Never overlook key car insurance requirements

Buying car insurance isn’t just a wise financial choice. For most people, having some type of coverage is essential. Failure to purchase required coverage can have serious consequences for a driver’s personal finances and may even affect his or her ability to drive in the future.

Here’s what drivers need to know about car insurance requirements.

State Requirements for Car Insurance

It is absolutely important that all drivers comply with their state’s laws regarding auto insurance coverage. Rules vary by location, but here are some common types of required car insurance:

• Personal Injury Liability: Personal injury liability is required in almost every state. It compensates the policyholder for injuries inflicted on others. States typically specify minimum coverage amounts, such as $25,000 per person or $50,000 per accident.
• Property Damage Liability: Property damage liability coverage is also required almost everywhere. It compensates for property damage caused by the policyholder to others due to a negligent accident. States may require property damage liability coverage of $10,000, $25,000, or some other amount.
• Uninsured/Underinsured Motorist Coverage: Some states require this coverage, which covers the policyholder’s losses if the policyholder is involved in a collision with a driver who does not have adequate insurance.
• Personal Injury Protection (PIP): A few states mandate this coverage, which covers losses resulting from minor injuries suffered by the policyholder, regardless of who was at fault. PIP is usually required in no-fault states where drivers cannot sue for minor injuries.

Driving without required insurance can result in fines, license suspension, registration suspension, and other potential consequences, depending on state law. All drivers should check with their state’s Department of Motor Vehicles (DMV) or Department of Insurance to make sure they know the minimum requirements for coverage and have an insurance policy in place. The best car insurance companies offer all types of coverage, and drivers can get discounts based on age, affiliation, and driving history.

Lender Requirements for Car Insurance

In addition to knowing what your state requires, drivers don’t want to overlook any auto insurance requirements imposed by the lender or lessee when financing or leasing a vehicle.

Different lenders set different rules, but most lenders require drivers to have at least the minimum insurance required in their state. Lenders typically require the following types of coverage from drivers:

• collision range To compensate for damage caused to your vehicle due to an accident for which another driver is not covered.
• Comprehensive coverage To compensate for damage to your vehicle that is not caused by a collision.
• gap insuranceThis means paying off the entire outstanding loan balance if the car is leased and the fair market value of the car is less than the loan amount (this is important because insurance companies only pay the market value of cars that have been declared a total loss).

People who do not have the coverage required by their lenders may find themselves stuck with mandatory insurance. Essentially, compulsory insurance is insurance that lenders purchase for drivers who fail to maintain minimum coverage. This almost always costs much more in return for much less coverage.

Drivers can check their loan and lease agreements to find out what type of insurance they need. This is important because drivers who neglect these obligations can suffer financial hardship even if they do not get into an accident.

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