USA Car insurance: Which insurances do you need

One of the most surprising things about car insurance is that it isn’t mandatory in some states, e.g. Alabama, Iowa, Mississippi, New Hampshire, Pennsylvania, etc. These states have ‘financial responsibility’ laws, requiring you to post a bond, cash deposit or approved self-insurance with the state to cover damages if you’re involved in an accident.

Motorists in states where car insurance is compulsory must provide proof of insurance at the time of vehicle registration and may be required to carry it in their vehicles at all times. Buying car insurance is more complicated in the US than in most other countries and may include the following types of cover:

Liability Insurance

Liability insurance includes bodily injury liability, i.e. injuries you cause to someone else, and property damage liability, which is damage caused to someone else’s property, including other vehicles. In most states, liability motor insurance is compulsory, although it doesn’t necessarily include unlimited liability. Most states have laws setting minimum levels for liability insurance, but these are usually woefully inadequate. ‘Responsibility’ limits are set by each state for death or injury to one person, death or injury to more than one person, and property damage in excess of a certain amount.

If your liability after an accident exceeds your amount of insurance and you have personal assets, these are used to pay damages, if necessary, until you’re bankrupt.

Lawsuits often run into millions of dollars and litigation lawyers are among the richest legal vultures. Liability limits can usually be raised significantly for a modest extra premium. To protect yourself against astronomical damages, you can also take out a personal liability umbrella policy which increases your liability limits to a level that covers almost any event.

No-fault Insurance

Around 25 states and the District of Columbia have some form of Personal Injury Protection (PIP) or no-fault insurance law. This means that if you’re involved in an accident, you can claim (up to certain limits) from your own insurance company for personal injury sustained in an accident, rather than go to court and try to prove that the other party was at fault. In states without a no-fault law, the victim files a claim against the other driver, irrespective of whether or not the driver is insured, and is paid only if it can be proved that the other driver was responsible for the accident. If you weren’t to blame and can prove it through witnesses or a police prosecution of the other driver, make sure your insurance company is informed, or you may lose your good driver (no-claims) discount.

Where applicable, PIP insurance is usually compulsory and covers bodily injury only and not vehicle damage. Those insured under PIP insurance receive prompt payment from their own insurance company, but their right to sue for general damages is usually restricted. Motorists insured in states with liability laws should ensure that their insurance covers them when travelling in states with no-fault laws. Most insurance companies automatically extend their policies to cover states with no-fault laws.

PIP cover may duplicate insurance provided by health or disability insurance policies. PIP insurance provides benefits for medical and hospital costs (the level depends on your policy), plus lost wages or income continuation, replacement/essential services, survivors’ loss/death benefit, and funeral expenses. Lost wages and replacement services are payable up to a maximum amount for maximum periods.