Auto /Car Insurance in the USA - Introduction

Auto/Vehicle insurance is a mandatory requirement and a crucial need while driving in the USA.  Infact driving with out insurance is an offense in several of the states. With the sheer amount of traffic in US cities especially the big cities, it is not a question of if ..but rather when "something" can happen. So obviously there is no excuse for not having an insurance coverage to protect you in the events of harm.

Auto Insurance Requirements : The basic requirement to have an auto insurance coverage is to have a valid drivers license. If you own(or lease /finance) a car you will be buying coverage types based on some needs as discussed below.

Some insurance providers require that you have good credit history as well. So if you just came to the US, you wont yet have a credit history.  In that case you might have to offer to pay initially the 6 Months Balance. If you don't own a car and intend to share a car with a person in the same household - example : siblings,Parents,spouse or roommates , the insurance holder can add you to his or her own insurance  policy.

Insurance Coverage Types : When you start getting insurance quotes these are the types of coverage you would be asked to select.

1.) Liability Coverage - Liability does not pay you anything , but instead pays for your 'liability' in the event of an accident. If you caused a damage either injury or property , liability will pay for it. Liability insurance covers you when driving any vehicle you own, or if you drive someone else’s car with their permission.

 -Property Damage Liability - This Liability coverage kicks in when you are found at fault in an accident, and your vehicle has damaged someone else’s property. You will choose the amount of coverage when you buy the policy, and there may also be state-imposed minimums, especially if your vehicle is financed.

-Bodily Injury Liability -In an accident that resulted in the injury to another party and you are found to be at fault , bodily injury liability coverage will pay for it. It does not cover your own injuries, or those of any other driver included on your insurance policy. This coverage usually pays for: medical bills; physical therapy or rehabilitation; work lost due to injury; legal representation for the other party; and possibly “pain and suffering,” which is determined by a court in the event of emotional or physical stress resulting from the accident. This is an important coverage to add to your policy. Medical expenses can skyrocket and cause tremendous financial hardship if you have to pay for them out of pocket.

Where as the liability coverage pays to the other party and does not pay you anything, the coverages below are the ones that will pay you in the event of a injury or car damages or loss to you. If you are in an accident and the other party is at fault , it is expected that their insurance will pay for your damage and losses.

2.) Personal Injury Protection (PIP) :- This is the coverage that covers medical expenses including lost salary. It covers you,your passengers, or anyone authorized to drive your vehicle. It also covers you and anyone else named on your policy when driving someone else’s vehicle. This type of coverage is mandatory in a few states.

3.) Comprehensive Coverage :- Comprehensive coverage applies any type of loss that may occur, but not DUE to an auto accident. It pays for damage to your car caused by something other than another vehicle. It could be anything: damage from severe weather such as tornadoes,hurricanes, or hail storms, or natural disasters such as earthquake, flood, or fire. It also applies if you hit an animal,or if your vehicle is vandalized or stolen. Even in the unlikely event that something falls on your car and damages it, comprehensive coverage will pay for the repairs. Usually comprehensive coverage is paired with another type of coverage like collision to cover damage from an accident.

4.) Collision Coverage : It applies when your vehicle is involved in any kind of collision, whether it’s with another vehicle, a building, a road fence, or any other stationary object. In some cases, it also covers damage caused by the vehicle flipping over, or running over potholes. Collision coverage will pay for the repairs your vehicle needs after any of these incidents, or to replace your car altogether if the collision causes a total loss, also known as “totaling” the car.

5.) Fire and Theft coverage : This a subset of the comprehensive coverage and applies when your vehicle is damaged or totaled as a result of fire, or if your car is stolen. If your car catches fire due to lightning or an explosion, this coverage will pay to repair or replace your vehicle. It also offers very specific  coverage to include damaged resulting from the sinking, collision, derailment, burning, or stranding of a trailer that is transporting your car. It also offers some redundancies in coverage for things like floods, earthquakes, hail or wind damage, vandalism, or accidents caused by hitting an animal. It may also pay for damages resulting from an accident involving an uninsured driver, provided you are not at fault.

6.) GAP Coverage : The important thing to remember that in Comprehensive and Collision case , if you car is totaled, you will be reimbursed for the current value of the vehicle, not the purchase price. This can be a problem if you have a recently financed newer car, whereby there will be a 'GAP' between what you owe the finance company and what the insurance company will pay for it. This is where a special type of coverage called GAP insurance kicks in to pay the balance owed on the car. Some time GAP can be costly and consider wisely if you decide to buy GAP coverage. GAP is usually pushed on by Dealers selling you cars. So be a bit smart , don't commit on the GAP converge unless you do your homework and call other reliable provider to get alternate quotes.

7.) Underinsured Driver Coverage - If you’re involved in an accident with a driver who carries the legal minimum amount of liability insurance, but no extra insurance to cover all your losses. It only applies when the other, underinsured driver is at fault. It will cover your medical expenses, property damage (in some states), and loss of job salary. It may also cover the expense of a rental car until your own vehicle is repaired. Uninsured Driver Coverage - it kicks in if you’re involved in an accident with a driver who, carries no auto insurance whatsoever; carries insurance coverage that falls below the state’s required minimums; is insured by a company that is financially unable to cover your losses; or hits you and flees the scene. It will pay medical expenses and those of your passengers. In some states, it also covers damage to your vehicle, and may cover reimbursement for a rental car. It is not mandatory in all states,

8.) Other coverages and addons : 

Insurance for Cars you rent :- Also called Rental Car Insurance , it offers some of the same basic coverages as your standard auto policy, such as comprehensive and collision coverage, but in this instance, it’s called a loss damage waiver (LDW), or a collision damage waiver (CDW). It also includes liability coverage for damage to property belonging to others, and personal accident coverage for injuries. Unique to rental car insurance is personal effects coverage, which reimburses you if your belongings are stolen from the car you’re renting.

Rental reimbursement  - This addon pays for a rental car, in case your car is incapacitated for a period of time after an accident for repair.

Road Side Assistance - This is an optional service bundled in with insurance to help you in times of emergency while you are stuck on the road.  It is basically the same as AAA famous Road Side Assistance. If you already have a AAA subscription , you may decline this option.

After you Buy car   : So what to do after you buy a car from a private seller or a dealer. Actually in most states you have upto 30 days to buy an insurance or add a vehicle to your insurance , but why to wait ?

1.) If you already have an insurance, the process is simple , add the car online or on the phone.

2.) If you don't have insurance , I would highly recommend not to operate the car till you shop for a decent insurance and add your car to it. It should not take you more than 1-2 hours to get comparison quotes online and decide to purchase. In case the rates are not good initially , you can always cancel the remainder , get a refund and switch to another cheaper insurance provider , there is no commitment here.

 

Category: