Car insurance can seem like a complex topic. Essentially, it acts as a safeguard against unexpected events. It ensures you won't face financial devastation due to a car accident you might cause or be affected by.
Life and driving can be unpredictable, so it's wise to be prepared. In America, car insurance isn't just a recommendation; it's a legal requirement in most states. The amount of coverage required varies depending on where you live in the U.S.
Learn the Ins and Outs of Car Insurance
Do you ever find yourself wondering about the origins of car insurance? Probably not, but here's a brief history anyway.
Long before the famous GEICO gecko was even imagined, one of America's founding fathers was contemplating insurance. Benjamin Franklin, known for his numerous inventions, played a significant role in the development of insurance. According to PBS, Franklin established the Philadelphia Contributionship in 1751, the first company in the colonies to offer fire insurance.
Members of the Contributionship paid into a fund to cover fire-related losses experienced by other members. In its first year, the group issued 143 policies, and for seven years, none of the insured properties caught fire—a testament to Murphy's Law!
Though car insurance didn't exist during Franklin's time, he did advocate for crop insurance, life insurance, and coverage for widows and orphans. The purpose of Franklin's policies was similar to modern car insurance: to alleviate financial burdens when disaster strikes.
According to the Ohio Historical Society, Gilbert J. Loomis was the first person to purchase auto liability insurance in 1897. The policy protected him against damage to property or injury/death of an individual in an automobile accident. Since then, car insurance has evolved, becoming more popular and comprehensive.
How It Works
Car insurance is designed to assist you in recovering from injuries related to vehicle collisions and protect you from the costs associated with accidents. Essentially, it prevents you from facing a significant financial burden from an accident, regardless of who is at fault.
Car insurance deals with risk. Without it, you carry substantial financial risk in an accident. Being uninsured could mean owing far more money than you can afford.
Purchasing car insurance reduces this risk. By paying a monthly premium, you ensure that, in the event of an accident, the insurance company will assume much of the financial risk.
Why Is Car Insurance Important?
Life comes with no guarantees, a phrase that is especially true for auto insurance. Getting behind the wheel might not feel risky, but it is. You may be a safe driver, but numerous factors are beyond your control when driving.
For instance, you rely on other drivers to be attentive and safe. Car insurance acts as a safety net for mistakes made by drivers, whether it's your error or someone else's.
How Much Does Car Insurance Cost?
Several factors determine car insurance rates. You've likely heard the myth that red cars cost more to insure, but that's false. However, insurance costs do vary based on specific details. Factors influencing cost include age, ZIP code, credit score, and the make and model of your car.
In 2020, the national average cost for car insurance was about $199 per month, amounting to $2,388 annually.
Types of Car Insurance Coverage
Numerous types of car insurance coverage are available. The key is selecting the options that best suit your needs. Below is a list of typical car insurance offerings:
Liability Insurance: Required in most states, with two types:
Bodily Injury: Covers another person's injuries if you cause an accident.
Property Damage: Covers the cost of property damage from an accident.
Collision: Covers damage to your car from an accident, regardless of fault.
Comprehensive: Covers car replacement if stolen or damaged in a non-collision incident.
Medical Payment: Provides coverage for medical expenses of an insured driver and passengers injured in an accident.
Personal Injury Protection (PIP): Helps pay costs not covered by health insurance.
Personal Umbrella Policy (PUP): Offers additional liability coverage when standard insurance is insufficient.
Roadside Assistance: Provides financial aid for roadside assistance costs.
Rental Reimbursement: Pays for a rental car while your primary car is being repaired.
Sound System Insurance: Covers replacement of stolen/damaged car equipment (rare coverage).
Uninsured and Underinsured Motorist: Helps pay for property damage and medical expenses caused by a driver without sufficient insurance.
State Regulations and Car Insurance
As mentioned, car insurance is mandatory in nearly all states. U.S. drivers must purchase and maintain a specific level of coverage in case of accidents or injuries to others or property.
Failing to maintain coverage can lead to legal consequences. Some states allow opting out of car insurance by showing evidence of financial stability, such as a surety bond, cash deposit, or a self-insurance certificate.
Iowa, New Hampshire, Ohio, and Virginia do not require auto insurance, while the remaining 46 states do.
Choosing the Right Car Insurance
Before contacting an insurance company for a quote, research the type of coverage you need. Basic coverage typically includes liability insurance. The state's minimum requirements are a starting point, but you can opt for additional coverage if desired.
Many drivers choose comprehensive coverage in addition to liability insurance. Companies like Allstate offer optional add-ons like umbrella coverage, which provides additional liability coverage beyond standard auto or homeowners insurance. In summary, this type of coverage offers protection when regular coverage reaches its limits.
Additional coverage provides protection in areas that may benefit some drivers more than others. The decision is highly personal, so take the time to study what suits you best. Fortunately, some tools can simplify the process.
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