In the USA car insurance covering liability for injuries and property damage done to others is compulsory in most states, though enforcement of the requirement varies from state to state.
The state of New Hampshire, for example, does not require motorists to carry liability insurance (the ballpark model), while in Virginia residents must pay the state a $500 annual fee per vehicle if they choose not to buy liability insurance.
Penalties for not purchasing auto insurance vary by state, but often involve a substantial fine, license and/or registration suspension or revocation, as well as possible jail time in some states. Usually, the minimum required by law is third party insurance to protect third parties against the financial consequences of loss, damage or injury caused by a vehicle.
Some states, such as North Carolina, require that a driver hold liability insurance before a license can be issued.
Arizona Department of Transportation Research Project Manager John Semmens has recommended that car insurers issue license plates, and that they be held responsible for the full cost of injuries and property damages 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.
Vehicles driving without insurance would thus be easy to spot because they would not have license plates, or the plates would be past the marked expiration date.
Vehicle insurance can cover some or all of the following items:
- The insured party
- The insured vehicle
- Third parties (car and people)
In some States coverage for injuries to persons riding in the insured vehicle is available without regard to fault in the auto accident (No Fault Auto Insurance)
Different policies specify the circumstances under which each item is covered. For example, a vehicle can be insured against theft, fire damage, or accident damage independently.
Excess on USA Car Insurance
An excess payment, also known as a deductible, is the fixed contribution you must pay each time your car is repaired through your car insurance policy. Normally the payment is made directly to the accident repair “garage” (The term “garage” refers to an establishment where vehicles are serviced and repaired) when you collect the car.
If one’s car is declared to be a “write off” or “total loss”(”write off” is commonly used in motor insurance to describe a vehicle the worth of which is less than the cost of repair), the insurance company will deduct the excess agreed on the policy from the settlement payment it makes to you.
If the accident was the other driver’s fault, and this is accepted by the third party’s insurer, you’ll be able to reclaim your excess payment from the other person’s insurance company.
Compulsory excess in USA Car Insurance
A compulsory excess is the minimum excess payment your insurer will accept on your insurance policy. Minimum excesses vary according to your personal details, driving record and insurance company.
Voluntary excess in USA Car Insurance
In order to reduce your insurance premium, you may offer to pay a higher excess than the compulsory excess demanded by your insurance company. Your voluntary excess is the extra amount over and above the compulsory excess that you agree to pay in the event of a claim on the policy. As a bigger excess reduces the financial risk carried by your insurer, your insurer is able to offer you a significantly lower premium.
Basis of premium charges auto insurance risk selection
Depending on the jurisdiction, the insurance premium can be either mandated by the government or determined by the insurance company in accordance to a framework of regulations set by the government. Often, the insurer will have more freedom to set the price on physical damage coverages than on mandatory liability coverages.
When the premium is not mandated by the government, it is usually derived from the calculations of an actuary based on statistical data. The premium can vary depending on many factors that are believed to have an impact on the expected cost of future claims.
Those factors can include the car characteristics, the coverage selected (deductible, limit, covered perils), the profile of the driver (age, gender, driving history) and the usage of the car (commute to work or not, predicted annual distance driven).
Men average more miles driven per year than women do, and consequently have a proportionally higher accident involvement at all ages. Insurance companies cite women’s lower accident involvement in keeping the youth surcharge lower for young women drivers than for their male counterparts, but adult rates are generally unisex.
Reference to the lower rate for young women as “the women’s discount” has caused confusion that was evident in news reports on a recently defeated EC proposal to make it illegal to consider gender in assessing insurance premiums. Ending the discount would have made no difference to most women’s premiums.
Teenage drivers who have no driving record will have higher car insurance premiums. However, young drivers are often offered discounts if they undertake further driver training on recognised courses, such as the Pass Plus scheme in the UK. In the U.S. many insurers offer a good grade discount to students with a good academic record and resident student discounts to those wholive a way from home. Generally insurance premiums tend to become lower at the age of 25. Senior drivers are often eligible for retirement discounts reflecting lower average miles driven by this age group.
Drivers who are unmarried are often charged higher insurance premiums as opposed to married drivers.
Owners of sports cars, muscle cars, some sport utility vehicles, and motorcycles would have higher insurance premiums as opposed to compact cars, midsized cars, or luxury cars.
However, in the case of motorcycles, the chance of causing extensive damage to other vehicles is relatively low (as opposed to damage to oneself) and thus liability insurance premiums are often lower.
Some car insurance plans do not differentiate in regard to how much the car is used. However, methods of differentiation would include:
1). Reasonable estimation
Several car insurance plans rely on a reasonable estimation of the average annual distance expected to be driven which is provided by the insured. This discount benefits drivers who drive their cars infrequently but has no actuarial value since it is unverified.
2). Odometer-based systems
Cents Per Mile Now(1986) advocates classified odometer-mile rates. After the company’s risk factors have been applied and the customer has accepted the per-mile rate offered, customers buy prepaid miles of insurance protection as needed, like buying gallons of gasoline.
Insurance automatically ends when the odometer limit (recorded on the car’s insurance ID card) is reached unless more miles are bought.
Customers keep track of miles on their own odometer to know when to buy more. The company does no after-the-fact billing of the customer, and the customer doesn’t have to estimate a “future annual mileage” figure for the company to obtain a discount. In the event of a traffic stop, an officer could easily verify that the insurance is current by comparing the figure on the insurance card to that on the odometer.
Critics point out the possibility of cheating the system by odometer tampering. Although the newer electronic odometers are difficult to roll back, they can still be defeated by disconnecting the odometer wires and reconnecting them later. However, as the Cents Per Mile Now website points out:
As a practical matter, resetting odometers requires equipment plus expertise that makes stealing insurance risky and uneconomical. For example, in order to steal 20,000 miles (32,000 km) of continuous protection while paying for only the 2,000 miles (3,200 km) from 35,000 miles (56,000 km) to 37,000 miles (60,000 km) on the odometer, the resetting would have to be done at least nine times to keep the odometer reading within the narrow 2,000-mile (3,200 km) covered range.
There are also powerful legal deterrents to this way of stealing insurance protection. Odometers have always served as the measuring device for resale value, rental and leasing charges, warranty limits, mechanical breakdown insurance, and cents-per-mile tax deductions or reimbursements for business or government travel. Odometer tampering detected during claim processing voids the insurance and, under decades-old state and federal law, is punishable by heavy fines and jail.
Under the cents-per-mile system, rewards for driving less are delivered automatically without need for administratively cumbersome and costly GPS technology. Uniform per-mile exposure measurement for the first time provides the basis for statistically valid rate classes. Insurer premium income automatically keeps pace with increases or decreases in driving activity, cutting back on resulting insurer demand for rate increases and preventing today’s windfalls to insurers when decreased driving activity lowers costs but not premiums.
3). GPS-based system
In 1998, Progressive Insurance started a pilot program in Texas in which drivers received a discount for installing a GPS-based device that tracked their driving behavior and reported the results via cellular phone to the company. Policyholders were reportedly more upset about having to pay for the expensive device than they were over privacy concerns. The program was discontinued in 2000.
4). OBDII-based system
In 2008, The Progressive Corporation launched MyRate to give drivers a customized insurance rate based on how, how much, and when their car is driven. MyRate is currently available in Alabama, Kentucky, Louisiana, Michigan, Minnesota, Maryland, New Jersey, California and Oregon.
5). Driving data is transmitted to the company using an on-board telematic device.
The device connects to a car’s OnBoard Diagnostic (OBD-II) port (all automobiles built after 1996 have an OBD-II.) and transmits speed, time of day and number of miles the car is driven.
There is no GPS in the MyRate device, so no location information is collected. Cars that are driven less often, in less risky ways and at less risky times of day can receive large discounts.
Progressive has received patents on its methods and systems of implementing usage-based insurance and has licensed these methods and systems to other companies. Progressive has service marks pending on the terms Pay As You Drive and Pay How You Drive.
Auto insurance in the United States Coverage available
The consumer may be protected with different coverage types depending on what coverage the insured purchases. Some states require that motorists carry liability insurance coverage to ensure that its drivers can cover the cost of damages to people or property in the event of an automobile accident. Some states, such as Wisconsin, have more flexible “proof of financial responsibility” requirements.
In the United States, liability insurance covers claims against the policy holder and generally, any other operator of the insured vehicles, provided they do not live at the same address as the policy holder, and are not specifically excluded on the policy. In the case of those living at the same address, they must specifically be covered on the policy.
Thus it is necessary, for example, when a family member comes of driving age they must be added to the policy. Liability insurance sometimes does not protect the policy holder if they operate any vehicles other than their own. When you drive a vehicle owned by another party, you are covered under that party’s policy. Non-owners policies may be offered that would cover an insured on any vehicle they drive.
This coverage is available only to those who do not own their own vehicle and is sometimes required by the government for drivers who have previously been found at fault in an accident. Non-owners policies are also known as Named Operator Policies. The policies are useful for people whose drivers license has been suspended and they have to have insurance for their licensed to be reinstated.
Generally, liability coverage extends when you rent a car. Comprehensive policies (”full coverage”) usually also apply to the rental vehicle, although this should be verified before hand.
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 transaction is processed using one of their cards. These benefits are restrictive in terms of the types of vehicles covered.
Liability coverage 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 1st Party’s) policy.
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 combine 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.
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 as well into a maximum payment per person and a maximum payment per accident.
In the state of Oklahoma, you 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 persons medical bills but will not exceed 50,000 for other people injured in the accident. The insurance company will pay property damage not to exceed 25,000 in repairs to the vehicle that the insured 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.