Available 24 hours / 7 Days a Week
Email: info@senftlegal.com
For most residents in the United States, insurance—be it auto, homeowners, health, or life—is regarded as a basic household need. In fact, over 90% of U.S. residents have some type of insurance.
Yet, an alarming number of us have trouble navigating insurance. In a 2022 study, 39% of insured participants reported difficulty understanding their policy.
This blog aims to teach you the basics of insurance, touching on definitions, types of insurance, and insurance requirements.
Insurance is a way to protect yourself from sudden financial loss. When unexpected or unavoidable expenses arise, insurance exists to help cover the cost.
An insurer collects regular payments from their policy holders and then pays out the agreed amount when you need it. This gives you a financial safety net in case of emergencies.
A premium is the recurring bill you pay the insurer to maintain your insurance coverage. The cost of your premium varies depending on your situation and what types of coverage you choose.
Think of it as a sort of subscription. Some insurers may provide the option of paying monthly, quarterly, or even annually. You can obtain basic coverage at a minimum price, but you can also add more options when you pay a higher premium.
When you get into an accident, your auto insurance won't start paying for everything right away. First, you have to pay a deductible: the amount you agree to pay for damages before your insurer steps in.
By paying a deductible, you partially share the cost with your insurer. Sharing in this way incentivizes safe driving and lessens expenses for the insurance provider, which can keep premiums lower.
Many insurance policies require a minimum deductible amount. However, agreeing to a higher deductible can lower the cost of your plan.
A policy limit is the maximum amount your insurer will pay for a claim under your insurance coverage. Think of it like a piggy bank that holds a fixed amount of money, and when you file a claim, you can take from that bank to cover your damages. Once the money is gone, no more can be withdrawn.
In insurance terms, these limits define the maximum reimbursement you can receive for a covered claim. They can either be a single amount or split into different categories. For example, a policy with a $500,000/$1,000,000 split limit might allow up to $500,000 for property damage and up to $1,000,000 for bodily injury per claim.
Filing a claim means formally informing your insurer that you've sustained damages and need assistance. After an accident, record and collect as much evidence as you can before calling your insurer. This is crucial to the claims process. With that said, most insurance providers will require you to meet a certain deadline, so be sure to act in a timely manner.
Once you report a claim, the insurer will assign someone called an adjuster to assess the value of the damage. This person will work together with the insurer to determine your settlement amount, or how much money you are owed.
Although auto insurance is required in nearly every state, some drivers simply don't have it. If an uninsured person is responsible for your accident, there may not be any compensation available to claim.
You can protect against this possibility with uninsured motorist (UM) coverage. This type of insurance pays for accident-related expenses when the at-fault driver does not have any auto insurance.
Underinsured motorist (UIM) coverage works similarly in that it steps in when the responsible party's insurance coverage is insufficient. Specifically, it applies when the at-fault driver does have insurance, but not a high enough policy to compensate the full extent of your damages.
Basic auto insurance covers accidents involving other persons or vehicles. Collision coverage, on the other hand, covers crashes which don't involve another person. Common examples include collisions with nonliving objects such as mailboxes and telephone poles.
Comprehensive coverage is yet another type of auto insurance that covers damage not caused by traditional crashes. For example, environmental damage caused by animals, fallen trees, and natural disasters can all fall under comprehensive coverage. It also accounts for damage done by people, including theft and vandalism.
In some severe cases, your insurance may not be enough to cover all the damage. An umbrella policy is a unique type of insurance designed to protect against this. If you reach the limits of your insurance policy, an umbrella policy kicks in to provide additional coverage.
Insurance Type | Description | State Requirements |
Auto insurance | Covers the cost of accidents involving motor vehicles and pedestrians. | Required in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, D.C., Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming. Optional in New Hampshire. |
Health insurance | Covers various medical expenses. | Required in California, D.C., Massachusetts, New Jersey, and Rhode Island. |
Home / Renters / Property insurance | Covers damage to your property as well as damage to others’ property caused by you or your family members. This may also cover animal attacks. | Not required by law in the United States. |
Life insurance | Provides a financial safety net for loved ones if the policy holder passes away. | Not required by law in the United States. |
Whether your insurance pays for an accident is primarily determined by the state’s liability laws. These laws dictate who is financially responsible in the event of an accident. There are a few key types of liability, each explained in the table below.
Liability Type | Description | Example State(s) |
Tort Liability / At-Fault | The at-fault person is financially responsible. They or their insurance must pay. Under this system, the at-fault driver can be sued for any damages. | Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Georgia, Idaho, Illinois, Indiana, Iowa, Louisiana, Maine, Maryland, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming |
Modified No-Fault | Regardless of fault, all driver’s expenses are covered by their own insurance. A lawsuit may only be filed in the case of severe accidents. | Florida, Hawaii, Kansas, Massachusetts, Michigan, Minnesota, New York, North Dakota, Utah |
Choice-Fault | Drivers can choose between a no-fault insurance policy or a standard tort liability (at-fault) policy. | Kentucky, New Jersey, Pennsylvania |
In some states, your policy limit is determined by your state’s minimum liability requirements. Requirements are commonly listed in the following format: bodily injury per person / bodily injury per accident / property damage.
For example, many states maintain a 25/50/25 liability requirement. If you live in such a state, your insurance policy must cover:
Note that these are only minimum requirements. Some drivers may opt for more coverage than is required.
Bodily Injury Liability Per Person / Bodily Injury Liability Per Accident / Property Damage Liability | Example State(s) |
$10,000 / $20,000 / $10,000 | Florida |
$15,000 / $30,000 / $5,000 | Louisiana |
$15,000 / $30,000 / $25,000 | Pennsylvania |
$20,000 / $40,000 / $5,000 | Hawaii |
$20,000 / $40,000 / $10,000 | Iowa |
$20,000 / $40,000 / $15,000 | Massachusetts |
$25,000 / $50,000 / $10,000 | Delaware, New Mexico, New York, Vermont, Washington, Wisconsin |
$25,000 / $50,000 / $15,000 | Arizona, Colorado, Idaho |
$25,000 / $50,000 / $20,000 | Illinois, Montana, Nevada, Oregon, Wyoming |
$25,000 / $50,000 / $25,000 | Alabama, Arkansas, Connecticut, Georgia, Indiana, Kansas, Kentucky, Mississippi, Missouri, Nebraska, New Hampshire, New Jersey, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, South Dakota, Tennessee, West Virginia |
$25,000 / $65,000 / $15,000 | Utah |
$30,000 / $60,000 / $10,000 | Minnesota |
$30,000 / $60,000 / $15,000 | California, Maryland |
$30,000 / $60,000 / $25,000 | North Carolina, Texas |
$50,000 / $100,000 / $10,000 | Michigan |
$50,000 / $100,000 / $25,000 | Alaska, Maine, Virginia |
When you’re purchasing a new insurance policy, it can be hard to keep track of everything you need to remember. That’s why we’re wrapping up this guide with a short list of questions to ask your insurer.
Looking for advice to navigate the confusing world of insurance? Need an expert advocate to defend your rights?
Our team has over thirty years of experience negotiating with insurance companies, and we’ve secured hundreds of millions on behalf of clients.
At Senft Legal, our identity is driven by our mission: to make justice accessible to all. We are committed to simplifying the claims process for everyone, including you. Help is available 24/7 — contact us today for a free case evaluation.