Basic Auto Insurance: What It Is, Why Have It, And How Much Does It Cost

Are you confused with the world of auto insurance in the United States? Do not worry! You are not alone, we have put together this list of frequently asked questions about car insurance.

Do I need to have auto insurance?

In most of the United States, it is needed! In states where auto insurance is not mandatory, it is necessary to pay an annual deposit / fee, or automatically accept monetary responsibility if you are involved in an accident.

What are the types of auto insurance?

There are two main ones: liability insurance and collision insurance.

Liability insurance

Liability insurance is the most basic car insurance and what we refer to when talking about mandatory car insurance.

Liability insurance protects you when you are at fault in a collision or car accident. Keep in mind that this type of insurance only covers the expenses of the other people involved and their vehicle.

Each liability insurance coverage has a limit that can be simple or divided into different limits.

The simple limit refers to a monetary value that serves to cover expenses for personal injury, as well as material damage.

There are several limits that apply to bodily and property damage. They are often described as follows:

Bodily harm (maximum per person) / bodily harm (maximum total) / property damage

For example:

Miguel has auto insurance with different limits $ 25,000 / $ 50,000 / $ 10,000. He was guilty of a collision with another car with three people. Each person incurs $ 15,000 in medical expenses and the damage to the other car is $ 8,000.

In this case, Miguel’s insurance covers all medical expenses ($ 15,000 each person, $ 45,000 in total), as well as all property damage ($ 8,000).

What if Miguel had coverage with a single limit? You would need coverage with a minimum limit of $ 53,000 ($ 45,000 for the medical expenses of the three people plus $ 8,000 for the damage to the other car).

Each state dictates the minimum liability insurance coverage. For example, in Texas , the minimum coverage is $ 30,000 / $ 60,000 / $ 25,000. In California , it’s $ 15,000 / $ 30,000 / $ 5,000.

Keep in mind that these maximum limits apply to each different incident.

What happens when the damages exceed the coverage of your auto insurance policy?

In this case, you would be legally responsible for the rest of the personal damages, as well as the material damages. For this reason, it is always possible to take out an auto insurance policy that exceeds the minimum coverage.

Collision insurance

man talking on cell phone in the foreground with a car accident in the background
This type of coverage protects your car if you are involved in a collision. In general, there are two aspects of this coverage: the premium and the total limit. Before the insurance covers the cost of repairing your car, you have to pay the premium.

For example:

For his own car repairs, Miguel cannot receive anything from his liability insurance or the insurance of the other people involved, since he was responsible for the crash.

Fortunately, Miguel also has collision insurance with a premium of $ 500 and a limit of $ 5,000. Repairs to his car cost him $ 4,000 in total.

First, Miguel needs to pay $ 500 (the premium) for the repairs. Then you receive $ 3,500 from insurance ($ 4,000 in total repair costs minus the $ 500 you already paid).

Every time Miguel renews his auto insurance policy, the premium and the maximum limit are reset.

Why should I have auto insurance?

Is the law

In most of the United States, it is mandatory to maintain some auto insurance coverage. Keep in mind that a police officer may ask you for proof of insurance if they stop you in your vehicle for any reason, even when you are not involved in an accident.

Consequences of not having auto insurance include fines, driver’s license suspension or revocation, and even the possibility of jail time.

Not having car insurance is not worth the risk!

It is not as expensive as you think

A common myth of auto insurance is that it is always expensive, but that is not the case. In addition, it is a good investment against potential expenses that can be higher.

Protects you from large unexpected expenses

In Miguel’s example, a single incident made him responsible for more than $ 50,000 in medical bills and property damage. But because he already had auto insurance, he didn’t have to worry. By spending a few hundred dollars for the policy, he saved thousands.

Keep in mind that car insurance can only protect you after you have started the policy. For example, if Miguel had taken out his policy the day after the crash, the company would not have covered the costs of the accident the day before. For this reason, it is important to be proactive and start an auto insurance policy as soon as possible. You never know what will happen tomorrow.

How do I find out about the particular requirements in my state?

Each state dictates its own minimum auto insurance coverage requirements, so it is wise to contact a company with national experience.

If you lease or rent cars often, you may have additional requirements for auto insurance coverage. The leasing or rental company can advise you on the minimum requirements. Share these additional requirements with the insurance company and check that you have adequate coverage according to the law and your contractual obligations.

How is the cost of an auto insurance policy calculated?

In general, the cost of an auto insurance policy – also called the insurance premium – depends on:

The minimum requirements in your state
Where do you live (for example, in a big city or in the country)
Your driving record in the United States
The type of car (particularly for collision insurance)
Your driving frequency

Is it possible to receive a discount on the cost of auto insurance?

You could receive discounts if you meet any of these conditions:

Not being involved in a crash in recent years
Not receive any traffic tickets in recent years
Pay the premium in advance
Attend a defensive driving course
Have multiple policies at one address (for example, your spouse or children also have a policy with the same auto insurance company)
Your auto insurance company can tell you about all possible discounts.

Keep in mind that, in many cases, an auto insurance policy is valid for six months. It means that you must divide a quote by six if you want to consider the monthly cost.

For example:
Miguel receives a quote for a $ 420 policy. That is, the monthly cost would be $ 70.

In many cases, the insurance premium can be paid all at once or in partial payments. A quote usually includes the options available for partial payments.

How do I pay my auto insurance premium?

Today, you can pay electronically by credit card or bank transfer. However, it is still possible to pay by other means (for example, money order or cash). If you prefer to pay non-electronically, contact the company and they will inform you of all the payment options.

How do I verify that I have an auto insurance policy?

When you start an auto insurance policy and each time you renew it, you will receive in the mail one or two copies of a document with the details of the coverage . This document serves as proof of auto insurance and it is advisable that you keep a copy in the glove compartment of your car along with the car registration and the other in your wallet. Many states also accept electronic copies of the voucher. In this case, the receipt can be accessed through an application or in a PDF saved on your cell phone. In all cases, we recommend that you always have a physical copy of the receipt in case there is no good cell signal or the cell phone battery runs out.

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