When it comes to auto insurance, many motorists may have questions about just how insurance works. Here are the most common questions regarding auto insurance and the answers to them.
Is auto insurance mandatory?
Laws related to auto insurance vary from state to state. In the vast majority of cases, anyone operating a vehicle on a public road must have proof of financial responsibility. For most people, this would mean having an auto insurance policy that provides liability coverage that meets or exceeds the minimum amounts provided under state law.
Some states allow vehicle owners to demonstrate financial responsibility in other ways, such as by surety bond, by providing proof of sufficient assets or by obtaining a certificate of self-insurance. These options require that you have a significant amount of assets at your disposal and are therefore only a realistic option for certain entities, such as a large corporation with billions of dollars in assets that operates a fleet of vehicles.
What is the minimum amount of liability coverage I am required to have?
This varies from state to state. For example, Wisconsin requires that your insurance policy covers at least $15,000 for property damage, $50,000 in the event of injury or death of one person or $100,000 for injury or death to two people or more.
You should know that having liability insurance well in excess of state minimums is recommended. This is because medical bills for a person that was seriously injured in an accident can add up to hundreds of thousands of dollars. If your policy doesn’t cover the full amount of the damage caused in an accident that was your fault, the other party may sue you.
What is collision coverage and is it mandatory?
Collision coverage will pay for any physical damage caused to your vehicle as a result of a collision with another vehicle, or with an object on the road. It may also provide protection if your vehicle overturns when you were driving it. Should an accident happen, your own car insurance company will pay for the damage to your vehicle, subject to the terms of your policy.
While collision coverage is not usually mandatory, some financial institutions may require it if you opt to finance a car through them, as the car is used as collateral for the loan.
What is comprehensive coverage and do I really need it?
Comprehensive coverage will pay for damage to your vehicle for an incident that wasn’t a collision. These can include theft, vandalism, fire, weather conditions, or damage resulting from hitting an animal.
The decision to get comprehensive coverage or not is entirely up to you and should be based on the value of your vehicle. Remember that auto theft is a problem in many urban areas. If your car is stolen and never recovered, you will not get any compensation from your insurer if you don’t have comprehensive coverage. It might thus make sense to add this protection if you are driving a new car worth $25,000, but less so if you purchased a used vehicle for $500.
How do I get lower insurance premiums?
There are several things you can do. You should compare rates quoted to you by various insurers before deciding on a specific company. You should also strive to keep your driving record as clean as possible. Too many speeding violations or more serious offenses such as DUI or reckless driving will result in you having to pay much higher premiums. In some states, insurers are also allowed to use your credit score as one of the criteria used to set your premiums.