In the past month, car insurance costs in the US have seen the fastest increase since December 1976, by about 20.3%. The rise in car prices and the overall increase in general vehicle maintenance costs have contributed to this surge. It’s becoming hard to find affordable auto insurance with decent coverage. In this guide, we will break down key aspects of auto insurance, empowering you to make informed decisions and get the best value for your coverage.
Objectives of Auto Insurance
Automobile insurance serves three primary objectives: liability coverage, first-party coverage, and legal compliance and social responsibility.
1. Liability Coverage
One of the main functions of automobile insurance is to provide liability coverage. This helps protect you against financial losses from the damage your vehicle caused to others, be it individuals, their cars, or property.
Liability coverage comes in third-party coverage because it extends to others aside from you, the vehicle owner. In an accident where you’re at fault, your insurance covers the costs of repairing or replacing the other party’s vehicle and medical expenses, to some extent.
2. First-party Coverage
Auto insurance also aims to shield you from financial losses in case of an accident, regardless of who is at fault. This component is called first-party insurance, as it protects you, your car’s passengers, and the vehicle’s finances.
Your insurance will still cover the cost of an accident for personal injuries and damage to your vehicle if the other party fails to pay for the damages. This type can also cover yearly maintenance costs for your vehicle, etc.
3. Legal Compliance and Social Responsibility
Another more subtle objective of auto insurance is to mandate legal compliance and social responsibility for drivers. By requiring all drivers to have insurance, there’s a responsibility to contribute to a pool of resources that can be tapped into to address the financial fallout of accidents, creating a safer driving environment for everyone.
Given the potential for substantial economic consequences of accidents, insurance helps distribute and mitigate the risks associated with vehicle ownership and operation. Overall, the objective of meeting financial responsibility under state law through automobile insurance is to ensure that individuals are held accountable for the financial implications of their actions on the road.
While most states require you to purchase insurance, some, like New Hampshire, don’t have a statutory requirement. We recommend that you still purchase insurance or at least liability coverage. Most states require liability coverage, both for bodily harm and property damage.
You might hear the term 50-100-25 when talking about coverage. 50 refers to the amount of insurance you buy when a single person gets injured, 100 for more than one injury, and 25 for property damage; for example, your insurance company will pay up to $50,000 for a single person injury, $100,000 total for multiple injuries, and $25,000 in property damage.
The minimum coverage you need may vary according to your state, but the most common mandatory coverage is 25-50. Some states also offer uninsured motorist coverage, protecting you when you get into an accident with an uninsured vehicle. You can find insurance information via the National Association of Insurance Commissioners.
The world of auto insurance is becoming more complex every day. From understanding coverage types to making savvy decisions on deductibles and premiums, this guide empowers you to take control of your insurance and drive confidently. It’s crucial to know state-specific insurance laws regarding vehicles and only get insurance from trusted companies with credible reviews or those recommended personally by insurance experts.