The legal requirement for automobile insurance exists to cover the costs to people injured and property damaged in car accidents. All 50 states in America require drivers to be insured (or have equivalent financial responsibility waivers) to ensure those costs are met. (1) Legal requirements aside, most finance companies will require collision and comprehensive insurance in order to provide an auto loan.
Liability Insurance is the legal minimum automobile insurance coverage requirement in most states. (2) It is there to pay out in the event you are found to be at fault for an accident. If you are not deemed at fault for having caused the accident, neither you nor your insurance company will be required to payout. There are two basic types of liability coverage, property damage liability and bodily injury liability. (3)
Property Damage Liability covers you for damages you caused to other people’s property (cars, boats, etc.). You agree the limits with your insurance company.
Bodily Injury Liability covers you for damages you cause to people. There are two limits involved with bodily injury liability; limit per person injured and a limit for the total amount paid out per accident.
Your liability insurance does not cover damage to your car and injuries to your body for an accident that you are found to be at fault for. (3)
Specific insurance requirements vary from state to state but they all serve the same purpose. As this article provides just an overview I recommend checking with your State Insurance Regulator to stay on the right side of the law.
Collision and Comprehensive Insurance
Liability takes care of the law and the other guy, what about looking after your car? This is where collision and comprehensive insurance comes in. In addition to liability discussed above, you get the following:
Collision insurance pays for the repairs to your automobile in the event you damage it in an accident. Most finance companies will require collision and comprehensive insurance in order to take out an auto loan. (4)
Comprehensive insurance pays out for theft, fire, flood, vandalism etc. (5)
Exact coverage will vary from company to company so be sure to ask your insurer what exactly you’re getting for your money.
In some states, such as Virginia, although insurance is required by law motorists may instead pay the state an annual Uninsured Motor Vehicle fee ($500 in 2014). (6)
Shop For Insurance
There is plenty of competition in the insurance industry. Often times clubs or groups such as VFW, AARP, NRA etc. are offered privileged prices. The Internet is awash with sites that offer insurance quote comparisons some are:
For more details on shopping for insurance try Edmunds.com.