Understanding How Car Insurance Works In USA

Further reading

In order to ensure that drivers and their passengers are fully protected from unnecessary financial hardship as a result of being involved in vehicle-related accidents, car insurance came into existence. In the United States of America, auto insurance is not optional as it is made mandatory in every state. This is especially because when damages arise as a result of an accident, the losses incurred by the driver and the passengers need to be covered and in some cases, these losses might be huge.

According to the National Association of Insurance Commissioners (NAIC), the nationwide average auto insurance expenditure in USA increased by 3.3% from $838.49 in 2013 to $866.31 in 2014.

If you are holding back because you are finding auto insurance confusing, it is time you sit up and find out as much as you should about auto insurance and how it works, especially in USA. This way, you will be able to make the most of your chosen insurance coverage. Who would really not love to return his or her car to its pre-accident status without incurring excessive out-of-pocket expenses? Then it is time to understand how auto insurance works.

How car insurance works in USA

Now that you are ready to get an insurance coverage for your car, here are some of the things you need to know about how car insurance works. Often times, accidents are inevitable and as such, you need to be prepared for it. For example, you are leisurely driving down the road and all of a sudden you get into an accident and your car gets badly damaged. If you have coverage, you really have nothing to worry about.

First step towards recouping any losses is to start your claims process. This starts with a phone call or email to your insurance firm. The firm’s representatives will then take their time to gather all necessary information regarding the accident. When this is done, your claim is then established. The next step is to assign your claim to a claims adjuster who then proceeds with processing your claims.

The claims adjuster starts by taking his or her time to review all the details of your accident, analyzing your type of insurance coverage, determining the defaulter in the accident, and finally, making pay-outs. In order to ensure that nobody is cheated, the claims adjuster works in collaboration with you, the police, and where available, witnesses at the accident scene. Proper settlement is made based on your coverage amounts, deductibles, policy limits, and other factors.

You should note that payment will only be for the damages caused as a result of the accident. For example, if only the hood of your car and bumper were damaged, these parts of your car will be replaced and not buying you a brand new car. So, if your deductible is $500 and the damage is worth $2,500, the insurance firm will issue you a check worth $2,000. Once this is done, the claims process is closed.

When did car insurance start

A good number of car owners know they are required to have insurance coverage for their cars however, they don’t really know when and why auto insurance started. Insurance is something that has been practiced as long as human existence. For example, in the ancient days, merchants who needed loans for their businesses were made to pay additional sum which serves as guarantee should any losses be incurred by the merchants.

Coming to auto insurance in USA, it is traced back to Benjamin Franklin who is noted to have started the insurance business through his Philadelphia Contributorship. His firm became the first to offer fire insurance coverage and by 1925, insurance
Here in the U.S., Benjamin Franklin is credited for kickstarting the insurance industry when he formed Philadelphia Contributionship, which was the first company in the country to offer fire insurance.

In 1898, the first liability car insurance policy was written for one Dr. Truman J. Martin and by the early 1920s, some of the states in USA started adopting auto insurance into law.

When did car insurance become mandatory?

Even though the practice of auto insurance started in the late 1890s, it was not passed into law until the early 1920s. The reason for passing auto insurance into law was in a bid to reduce the legal disputes that were associated with the increasing number of auto accidents.

Before the laws were enacted, even after a given driver was determined to have been at a fault in an accident, it was extremely difficult to get the at-fault-driver to pay up the costs resulting from such accident. This led to numerous disputes and something needed to be done.

The state of Connecticut was the first to take a bold step towards adopting a financial responsibility law in 1925. Under such law, car owners were mandated to provide proof that should there be any accident in which they are at fault, they will be able to pay for any damages or injuries resulting from such accident. This proof was by purchasing a liability car insurance coverage.

By 1927, the state of Massachusetts toed the same path and established its own financial responsibility laws. Just like the state of Connecticut, this move was to ensure that there were no longer unnecessary legal disputes associated with payment of damages after an auto accident.

Unlike the state of Connecticut where proof of financial responsibility was only required after a driver’s first accident, the state of Massachusetts required such proof before a car is officially registered. Over the years, other states in USA followed suit and auto insurance covered became compulsory for every car owner, with little or no exception.

Some of the kinds of laws passed by these US states under auto insurance and financial responsibility includes but not limited to the following:

  • Uninsured driver penalties
  • Mandatory auto insurance laws
  • Financial responsibility statutes

Even though Connecticut and Massachusetts made their moves in 1925 and 1927 respectively, it was not until late 1950s before other states started passing similar laws. New York passed its own auto insurance law in 1956 and by 1957, North Carolina passed its own law. Gradually, other states started making auto insurance compulsory for every driver. By the early 2000s, approximately 49 states have already passed mandatory auto insurance into law, including the District of Columbia.

Why have car insurance? (benefits of having car insurance)

Even though there are expenses related to getting an auto insurance coverage, it also comes with several benefits that outweigh the inconveniences and expenses. Apart from the benefits which are listed below, having a car insurance coverage gives every car owner peace of mind. The wider a person’s coverage, the more benefits there are attached to it.

Some of the benefits include but not limited to the following:

  • Provision of benefits to survivors of a deceased accident victim
  • Expenses for any related lawsuits are covered by the coverage
  • Bills related to vehicle repairs as a result of damages from the accident are paid by the insurance company.
  • Coverage for other disasters aside from accidents. This includes fire, flooding, theft, vandalization, and others.

These are just a few of the benefits associated with purchasing the right auto insurance coverage for your car. These benefits also vary and are mainly determined by the type of coverage you settle for. Whether your coverage is for insulation from huge expenses, legal protection, or preservation of car’s value, there are lots of benefits associated with getting car insurance coverage.