A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products, including home, life, auto, and commercial, and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, mainly in the insuranc...

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Reviewed by Leslie Kasperowicz
Farmers Insurance CSR 4 Years

UPDATED: Oct 18, 2021

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Here's what you need to know...

  • Auto insurance is a legal requirement in most states.
  • Auto insurance protects you and other drivers on the road from financial disaster in case of an accident.
  • Different states have different types and amounts of auto insurance requirements by law.
  • Liability coverage is the most basic and common type of auto insurance available.

For many drivers, especially those on a tight budget, car insurance can seem like an unnecessary or even frivolous expense. If you are one of these drivers, you may find yourself wondering if you really have to have car insurance. The answer is that car insurance is legally required in nearly all states. Although it can seem like paying your car insurance premiums each month is like throwing money down the drain, there are several extremely valid reasons why auto insurance is a legal requirement and simply a good idea to have. If you need to decrease the amount of your monthly auto insurance premium, try using an online price comparison tool. Start comparing car insurance rates now by using our FREE tool above!

Where is Auto Insurance Legally Required?

In the United States, drivers are legally required to carry varying types of and amounts of auto insurance in all states, except the state of New Hampshire and in Washington D.C. Each state sets their own laws for the minimum amounts of insurance or other types of financial security tools that each driver will have to have in order to pay for any damage and harm caused by their own negligence in an accident.

Motorcycle insurance is a legal requirement in every state with the exceptions of Hawaii, Montana, New Hampshire, and Washington.

New Hampshire does not legally require its drivers to have liability insurance. However, it does require that their drivers are able to show that they have the financial means and security to provide for damages if an accident occurs and they are deemed to be at fault. Drivers in Virginia are legally required to have auto insurance or to register their uninsured vehicle for a large fee. If there was an accident, this fee would then be used to help cover any damages that the driver was found to be at fault for.

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The Safety Net of Auto Insurance

In general, the people of the United States are supportive of compulsory auto insurance laws and want the laws to be enforced for everyone’s protection. Car insurance laws are in place to protect all drivers and the general public. The latest car insurance related statistics, according to the Insurance Research Council (IRC), are from 2012. These statistics show that nationwide 12.6 percent of motorists were uninsured. However, the uninsured motorist rate can vary widely from one state to the next. For example, in 2009, Mississippi had the highest uninsured motorist rate at 28 percent, while Massachusetts had the lowest rate at 4.5 percent.

To help decrease the number of uninsured motorists, states are implementing new technologies and systems, such as electronic means to verify valid auto insurance. They are also enforcing stiffer penalties for those without insurance. This is because, unfortunately, a motorist who chooses not to be insured has the potential to cause serious problems for other parties.

What Types of Auto Insurance is Required?

Specific types and amounts of car insurance required will be different depending on which state you live in. Your car insurance company or potential car insurance company can inform you of what is legally required and what is optional coverage. Here are the generally required insurance policy types:

  • Liability Coverage- The most common type of required insurance, as well as the most basic coverage, is liability coverage. This type of coverage pays for damage that you cause to another driver, their car or property, and their passengers. Liability coverage is usually listed with several numbers, such as 15/30/10. A liability policy with these limits will have $15,000 in coverage for injuries to another driver, up to $30,000 for all injuries caused by the accident, and $10,000 for property damage, including the other person’s vehicle. It is very important to understand that liability coverage does not cover any damages to your vehicle or medical expenses for you. In addition, different states have different required amounts of liability insurance.
  • Personal Injury Protection- Also known simply as PIP, this type of policy covers medical expenses for the insured party and any passengers in their vehicle in case of an accident. In some states, it can also provide for lost wages and other benefits. In no-fault states like Florida, Michigan, Pennsylvania, New York, and New Jersey, each party is responsible for their own damages in an accident. In these states PIP is an important coverage to have.
  • Uninsured/Underinsured Motorist Coverage- These types of policies will protect you in the event that you are in an accident with another driver who either doesn’t have auto insurance coverage or does not have enough insurance to cover all of your damages. In states such as Maryland, New York, Pennsylvania, and Illinois, this coverage is required. Even if this insurance coverage is not a legal requirement in your state, it is a good idea to consider.
  • Medical Payments Coverage- This coverage type will pay for medical expenses if you are injured in an accident. However, medical payments coverage will not cover lost wages. These types of policies are known for having low limits, but can be very useful for people who have high health insurance deductibles. The only state requiring this type of coverage, however, is Pennsylvania.

Insurance for Leased Cars or Cars with Outstanding Loans

If you lease your vehicle or have an outstanding loan for your vehicle, the loan or lease company will also likely require to have insurance. Many times they require you to have auto insurance above and beyond what is legally required.

  • Collision Coverage- This type of insurance coverage will be used should there be damage to your leased or loaned vehicle caused by another car or an object.
  • Comprehensive Coverage- This coverage type is relied upon when there is a loss that is caused by something other than another vehicle or object. Examples of when comprehensive coverage comes into play include fire, theft, vandalism, or a collision with a wild animal.

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Gap Auto Insurance Coverage

In addition, if you lease your vehicle, your leasing company will likely require you to have what is called gap insurance. In some cases, when you are in an accident, the amount that your car is worth is less than what is actually owed on the loan or the lease. This creates a gap, so to speak, in what your car insurance company will pay for the total loss of the vehicle and what you still owe money on the auto loan or the lease.

In most cases, gap insurance is rolled into the price you already pay for your lease, so you will not have an extra insurance bill to pay.

Usually, the auto dealer or leasing company buys a master gap policy from an insurance company to cover gap insurance for all of their leased vehicles. They divide up the cost of their master policy amongst all leases that they service and provide you with a gap waiver. In the event that you total your leased car, you will not be legally responsible for paying the difference between what is still owed on the lease and what your car insurance company deems to be the fair market value of the car. Sometimes this amount can be thousands of dollars as cars can depreciate quickly once they are driven off of the lot. Check with your auto dealer or leasing company for more specifics and to make sure that you are covered.

If you have a loan your vehicle and not a lease, you can purchase a gap policy from your auto insurance company in many states. Check with your insurance company for more specifics on a gap policy if you have a loan out on your vehicle.

While paying your auto insurance premium each month may seem like a waste of hard-earned money, you are actually paying for valuable protection for you and other drivers on the road. In addition, having insurance makes you compliant with your state’s auto insurance laws and with your vehicle lease or loan agreements. If you need to search for a better premium price on auto insurance, check out an online comparison tool. Enter your zip code in our FREE tool below to start comparing car insurance rates now!