payable amount of $50,000 total per claim.
  • Property Damage Liability covers damage that occurs to property involved in an accident in which your car has also been involved. It does not cover your car; only the property apart from your car. It’s assessed on a per-claim basis with a maximum payable amount set out in your car insurance policy.
These two items are the common denominator on car insurance policies, aside from a couple exceptions. New Hampshire and Arizona, and Virginia offer alternatives to car insurance but still require proof of financial responsibility, such as an expensive bond.

Part 3 of 3: Car insurance while you’re making payments on your car

It’s a little different when your car doesn’t fully belong to you yet. When a financial institution has a lien on your car, such as is the case when you have a car loan, they may set their own rules for minimum insurance coverage. That changes from lender to lender, but generally, the principles are the same.
If your car is involved in a claim of any sort, whether theft, vandalism, collision, fire, or otherwise, your insurance company wants a guarantee that the loan will be paid in full or the car’s value restored. Their requirements often include enough collision insurance and comprehensive coverage to cover any loss your car sustains. You’ll need enough coverage, in addition to the bare minimum your state requires, to cover your car’s value.

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