Although car insurance is a recurrent expenditure, it is an important one since it will protect you against financial liability or loss if your car is involved in a collision resulting to property or physical damages. In the united states, auto insurance rules differ among states, but in most cases, liability insurance is required as a proof of financial responsibility, or to put it simply, to demonstrate that you, as the car owner, can cover the cost of damage to other people or property in the event of an accident where you are at fault.
Some jurisdictions, such as Wisconsin, have less stringent "proof of financial responsibility" rules. In the state of Virginia, insurance is also not required, and people living there can instead pay the state an annual fee, around $500 per car, if they opt out of buying liability insurance. By comparison, there are a few states such as North Carolina where it is mandatory for you to buy liability insurance prior to the issuance of a driver's license. Because of these variations in insurance requirements, it is best to check with your state's transportation bureau.
Understanding required car insurance in USA
When looking at your state's insurance requirements, you would probably encounter numbers like 25/50/25. The first two numbers refer to bodily injury liability limits and the third number refers to the property damage liability limits. To elucidate, 25/50/25 signifies each person hurt in a car accident would receive a maximum of $25,000, but only $50,000 is permitted for each accident. This means, if there are three individuals hurt, and each of them need $25,000, whoever submits a claim first gains first access to the $50,000 limit. As for the last number, it indicates that the total coverage per accident allotted for property damage is $25,000.
In the event of an accident, these state required limits often could not adequately cover all of your liability and property damage requirements. As such, even though purchasing a policy that satisfies your state's minimum requirements is all that is required to operate a vehicle legally in your state or avoid being penalized for not showing proof of financial responsibility in the event of an accident, this is not always the best choice. This is because doing so would translate to more out-of-the-pocket expenses for you, and the possibility of jail time or being sued if you cannot pay for your liabilities.
How much insurance should you buy?
Insurance agents may tell you that you should purchase as much as you can pay for. While that may seem rational, it is not necessarily practical. For instance, you don't have to shell out a lot of money on a personal injury protection policy if you already have a health insurance or disability insurance through your employer.