Basic Car Insurance: How it Works and What it Covers

A basic car insurance policy comes with liability coverage and satisfies minimum legal insurance requirements.

Basic car insurance is a policy that only includes liability coverage. It helps cover the damage you may cause to other people and their property. That can include medical bills, repair or replacement of property and legal fallout. Almost every state has minimum basic auto insurance limits for their drivers. When you buy auto insurance, your insurer will offer these limits as the default, but you should consider higher limits for the sake of your financial safety.

What is basic car insurance?

Basic car insurance usually refers to a policy that only comes with minimum coverage. In almost every state, drivers are only required to carry liability insurance. Basic car insurance is often known as liability insurance. Requirements vary by state, but basic auto insurance can be broken down into two main types of liability insurance: personal injury and property damage.

Personal injury

Bodily injury liability covers injuries that you cause to others in an auto-related accident. This part of your liability coverage reimburses the other driver and their passengers for their hospital bills and lost wages.

Property damage

Property damage liability handles the repair and replacement costs of damage to another's belongings in a car accident you cause. This normally applies to another driver's car, but also includes fences, mailboxes and public property such as trees.

In the event of a car accident for which you're responsible, your basic auto insurance will cover costs up to your policy limits.

What basic car insurance coverage is required?

The required limits of basic auto insurance vary widely from state to state. But every state except Virginia and New Hampshire requires drivers to carry a minimum amount of liability coverage. The main liability requirements that a state usually requires for drivers are:

  • Bodily injury coverage per person: this is the amount of basic car insurance you need to cover the medical expenses of a single person in a car accident claim for which you're responsible.
  • Bodily injury coverage per accident: this is the amount of basic auto insurance required to cover all individuals in a single auto insurance claim.
  • Property damage coverage: this indicates the amount you're required to have in basic car insurance to cover damage to another person's vehicle or belongings.

The precise dollar amounts of basic auto insurance a state requires are noted in a three-number format. Texas, for example, requires 30/60/25 in basic car insurance. This means the state requires drivers to have:

  • $30,000 in bodily injury coverage per person.
  • $60,000 in bodily injury coverage per accident.
  • $25,000 in property damage coverage per accident.

New Hampshire is the only state that doesn't require drivers to have basic car insurance unless they have a DUI and/or a license suspension, in which case you'll need SR-22 insurance. Some states allow you to make a cash deposit or buy a bond in lieu of liability insurance. In Virginia, you may pay an annual fee if you have no accidents. This provides no sort of compensation in the event of a car accident.

In the three options above, you are still required to prove financial responsibility in the event of a car crash. This puts you in the exact risky situation that auto liability insurance is meant to help you avoid. You're usually better off financially finding basic auto insurance.

Depending on the state you live in, you may be required to have personal injury protection (PIP) insurance or medical payments coverage. Uninsured/underinsured motorist coverage is another possible required insurance type.

Personal injury protection (PIP) and medical payments coverage

PIP covers your own medical costs, as well as lost wages and rehabilitation costs that may arise due to a car accident. The state you're in may offer medical payments coverage, also known as "MedPay", as an alternative to PIP coverage. MedPay only covers medical costs, with nothing for lost wages or rehab costs. However, MedPay also covers your passengers injured in an accident, which PIP does not. Sixteen states require PIP or MedPay coverage. If you have decent health insurance, we recommend selecting the minimum PIP or MedPay limits required.

Uninsured/underinsured motorist coverage

In the event that you're in a car accident with a driver who has no basic auto insurance, or if your damages exceed the other driver's coverage limits, uninsured/underinsured motorist coverage can help with your costs. Fewer than half of states require uninsured and/or underinsured motorist coverage.

How much is basic car insurance?

According to our research, the current average cost of basic car insurance is $641 a year. This price is affected by factors including:

  • The coverage limits you want.
  • Where you live.
  • Your driving and insurance claims histories.

The best way to find the ideal price for you is to research different auto insurers for quotes. You'll be able to see side-by-side comparisons of coverages and costs from a variety of insurance companies, then pick the one that works best for your needs.

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Is basic car insurance enough for a financed car?

If you are buying or leasing a car through a lender, basic car insurance isn't enough. Your lender will have additional insurance requirements. The normal mandatory auto insurance they usually want you to have in addition to liability coverage are collision and comprehensive insurance. While both of these insurance types are often sold together as "full coverage" auto insurance, they cover different situations.

Collision insurance

Covers damage incurred from a crash with another car or object.

Comprehensive coverage

Covers non-crash related damages such as theft and natural disasters.

How much basic auto insurance do I actually need?

Regardless of what state you live in, we recommend going with a 100/300/100 policy. Keep in mind that while a state may have required basic car insurance limits, these shouldn't be considered satisfactory for your coverage needs. This means that your costs after an accident could easily be higher than what your basic car insurance provides.

Also, if you're driving in a state that has higher mandated limits than what your home state coverage provides, you can find yourself paying for a major accident out of pocket. The recommended 100/300/100 liability insurance should be satisfactory to cover a serious crash, as well as give you peace of mind.

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