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Car Insurance Basics

All states do require drivers to carry minimum levels of liability insurance (both bodily injury and personal property). This pays the medical expenditures and repair costs for another driver when you’re the one at fault in an accident. Let’s check what these terms mean:

Liability Insurance 

Coverage for expenses that a policyholder becomes legally obligated to pay because of bodily injuries, property damage, or financial losses caused to other people. 

Bodily Injury Liability Coverage 

This covers auto car accidents causing bodily injury to other drivers or pedestrians for which you are legally at fault. This generally covers:

  • medical expenses
  • pain and suffering
  • lost income
  • legal defense costs in case you are sued as a result of the accident 

Property Damage Liability Coverage 

This covers you for losses that result when you damage or destroy someone else’s personal property. This is a required coverage in most states. 

No-fault Insurance 

This type of coverage is different from other types of car insurance.

No-fault insurance is a type of auto coverage that helps pay your medical bills and those of your passengers if you’re injured in a car accident, no matter who caused the accident. No-fault insurance is also called personal injury protection, or PIP insurance. 

What does a no-fault state designation mean and how does it work? 

Under a no-fault system, you would submit a claim to your own insurance even if the fault is determined to be 50/50.

True No-Fault/PIP Required 

  • Florida 
  • Hawaii 
  • Kansas 
  • Kentucky 
  • Massachusetts 
  • Michigan 
  • Minnesota 
  • New Jersey 
  • New York 
  • North Dakota 
  • Pennsylvania 
  • Puerto Rico 

Not At-Fault State – PIP Required 

  • Arkansas 
  • Delaware 
  • Maryland 
  • Oregon 
  • Texas 

PIP Offered as Optional 

  • New Hampshire 
  • South Dakota 
  • Virginia 
  • Washington 
  • Wisconsin 

Minimum State Requirements

Check with your state to find out the amount of coverage you are required to have. Liability coverages are shown with three numbers. Each of these numbers determines how much coverage you must purchase. 

Example: Your state shows 30/60/25 – the first two numbers (30 and 60) are the bodily injury coverage and the last number (25) is for personal property coverage. These numbers represent dollar amounts.

  • $30,000 – bodily injury coverage for one injured person
  • $60,000 – bodily injury coverage for more than one injured person 
  • $25,000 – personal property liability coverage to repair or replace another driver’s automobile. This is also used to pay for damage to other types of property (ie: run over a mailbox or into a house). 

In addition to the above, some states will require medical payments, personal injury protection, or uninsured/underinsured motorist coverages. 

Factors to Know More About: 

Location, Location, Location  

You’ve heard location is super important when buying a house or opening a business, but did you know that where you live is a determining factor for how much your auto insurance rate will be? Not only does this include the state you live in, but if it’s rural, suburban, or urban. Population plays a factor and also theft and vandalism in your neighborhood. 

The top 10 most expensive states for auto insurance: 

  • Louisiana
  • Michigan 
  • Florida
  • New Jersey 
  • New York  
  • D.C. 
  • Rhode Island 
  • Delaware
  • Connecticut 
  • Maryland 

The top 10 least expensive states for auto insurance: 

  • North Dakota 
  • Maine 
  • Iowa 
  • Idaho 
  • South Dakota 
  • North Carolina 
  • Wisconsin 
  • Wyoming 
  • Indiana 
  • Vermont

The above research is based on a 2020 student by the National Association of Insurance Commissioners (NAIC). 

Older is not always better 

You may think that if you buy now pay later car insurance for a brand new model to replace your ten plus-year-old vehicle, your car insurance will dramatically increase. Many people are happily surprised to find out that their newer purchase has cheaper auto insurance.

How is this possible?

Safety features like automatic braking or back-up cameras are better at preventing accidents. Newer cars usually come equipped with these types of features. Of course, there are still many variables that determine a driver’s insurance rate. 

Improve Your Credit Rating  

Your driving record is of course a huge factor in determining what you’ll pay for auto insurance. What many people don’t know, and they are surprised when they know is that insurance providers when determining insurance premiums also take into account credit ratings. The reason why? Studies show that if you’re responsible in your personal/financial life, you’re less likely to file claims.