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Auto insurance became mandatory – you’re required to buy car insurance if you own a car and plan to drive in most of the states.

Car insurance protects you from accidents that might drain you financially otherwise. Although the cost to buy car insurance can be high at times, it sure pays off if you’re involved in an accident.

We know that most of the auto owners are concerned about the rising costs of their premiums which can be lowered if you’re aware of the different discounts offered by insurance companies and keep tabs on the laws in your state.

Enter your ZIP code above to find rates and providers in your area.

For instance, you can bring down your premiums by 10-30 percent by being a safe driver and enrolling in a usage-based car insurance system. In fact, you can choose to buy the minimum coverage level required by law to reduce the burden of premiums.

There are many facts about insurance coverage and laws in your state that are designed to help auto-owners but you have to know them to benefit out of them. Let’s wade through some of those important laws and we promise to make this an interesting read for you.

How Car Insurance Laws for Insurance are Determined

Behind the rates and coverage requirements in your state, there are laws that define how much insurance providers can charge from auto owners and the level beyond which they can’t raise rates.

The minimum coverage requirements are in place to cover your damages in an accident, which are based on the average expenses from accidents.

The state laws also mention how liability should be determined in an accident that helps insurance providers settle damages. We would understand these car insurance laws in detail now.

Each state has its own rate regulation mechanism that allows insurance providers to seek approval for rates they are planning to charge from consumers. Insurance companies have the following options to choose from depending on the law in their state.

• Determined by the commissioner: In this option, insurance rates are determined by the state’s commissioner.
• Prior approval: Insurance companies need to file the rates with their state’s insurance department and can use only after it has been approved.
• Modified prior approval: Rate changes where insurers need a change in rate relativity or expense ratio need prior approval.
• Flex rating: New rates need to be approved if they are above a certain percentage than the previously filed rates.
• File and use: Rates need to be filed with the state insurance department for use, however, there’s no requirement of approval.
• Use and file: Rates should be filed within a specific time period after they have been implemented for use.
• No file: An insurance company isn’t required to either file or get approval for their rates.

Fault vs No-Fault Laws

In an accident, it’s logical to first determine the fault so that the at-fault party can settle the damages sustained by the third-party. Though this practice is followed by most of the states, it’s not the best way to cover damages.

Because a few auto owners choose to sue the at-fault party for non-economic damages which are quite difficult to quantify and takes a long time to settle. This is why some states have no-fault auto insurance coverage.

In a no-fault state, both the parties in an accident turn to their own insurance provider for claiming damages irrespective of fault. The no-fault law also limits the freedom to sue the other party unless the injuries or damages exceed the threshold mentioned in the law.

As of now, 12 states follow the no-fault law which includes – Florida, Michigan, New Jersey, New York, Pennsylvania, Hawaii, Kansas, Kentucky, Massachusetts, Minnesota, North Dakota, and Utah.

From these 12 states, Pennsylvania, New Jersey, and Kentucky follow a choice no-fault law wherein motorists have the choice between two options – they can either go for a traditional tort liability coverage or a no-fault policy.

If you’re in a no-fault state, the following rules would be applicable to you:

• Your insurance company will pay first-party benefits in an accident
• Your right to sue is limited unless the damages from an accident exceed the verbal or monetary threshold
• Personal injury protection or PIP coverage is mandatory in no-fault states, which usually covers your medical expenses, lost wages, and funeral expenses

Apart from these 12 states, every other state follows the fault system, which requires the at-fault party to cover the damages in an accident.

Compulsory Auto Insurance Laws

Law enforcement makes every effort to ensure that all motorists driving on the roads have at least the minimum insurance coverage. However, there are some car owners who let their insurance policies lapse intentionally.

Since such people would be incapable to meet third-party damages in an accident caused by them, some states have enacted a No Pay, No Play law that prohibits uninsured motorists from bringing a lawsuit for non-economic damages.

Here’s a look at how some states implement the No Pay, No Play law:

• Indiana: In the event of an accident, uninsured motorists can’t receive any compensation for non-economic damages barring a few exceptions.
• Missouri: Laws in this state also prohibit uninsured motorists from collecting non-economic damages except when the at-fault party was driving under the influence of alcohol or was convicted of second-degree assault or involuntary manslaughter.
• Michigan: Uninsured drivers who are equally or more responsible for an accident can’t collect damages for non-economic damages.
• California: The Golden State prohibits both drunk and uninsured drivers from filing lawsuits for accidents.
• Louisiana: Uninsured motorists are compelled to pay the first $10,000 in medical expenses and property damages (each) before they can sue.
• New Jersey: Uninsured motorists, drunk drivers, and those who commit crimes can’t sue the other party for economic or non-economic damages in an accident.

Financial Responsibility Laws by State

Every auto owner with a valid license plate and registration has to abide by the financial responsibility laws of the state which require motorists to be able to manage the financial expenses arising from damages in an accident. Buying the minimum insurance coverage is one way to meet the financial responsibility laws, but there are other ways to fulfill this condition.

Having said that, auto owners are compliant with the financial responsibility laws of a state if they buy the state-mandated insurance coverage. Let’s look at what other options auto owners have to comply with the law.

• Depending on the state, auto owners can submit a surety bond with the specified amount from a company licensed to conduct operations in your state
• Few states also accept a cash deposit from motorists in place of insurance coverage
• Fleet owners who have more than 25 vehicles in their name can also qualify for self-insurance in some states

In the state of Virginia, motorists can comply with the financial responsibility laws by paying an uninsured motorist fee equivalent to $500. This fee in no way absolves them of their responsibility to cover the damages in an accident caused by them. It’s just something motorists have to pay should they choose to not buy insurance.

How can states ensure compliance with the financial responsibility laws?

As per a study conducted by the Insurance Research Council, around 13 percent of the motorists are uninsured in America, which equates to one in eight drivers. As some car owners let their policies lapse, many states have implemented automatic monthly insurance coverage checks to ensure compliance with the law.

Apart from these checks, motorists can also be asked to provide proof of insurance by law officers at traffic stops, after an accident, registration of a vehicle, and driver’s license reinstatement.

Minimum Car Insurance Requirements by State

In the last section, we focused on the laws that require motorists to be financially responsible for their actions while driving. Although there are alternatives to buying insurance, those are not always the best options for you, which is why it’s recommended to at least buy the minimum coverage required in your state.

So what are the minimum auto insurance requirements in your state, and what do those limits mean?

Depending on whether you live in a fault or no-fault state, the minimum car insurance requirements are determined. Let’s talk about what types of coverage you must buy to legally drive in your state.

• Bodily injury and property damage liability (BI & PD): Regardless of which state you live in, you have to buy the BI & PD liability coverage, which helps you in paying-off third party damages when you’re the at-fault driver in an accident.
• Personal injury protection (PIP): PIP is mandatory in no-fault states as motorists turn to their own insurers for seeking reimbursement of medical expenses.
• Uninsured/Underinsured motorist coverage (UM/UIM): If you’re hit by a motorist who isn’t insured or doesn’t have enough insurance, UM/UIM coverage can protect you from the expenses of damages. Some states make UM/UIM mandatory for motorists.

Insurance coverage limits are usually written as 25/50/25, which means a bodily injury liability limit of $25,000 per person with a cap of $50,000 per accident and a property damage liability of $25,000. If you buy a policy with these coverage limits, your insurance company would cover third-party damages to the extent of those policy limits.

Remember that liability coverage doesn’t pay for the injuries or damages you sustain in an accident.

In the table above, the minimum coverage limits for each state denote the bodily injury and property damage liability limits that the auto owners must buy.

Is the minimum auto insurance requirement enough for auto owners?

Believe it or not, the minimum coverage limits mandated by most states are grossly low. If you cause a minor accident leading to dents and scratches on the car’s body, then the limits are perfectly fine.

However, we don’t buy insurance coverage for minor fender-benders. It’s a safety net for accidents where the expenses go out of control. If you end up hitting a high-end car, the property damage expenses can topple over your financial situation. And let’s not even get into the medical expenses, which we all know are almost always exorbitant.

If the injury or trauma of an accident is severe, the third-party may also decide to sue you. Considering all these costs, you should at least have liability coverage of $500,000 in total including both personal injury and property damage.

Enforcement of Compulsory Auto Insurance Laws (Online Verification Systems)

As you already know that every state has a few motorists who remain uninsured, it becomes paramount to have a system for keeping track of insurance coverage of auto owners.

It’s mandatory to carry proof of insurance at all times while driving in most of the states. You may carry a physical insurance card or electronic proof on your mobile phone, depending on the law in your state.

Motorists are also required to present the proof of insurance when asked by:

• the Department of Motor Vehicles during registration
• law enforcement officers at a traffic stop
• police officers immediately after an accident

Although these checks can help in ensuring that motorists carry coverage, there are many drivers who can dodge these by never getting caught by law enforcement. That’s why many states now have laws that require insurers to regularly provide information about auto liability policies to their state’s insurance department.

To overcome database problems with information mismatch between insurers and state departments, a single online verification system was developed by the Insurance Industry Committee on Motor Vehicle Administration (IICMVA).

State DMVs can now access an online portal that has all the information about active insurance policies and can verify in real-time whether an auto owner has coverage.

Penalties for Driving without Car Insurance

With enhanced checks and verification systems, it’s difficult for motorists to drive without auto insurance coverage. If your state’s DMV finds out that you’re driving without auto insurance, you’ll be sent a notice to provide proof of insurance at the earliest.

Inability to provide proof of coverage can lead to several consequences, such as:

• Fines: If you’re pulled over and can’t provide proof of insurance coverage, you will be fined for sure. How much you have to shell out in fines depends on the state you live in. For instance, you can be charged up to $5,000 for driving without insurance in Massachusetts.
• License revocation and registration suspension: Most of the states suspend either your driver’s license or registration, and some of them suspend both documents. There is an extra cost for reinstatement.
• Vehicle impoundment: In some states like Arkansas and California, the court can order the impoundment of your vehicle. In Iowa, your vehicle could be impounded when you’re pulled over by a police officer.
• Imprisonment: Some states can put you behind the bars for not carrying insurance. The jail term for driving without insurance can be anywhere between six months and one year.

State Department of Insurance

For any queries or complaints regarding laws or fraudulent practices, your state Department of Insurance can provide you assistance. The Department of Motor Vehicles, on the other hand, ensures that all paperwork of motorists is up-to-date, such as driver’s licenses, state identification cards, and car registration.

Both departments help in the regulation of insurance coverage by implementing laws and conducting regular checks to make the roads safer for everyone.

Car Insurance Rating Factors

Car insurance companies use a multitude of factors that determine your auto insurance rates, which can be related to driving or non-driving factors.

Auto owners are at times surprised by the factors that impact auto insurance premiums. If you know these factors, you can save a lot of money on premiums. For instance, insurers use credit history as one of the factors to calculate your rates, so you can work on improving your credit to get better rates.

Although all insurance companies have their own rating methodology, some states don’t allow insurers to use certain factors for rate calculation.

Which states are restrictive with respect to factors used for rate calculation?

Three states –  California, Hawaii, and Massachusetts – strictly prohibit the use of certain non-driving factors for calculating rates of auto owners. All these states do not allow insurers to use credit scores in their actuarial models.

• In Hawaii, insurance companies aren’t allowed to use age, gender, marital status, and driving experience.
• In Massachusetts, apart from the restrictions on using age, gender, marital status, and driving experience, insurance companies can’t even use an individual’s occupation, income and education levels, and homeownership status.
• California has the strictest regulations for using factors for rate setting. Insurance providers are required to focus on three main factors — daily mileage, driving record, and driving experience. The other 16 optional factors can’t have a bigger influence than those three major factors. In addition, insurance providers can’t use age, gender, education level, job, and credit history to calculate rates in California.
• Gender-based discrimination is also banned in Montana, North Carolina, Pennsylvania, and some parts of Michigan.

Michigan is also gearing up to ban a lot of non-driving factors as the state has one of the highest auto insurance rates in the country. In a bill that was introduced in July, it was suggested to prohibit insurance companies to calculate rates on the basis of ZIP code, census tract, gender, education, occupation, employment, homeownership, credit score, and marital status.

Apart from the above-mentioned states, insurance providers can use any factor to calculate rates. Let’s look at what factors can affect your rates.

Non-driving factors include age, gender, marital status, education, employment, ZIP code, driving experience, credit history, and insurance history

Your car’s model and safety ratings and your driving habits and driving history almost always have an impact on your insurance rates.

High-Risk Car Insurance Plans

Although it’s mandatory for you to buy coverage if you want to drive legally, it would be difficult to get coverage if you’re a high-risk driver. Any motorist with a bunch of accidents or DUI convictions or speeding tickets is considered high-risk by insurance providers.

And when insurance providers are sure about the possibility of an accident because of risky driving habits, they will be reluctant about offering coverage.

So, how can high-risk drivers obtain coverage?

Every state offers a high-risk insurance plan that helps to provide coverage to drivers who have been rejected by at least two insurance providers in a period of 60 days. This insurance plan pools all high-risk drivers in a state and assigns them to insurance providers permitted to conduct business in the state.

Every insurance company must absorb a percentage of high-risk drivers as per their market share in the state. For instance, if an insurance company holds a 10 percent share in the market, it must offer coverage to 10 percent of the high-risk drivers in the pool.

Since the risks are high, the premiums also tend to be significantly high under these plans. That’s why everyone tries to first search for coverage in the voluntary market.

Here’s some advice on how to get cheap high-risk insurance.

Low-Cost Auto Insurance Policies

Not every motorist has the resources or income to afford the premiums charged by auto insurance providers. Fortunately, a couple of states have introduced insurance plans for people who aren’t able to pay the high premiums.

• New Jersey: Auto owners who are eligible for Medicaid with hospitalization can get low-cost coverage under the Special Automobile Insurance Policy (SAIP). Also known as the Dollar-A-Day policy, this coverage only offers medical insurance at a cost of $365/year. This coverage includes emergency medical treatment after an accident as well as treatment of serious injuries up to a limit of $250,000 and a death benefit of $10,000.
• California: The low-income insurance program in California is meant for drivers under the age of 19 who have a good driving record. The policy, for which the premium is determined in each county, offers liability coverage of $10,000 per person and $20,000 per accident. Drivers can also get an optional uninsured motorist coverage with the same limits and medical payments coverage of $1,000.

Penalties for Lapse in Insurance Coverage

Letting your policy lapse intentionally or by mistake can have some serious consequences for you. First of all, it’s illegal for you to drive without insurance even for a single day. Secondly, your insurance rates will rise significantly if there’s any gap in insurance.

How much your auto insurance rates increase on policy lapse?

If you forget to renew your policy or miss a payment, your insurance provider will cancel your policy and also notify your state’s Department of Insurance as it’s required by law. When the Department of Insurance becomes aware of a policy lapse, they will levy fines on you.

Also after a lapse, when you try to buy another policy, it will cost you much higher.

We conducted a study in three states – South Carolina, California, and Florida – for the same driver profile to see how much rates are raised after a policy lapse.

In Florida, the rates for Geico rise exponentially after a policy lapse while Progressive raises its rates quite significantly in South Carolina and Florida. The increase in rates is still reasonable at Liberty Mutual, Farmers, and Nationwide.

Canceling your Auto Insurance Policy

As per the law in most states, you can’t drive without an insurance policy, so you can cancel your policy only if you’re canceling your car’s registration. Even if you don’t drive anymore or keep your car in a garage, you must keep your insurance policy.

But if you’re thinking of switching insurance providers or selling off your car, you should cancel your current policy.

Can you cancel your car insurance policy anytime?

Technically, yes. If you don’t need coverage or have plans to buy a policy from some other insurer, you can cancel your current policy right away. Just make sure that your insurance provider doesn’t charge any penalties for cancellation before the policy period ends.

If you’ve paid your premiums in advance, your insurance provider should refund you the unused premium balance within a stipulated time. You should have your next policy in place to have continuous coverage and avoid any lapse.

How do you cancel your policy?

With some insurance companies, it’s as simple as calling the customer care service, and your policy would be canceled from the date you request cancellation. If that doesn’t work with your insurance company, you can connect with your insurance agent to cancel your policy. Most of the insurers these days also offer an option to cancel your policy online.

If those options of cancellation don’t suit you, the policy can also be canceled by mail or in-person at the agent’s office.

Moving to a New State

Moving to a new state is a thrilling experience but daunting as well because you have tons of tasks to take care of before and after the move. When you’re moving, it’s important to give a thought to your auto insurance coverage and speak to your agent if they offer coverage in your new state.

Even if your insurance provider offers coverage in the state where you’re moving, the state laws can be different with respect to coverage requirements, and you may have to update your coverage. Moving to a new state is a good opportunity to shop around for rates because you can get a cheaper quote than what you’re getting from your current provider.

State Insurance Laws

Apart from different minimum coverage requirements in states, the fault laws can also vary. If you’re moving from an at-fault state to a no-fault state, you will have to add personal injury protection to your coverage. Your premiums will change accordingly and you’ll have to shop around for insurance.

Location-specific Rates

Among the factors that impact your car insurance rates, ZIP code is a major contributor except for some states where the use of ZIP code for rate calculation is prohibited.

Therefore, the chances are that your insurance rate would change when you move. In locations with a higher population density, the rates are more, so if you’re moving to New York or California from Ohio, you can expect a rate hike.

In addition to updating your auto insurance coverage, you have to register your vehicle in the new state as well as get a new driver’s license within 30 days of establishing residency.

Filing a Lawsuit for Car Accidents

Being involved in a car accident is always a pain, whether you’re at fault or not. If the accident is minor, you can just take your car for repair and be done with the whole episode. But if it’s major, you might have to deal with hospitals, multiple repair shops, and insurance adjusters.

And if the at-fault party refuses to rightfully reimburse for damages, you might have to take the legal course, which is stressful. But if you aren’t left with any choice, you should file a lawsuit to claim the damages.

Statute of Limitations by State

Every state has a time limit for filing lawsuits after an accident. This time is set for victims of car accidents to assess whether their damages have been settled correctly – if not, they can take their grievances to the court, where the judge will make an accurate assessment.

The deadline for filing a lawsuit can be the same or different for personal injuries and property damages. The start date for the statute is usually the date of the accident, but in the case of wrongful death, it starts on the day of the victim’s death.

A car accident victim is allowed to file a lawsuit beyond the time limit as stated in the statute only under special circumstances. For instance, if the injured person was a minor or the at-fault person leaves the state for a specific time, then the deadline can be extended.

In the table above, you can see the statute of limitations in all the states. Notice that the deadline for property damage lawsuits is either similar to personal injuries or usually longer than that.

Why Should you File a Lawsuit for Car Accident

When the compensation offered to you in a car accident settlement is much less than your injuries and damages, you can file a lawsuit against the at-fault party. However, you need to first make sure that the compensation being offered is in fact much lower than what you should get.

Since auto owners don’t come across car accidents every day and have no experience with how car accident litigations work, you should consult with a car accident attorney to get estimations on the worth of your case. Only when a lawyer confirms your doubts should you take action.

Generally, it’s easier to estimate the cost of personal injuries and property damage. But an accident can also lead to pain and suffering, which is difficult to estimate in monetary terms. And that’s where a lawyer can help you.

How to File a Lawsuit

If filing a lawsuit makes you anxious, then you should read on.

Finding the courage and means to appear in court is not simple, but it’s something that you can easily do with a little research. You should begin with filing a formal complaint in a civil court.

Usually, you will need to list everything about the incidence in this formal document — how the accident happened, what the injuries and damages were, how much you’re claiming, and why you’re filing a lawsuit.

• Inform the defendant: You must inform the at-fault party about your decision to take this drastic step. Whether you like it or not, the legal system offers a chance to the defendant to present their side of the story. Each jurisdiction has rules on how to serve a notice, who can serve a notice, and how soon should you serve a notice, so keep those in mind while filing the complaint.
• Get to know the details: Once the defendant receives the notice, they have to respond with their version of the incident. After this stage, both parties exchange vital details about the case to build their defenses and work on gathering information to make their case stronger.
• Trial: The last stage is the trial, where you will get to face the defendant and present your case or prove what you’re demanding is worth your injuries or pain. The judge will look at all the details of the case, hear each side’s story, look at the evidence, and will announce its verdict in the end.

Hiring a Personal Injury Attorney

Every legal case requires skills and expertise, and although you may be capable of filing a case all by yourself, it always helps to have professional experts who make sure that you don’t miss anything.

Personal injury lawyers aren’t only skilled to assess your case correctly but can dig out evidence that would make your case stronger.

Even if you don’t want to hire a full-time attorney, you can at least consult one to get your facts checked before you file the formal complaint. However, there are certain situations in which you must hire an attorney.

• Bad-faith practices: When the other party either refuses to settle your damages or becomes unfair in their communication with you, try talking to a personal injury attorney. Most of the time, insurers engaging in bad practices use some loopholes in the legal system to fleece you, which can be handled only by a lawyer who knows the system well.
• Severe injuries: If you have sustained severe injuries and it will take a long time for you to recover, then you should seriously consider hiring a lawyer. Because apart from the immediate medical or rehabilitation expenses, you might lose your income earning capacity. A lawyer would help you to estimate the compensation you should receive.

Comparative and Contributory Negligence Laws

To make sure the process of settlements is fair, states have laws that look into the negligence of all the parties involved in an accident.

If there are two parties who are both responsible for the accident, they either have to share the damages or can’t recover anything from the other party, depending on the laws in their jurisdiction.

• Comparative negligence: States that follow the comparative negligence system assign fault in an accident between all the parties involved. So if you’re 30 percent at fault in an accident, you’ll receive 70 percent of the claimed compensation. Rules for comparative negligence vary by state. In some states (New York, Florida, and California), accident victims can recover compensation regardless of how negligent they were. However, there are some states with modified comparative negligence laws where the accident victim’s fault should be less than 50 percent in an accident to recover damages.
• Contributory negligence: If you live in one of these states — Alabama, Maryland, North Carolina, Virginia, and the District of Columbia — being negligent in an accident can really topple you off when it comes to the rules. Accident victims in these states can’t recover any compensation if they’re somewhat responsible for the accident. It’s harsh, but it’s still followed by some states.

Suing your Auto Insurance Provider

Secretly, we all dream of a day when we can sue an auto insurance company to recover everything we pay in premiums year after year. But, that’s just wishful thinking.

If your insurer refuses to settle your claim or part of a claim, you might have to file a lawsuit against them. However, it’s not easy because they usually have access to the best lawyers who can make a strong defense against you.

So if you don’t have a strong case against your insurance company, we would recommend you to settle it outside the court.

If you strongly think that your insurance company is in the wrong and you can win a case against them, you should definitely file a lawsuit. Since it’s a civil case, you will have to hire a civil lawyer to fight your case.

You can represent yourself in court. However, remember that the insurance company will bring out their best lawyers to win the lawsuit, so you must present a strong case.

Another option would be to connect with your state insurance department and file a complaint if you aren’t satisfied with how they’re handling your case.

Accident victims need to have all the details of the accident in place to file a complaint or sue an insurance company. You can refer to the NAIC’s WreckCheck app for iPhone and Android to know about what to do after an accident.

We think by now you know more about car insurance laws than your agent. Use this knowledge to get discounts and better rates next time.

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01.02.2020 / auto insurance laws / car insurance laws / car insurance requirements / home