Saturday, January 13, 2018

Car Insurance in the United States





Vehicle insurance, in the United States and elsewhere, is designed to cover risk of financial liability or the loss of a motor vehicle the owner may face if their vehicle is involved in a collision resulting in property or physical damages. Most states require a motor vehicle owner to carry some minimum level of liability insurance. States that do not require the vehicle owner to carry car insurance include Virginia, where an uninsured motor vehicle fee may be paid to the state; 

 New Hampshire, and Mississippi which offers vehicle owners the option to post cash bonds (see below). The privileges and immunities clause of Article IV of the U.S. Constitution protects the rights of citizens in each respective state when traveling to another. A motor vehicle owner typically pays insurers a monthly fee, often called an insurance premium. The insurance premium a motor vehicle owner pays is usually determined by a variety of factors including the type of covered vehicle, the age and gender of any covered drivers, their driving history, and the location where the vehicle is primarily driven and stored. Credit scores are also taken into consideration. Most insurance companies offer premium discounts based on these factors.

Insurance companies provide a motor vehicle owner with an insurance card for the particular coverage term which is to be kept in the vehicle in the event of a traffic collision as proof of insurance. Recently, states have started passing laws that electronic versions of proof of insurance can now be accepted by the authorities.

Coverage generally

Consumers may be protected by different levels of coverage depending on which insurance policy they purchase. Coverage is sometimes seen as 20/40/15 or 100/300/100. The first two numbers seen are for medical coverage. In the 100/300 example, the policy will pay $100,000 per person up to $300,000 total for all people. The last number covers property damage. This property damage can cover the other person's vehicle or anything that you hit and damage as a result of the accident. In some states you must purchase Personal Injury Protection which covers medical bills, time lost at work, and many other things. You can also purchase insurance if the other driver does not have insurance or is under insured. Most if not all states require drivers to carry mandatory liability insurance coverage to ensure that their drivers can cover the cost of damage to other people or property in the event of an accident. Some states, such as Wisconsin, have more flexible "proof of financial responsibility" requirements.

Insurance providers

In the United States in 2015, the largest vehicle insurance providers, in terms of market share, were State Farm Insurance, Liberty Mutual Insurance, Allstate, Berkshire Hathaway (which operates as Geico), and The Travelers Companies. Insurance is secured either by working with an independent insurance agent or with an insurance broker who is authorized to sell insurance policies. Some can represent from several agencies, like Guy Carpenter & Company or a growing number of online brokers who provide policy purchases through sites like Quote.com and Walmart.

Liability coverage

Liability coverage, sometimes known as Casualty insurance, is offered for bodily injury (BI) or property damage (PD) for which the insured driver is deemed responsible. The amount of coverage provided (a fixed dollar amount) will vary from jurisdiction to jurisdiction. Whatever the minimum, the insured can usually increase the coverage (prior to a loss) for an additional charge.



An example of property damage is where an insured driver (or 1st party) drives into a telephone pole and damages the pole; liability coverage pays for the damage to the pole. In this example, the drivers insured may also become liable for other expenses related to damaging the telephone pole, such as loss of service claims (by the telephone company), depending on the jurisdiction. An example of bodily injury is where an insured driver causes bodily harm to a third party and the insured driver is deemed responsible for the injuries. However, in some jurisdictions, the third party would first exhaust coverage for accident benefits through their own insurer (assuming they have one) and/or would have to meet a legal definition of severe impairment to have the right to claim (or sue) under the insured driver's (or first party's) policy. If the third party sues the insured driver, liability coverage also covers court costs and damages that the insured driver may be deemed responsible for.

In some states, such as New Jersey, it is illegal to operate (or knowingly allow another to operate) a motor vehicle that does not have liability insurance coverage. If an accident occurs in a state that requires liability coverage, both parties are usually required to bring and/or submit copies of insurance cards to court as proof of liability coverage.

In some jurisdictions: Liability coverage is available either as a combined single limit policy, or as a split limit policy:

Combined single limit

A combined single limit combines property damage liability coverage and bodily injury coverage under one single combined limit. For example, an insured driver with a combined single liability limit strikes another vehicle and injures the driver and the passenger. Payments for the damages to the other driver's car, as well as payments for injury claims for the driver and passenger, would be paid out under this same coverage.

Split limits

A split limit liability coverage policy splits the coverages into property damage coverage and bodily injury coverage. In the example given above, payments for the other driver's vehicle would be paid out under property damage coverage, and payments for the injuries would be paid out under bodily injury coverage.
Bodily injury liability coverage is also usually split into a maximum payment per person and a maximum payment per accident.
The limits are often expressed separated by slashes in the following form: "bodily injury per person"/"bodily injury per accident"/"property damage". For example, California requires this minimum coverage:
  • $15,000 for injury/death to one person
  • $30,000 for injury/death to more than one person
  • $5,000 for damage to property
This would be expressed as "$15,000/$30,000/$5,000".

Another example, in the state of Oklahoma, drivers must carry at least state minimum liability limits of $25,000/$50,000/$25,000. If an insured driver hits a car full of people and is found by the insurance company to be liable, the insurance company will pay $25,000 of one person's medical bills but will not exceed $50,000 for other people injured in the accident. The insurance company will not pay more than $25,000 for property damage in repairs to the vehicle that the insured one hit.

In the state of Indiana, the minimum liability limits are $25,000/$50,000/$10,000,so there is a greater property damage exposure for only carrying the minimum limits.

Rental coverage

Generally, liability coverage purchased through a private insurer extends to rental cars. Comprehensive policies ("full coverage") usually also apply to the rental vehicle, although this should be verified beforehand. Full coverage premiums are based on, among other factors, the value of the insured's vehicle. This coverage, however, cannot apply to rental cars because the insurance company does not want to assume responsibility for a claim greater than the value of the insured's vehicle, assuming that a rental car may be worth more than the insured's vehicle.
Most rental car companies offer insurance to cover damage to the rental vehicle. These policies may be unnecessary for many customers as credit card companies, such as Visa and MasterCard, now provide supplemental collision damage coverage to rental cars if the rental transaction is processed using one of their cards. These benefits are restrictive in terms of the types of vehicles covered.
Maine requires car insurance to rent a car.

Full coverage

Full coverage is the term commonly used to refer to the combination of comprehensive and collision coverages (liability is generally also implied.) The term full coverage is actually a misnomer because, even within traditional full coverage insurance, there are many different types of coverage, and many optional amounts of each. "Full coverage" is a layman's misnomer that often results in drivers and vehicle owners being woefully underinsured. Most responsible insurance agents or brokers do not use this term when working with their clients.



One common misconception in the United States is that vehicles that are financed on credit through a bank or credit union are required to have "full" coverage in order for the financial institution to cover their losses in case of an accident. Insurance requirements vary between financial institutions and each state. Minimum deductibles and liability limits (required by some leasing companies) would be outlined in the loan contract. Failure to carry the required coverages may lead to the lienholder purchasing insurance and adding the cost to the monthly payments or repossession of the vehicle. Vehicles purchased with cash or paid off by the owner are generally required to only carry liability. In some cases, vehicles financed through a "buy-here-pay-here" car dealership—in which the consumer (generally those with poor credit) finances a car and pays the dealer directly without a bank—may require comprehensive and collision depending on the amount owed for the vehicle.

Collision

Collision coverage provides coverage for vehicles involved in collisions. Collision coverage is subject to a deductible. This coverage is designed to provide payments to repair the damaged vehicle, or payment of the cash value of the vehicle if it is not repairable or totaled. Collision coverage is optional, however if you plan on financing a car or taking a car loan, the lender will usually insist you carry collision for the finance term or until the car is paid off. Collision Damage Waiver (CDW) or Loss Damage Waiver (LDW) is the term used by rental car companies for collision coverage.

Comprehensive

Comprehensive, also known as other than collision coverage, provides coverage, subject to a deductible, for cars damaged by incidents that are not considered collisions. For example, fire, theft (or attempted theft), vandalism, weather, or impacts with animals are types of comprehensive losses.

Additionally, the majority of insurance companies list "Acts of God" as an aspect of comprehensive coverage. By definition, it includes any events or occurrences that are beyond human control. For example, a tornado, flood, hurricane, or hail storm would fall under this category.

Uninsured/underinsured motorist coverage

Uninsured/Underinsured coverage, also known as UM/UIM, provides coverage if an at-fault party either does not have insurance, or does not have enough insurance. In effect, the insurance company pays the insured medical bills, then would subrogate from the at fault party. This coverage is often overlooked and very important. In Colorado, for example, it was estimated in 2009 that 15% of drivers were uninsured.

 Usually the limits match the liability limits. Some insurance companies do offer UM/UIM in an umbrella policy.

Some states maintain unsatisfied judgment funds to provide compensation to those who cannot collect damages from uninsured driver. Typically, the payout is not more than the minimum liability limits and the negligent driver remains responsible for reimbursing the state's fund.

In the United States, the definition of an uninsured/underinsured motorist, and corresponding coverages, are set by state laws. In some states it is mandatory. In the case of underinsured coverage, two different triggers apply: a damages trigger which is based on whether the limits are insufficient to cover the injured party's damages, and a limits trigger which applies when the limits are less than the injured party's limits.According to a 2009 survey by trade association Property Casualty Insurers Association of America, 29 states have a limits trigger while 20 states have a damages trigger. Another variation is whether a particular state requires stacking of policy limits of different vehicles or policies.