Vehicle Insurance in the United States

What is Vehicle Insurance?

Vehicle insurance in the United States (also known as car insurance or auto insurance) is designed to cover the risk of financial liability or the loss of a motor vehicle that the owner may face if their vehicle is involved in a collision that results in property or physical damage.[1]

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 New Hampshire and Mississippi, which offers vehicle owners the option to post cash bonds.

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.

Key Point

A motor vehicle owner typically pays insurers a monthly or yearly fee, often called an insurance premium. The insurance premium is determined by a variety of factors including the type of covered vehicle, marital status, credit score, whether the driver rents or owns a home, the age and gender of any covered drivers, their driving history, and the location where the vehicle is primarily driven and stored.

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 case of a traffic collision as proof of insurance. Recently, states have started passing laws that allow electronic versions of proof of insurance to be accepted by the authorities.[1]

Coverage Types Explained

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 will vary from jurisdiction to jurisdiction. Whatever the minimum, the insured can usually increase the coverage for an additional charge.[1]

An example of property damage is where an insured driver drives into a telephone pole and damages the pole; liability coverage pays for the damage to the pole. In this example, the insured may also become liable for other expenses related to damaging the telephone pole, such as loss of service claims, depending on the jurisdiction.

Two Types of Liability Coverage:

Combined Single Limit

Combines property damage liability coverage and bodily injury coverage under one single combined limit. For example, if an insured driver strikes another vehicle and injures the driver and passenger, payments for vehicle damage and injury claims would be paid out under this same coverage.

Split Limits

Splits the coverages into property damage coverage and bodily injury coverage. Bodily injury liability coverage is usually split into a maximum payment per person and a maximum payment per accident.

Understanding Coverage Numbers

Coverage is sometimes expressed as 20/40/15 or 100/300/100. The first two numbers 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.

Personal Injury Protection (PIP)

In some states, drivers must purchase Personal Injury Protection (PIP), which covers medical bills, time lost at work, and many other things. Drivers can also purchase insurance if the other driver does not have insurance or is underinsured.[1]

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 is actually a misnomer because even within "full coverage" insurance, there are many different types of coverage and optional amounts. Most responsible insurance agents or brokers do not use this term when working with their clients.[1]

Collision Coverage

Provides coverage for vehicles involved in collisions. Subject to a deductible. 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. Impact with a pedestrian has been ruled in prior court cases as a collision with an object.[1]

Comprehensive Coverage

Also known as other-than-collision coverage. Covers cars damaged by incidents that are not considered collisions such as fire, theft, vandalism, damage from weather (wind or hail), or impacts with non-human animals. Some insurance companies list "Acts of God" as an aspect of comprehensive coverage, which includes events like tornadoes, floods, hurricanes, or hail storms.[1]

Uninsured/Underinsured Motorist

Provides coverage if an at-fault party either does not have insurance, or does not have enough insurance. In Colorado, for example, it was estimated in 2009 that 15% of drivers were uninsured. Some states maintain unsatisfied judgment funds to provide compensation to those who cannot collect damages from uninsured drivers.[1]

Loss of Use (Rental Coverage)

Provides reimbursement for rental expenses associated with having an insured vehicle repaired due to a covered loss.

Loan/Lease Payoff (GAP Insurance)

Provides protection when the amount owed on the car loan exceeds the value of the vehicle (called "upside-down" or negative equity). GAP insurance was established in the early 1980s. However, GAP does not always pay off the full loan value - it excludes unpaid delinquent payments, payment deferrals, refinancing after policy purchase, and late fees.[1]

Towing Coverage

Also known as roadside assistance coverage. Traditionally, automobile insurance companies only paid for the cost of a tow related to an accident. To fill the gap for mechanical breakdowns, flat tires and gas outages, insurance companies started to offer towing coverage.

Personal Property

Personal items in a vehicle that are damaged due to an accident typically are not covered under the auto insurance policy. Any type of property that is not attached to the vehicle should be claimed under a home insurance or renters' insurance policy. However, some insurance companies will cover unattached GPS devices intended for automobile use.[1]

Commercial Insurance

Commercial insurance for vehicles owned or operated by businesses functions quite similarly to private auto insurance, except that personal use of the vehicle is not covered. Commercial insurance pricing is also usually higher than private insurance, due to the expanded types of coverage offered for commercial users.[2]

Rating Plans & Premium Factors

Insurers use actuarial science to determine the rates, which involves statistical analysis of the various characteristics of drivers. Most insurance companies will increase insurance premium rates based on various factors and offer discounts less frequently.[3]

Major Insurance Providers

In the United States in 2017, the largest private passenger vehicle insurance providers in terms of market share were:

State Farm 18.1%

GEICO 12.8%

Progressive 9.8%

Allstate 9.3%

USAA 5.7%

Insurance can be secured either by working with an independent insurance agent or with an insurance broker who is authorized to sell insurance policies. Some can represent several agencies or a growing number of online brokers who provide policy purchases through online sites.[4]

Average Cost of Insurance

                    Key Statistics
                    The automobile insurance market in the United States is a $308 billion market.[5]
The yearly average cost of insurance ranges from $983 in New Hampshire to $2,551 in Michigan.[6]
Additional coverage comes with an additional cost of about $1,000 per year.[7]

                

Every state has a different minimum coverage requirement, making auto insurance coverage more expensive in some states than others, but they remain lower than the minimum amounts of insurance coverage of most EEA countries involved in the Green Card system.

State Requirements by State

Most states require a minimum level of liability insurance, expressed as "Bodily Injury Limit per person/Bodily Injury Limit per accident/Property Damage Limit".[8]

Complete State-by-State Minimum Requirements

State	Minimum Requirements (BI/BI/PD)	Notes
Alabama	25/50/25	$25,000 per person, $50,000 per accident, $25,000 property damage
Alaska	50/100/25	Higher limits recommended
Arizona	25/50/15	Minimum liability[9]
Arkansas	25/50/15	Minimum liability
California	30/60/15	$15,000 for death/injury to one person, $30,000 for multiple, $5,000 property[10]
Colorado	25/50/15	15% of drivers estimated uninsured
Connecticut	25/50/25	Higher coverage recommended[11]
Delaware	15/30/5	Lower minimums
District of Columbia	10/25/5	Lowest minimums in the country
Florida	PIP Only	$10,000 PIP required, no property damage minimum. Taxis: 125/250/50[12]
Georgia	25/50/25	Standard minimum
Hawaii	20/40/10	Lower limits
Idaho	25/50/15	Idaho Code Section 49-117(18)[13]
Illinois	20/40/15	Lower bodily injury limits[14]
Indiana	25/50/25	$10,000 property damage minimum[15]
Iowa	20/40/15	Standard minimum
Kansas	25/50/10	Lower property damage
Kentucky	25/50/25	Mandatory insurance[16]
Louisiana	15/30/25	Higher property damage than bodily injury
Maine	50/100/25	Highest minimums. Requires car insurance to rent a car[17]
Maryland	30/60/15	Increased limits in 2011[18]
Massachusetts	20/40/5	Can deposit $10,000 in cash, stocks, or bonds instead[19]
Michigan	20/40/10	No-fault insurance state
Minnesota	30/60/10	Higher bodily injury
Mississippi	25/50/25	Can post cash bond instead[20]
Missouri	25/50/10	Standard minimum
Montana	25/50/10	Standard minimum
Nebraska	25/50/25	Higher coverage recommended
Nevada	25/50/20	Higher property damage[21]
New Hampshire	N/A	Personal Responsibility Only - no mandatory insurance[22]
New Jersey	PIP Only	$15,000 PIP required, $5,000 property damage
New Mexico	25/50/10	Standard minimum
New York	25/50/10	No-fault state
North Carolina	30/60/25	Requires insurance before license issuance
North Dakota	25/50/25	Standard minimum
Ohio	20/50/25	Lower per-person limit
Oklahoma	25/50/25	Standard minimum[23]
Oregon	25/50/20	Standard minimum
Pennsylvania	15/30/5	One of the lowest minimums
Rhode Island	25/50/25	Standard minimum
South Carolina	25/50/25	Standard minimum
South Dakota	25/50/25	Standard minimum
Tennessee	25/50/15	Standard minimum
Texas	30/60/25	Can also use surety bond or $55,000 deposit[24]
Utah	25/65/15	Higher per-accident limit
Vermont	25/50/10	Standard minimum
Virginia	30/60/20	Now requires insurance (as of July 2024). Previously allowed $500 annual fee for driving uninsured. To rise to 50/100/25 from January 2025[25]
Washington	25/50/10	Standard minimum
West Virginia	20/40/10	Lower limits
Wisconsin	25/50/10	More flexible "proof of financial responsibility" requirements[26]
Wyoming	25/50/20	Higher property damage

Understanding the Numbers

For example, limits of 25/50/25 means:

$25,000 maximum per person injured
$50,000 maximum per accident for all injuries
$25,000 maximum per accident for property damage

Public Policy & Regulations

The Compulsory Insurance Debate

In the United States, automotive insurance covering liability for injuries and property damage is compulsory in most states, but different states enforce the insurance requirement differently. Penalties for not purchasing insurance vary by state, but often include a substantial fine, license and/or registration suspension or revocation, and possible jail time.[1]

Penalties for Not Purchasing Insurance

Substantial fine
License and/or registration suspension or revocation
Possible jail time

Special State Laws

California and New Jersey: Have enacted "Personal Responsibility Acts" which prevent uninsured drivers from recovering non-economic damages (e.g., compensation for "pain and suffering") if injured while operating a motor vehicle.
North Carolina: The only state to require that a driver hold liability insurance before a license can be issued. Also allows "fleet license" for employees without personal insurance. Does not require proof of insurance to be carried in the vehicle.
Virginia: As of July 2024, now requires insurance. Previously allowed $500 annual fee for driving uninsured.
Maine: Requires car insurance to rent a car.
Wisconsin: Has more flexible "proof of financial responsibility" requirements instead of mandatory insurance.

A Brief History of Car Insurance

With the invention of the automobile in the late 19th century came the inevitable side effect of automobile collisions. As automotive collisions increased in frequency, it became clear that automobiles would need to be governed by laws because "there was no way of assuring that even though fault was assessed the victim of an automobile collision would be able to collect from the tortfeasor."[27]

1925: Connecticut created the first financial responsibility law requiring vehicle owners involved in collisions with damages over $100 to prove financial responsibility of at least $10,000.[28]
1925: Massachusetts introduced compulsory insurance as a prerequisite to vehicle registration (the first state to do so).[29]
1956: New York passed their compulsory insurance law.
1957: North Carolina followed suit.
1960s-1970s: Numerous other states passed similar compulsory insurance laws.

Proposed Reforms

Arizona Department of Transportation Research Project Manager John Semmens has recommended that car insurers issue license plates and be held responsible for the full cost of injuries and property damage caused by their licensees under the "Disneyland model." Plates would expire at the end of the insurance coverage period, and licensees would need to return their plates to their insurance office to receive a refund on their premiums.[30]

High-Risk Market

Insurers may be unwilling to insure drivers (especially at an affordable price) with particularly bad histories, which has led states to create "residual market" programs through which insurers are required to make insurance available.[31]

Types of Programs

Assigned Risk Plan: Most common method where high-risk drivers are assigned to insurers.
Joint Underwriting Associations: Pool of insurers providing coverage to high-risk drivers.
Reinsurance Facilities: Sharing of risk among multiple insurers.
State-Owned Funds: Like in Maryland, subsidized by insurers.

Note

The Consumer Federation of America found that drivers who have high-risk auto insurance, even if they have safe driving records, may be quoted higher-than-average rates by insurers when they seek new coverage.[32]

Rental Car Insurance

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.

Most rental car companies offer insurance to cover damage to the rental vehicle. However, these policies may be unnecessary as credit card companies like Visa and MasterCard now provide supplemental collision damage coverage to rental cars if the rental transaction is processed using one of their cards.[33]

Coverage Limitation

Full coverage premiums are based on the value of the insured's vehicle. This coverage 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.

Additional Coverage Considerations

Lender Requirements

Most financial lenders in the United States require the financed vehicle to have collision coverage, not just liability 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.[34]

SR-22 Insurance

SR-22 is a certificate of financial responsibility required for high-risk drivers, typically those who have been convicted of DUI, driving without insurance, or other serious traffic violations.