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Couple Meeting With Middle-Aged Agent

Some drivers know they should have insurance, but they're not sure how much insurance they need or why they need it. The process of purchasing insurance is a hassle in itself. And you want to make sure your clients know what they're getting into and how their coverage works to avoid misunderstandings in the future.

First, it's important for clients to understand that car insurance requirements vary by state. Texas, for example, requires higher rates of insurance than a lot of other states. Texas auto insurance requirements are:

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

By comparison, Arizona requires:

  • $15,000 in bodily injury liability per person
  • $30,000 in bodily injury liability per accident
  • $10,000 in property damage liability

Florida only requires:

  • $10,000 in property damage liability
  • $10,000 in personal injury protection

Liability insurance is required to protect others on the road in case the insured driver causes an accident. In most states, the driver who causes the accident must pay for the damages. Liability coverage steps in to help pay for those damages if at-fault driver can't pay out of pocket. With expensive medical and repair bills, it's rare a driver can pay out of pocket for all these expenses.

Explaining No-Fault Insurance vs Fault Insurance

Most states are fault states, meaning that the driver who caused an accident must file a claim with their insurance company. In a no-fault state, each driver must pay for or file claims with their insurance agency who caused the damages. This is why it's common for no-fault states to require personal injury protection (PIP), which provides medical expense compensation for the insured and their passengers.

The 12 no-fault auto insurance states are Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania and Utah. Some states also require uninsured/underinsured motorist coverage, but this can often be waived. Uninsured/underinsured motorist coverage provides compensation if the driver crashes with a motorist who doesn't carry adequate auto insurance.

There is also a system called tort liability, which doesn't place any limits on lawsuits concerning an accident, regardless of auto insurance.

It's important to explain that the minimum requirements may not be enough coverage for a customer's vehicle. Crucial insurance that isn't required includes comprehensive coverage and collision coverage. Comprehensive coverage provides compensation if the vehicle is damaged due to fire, wind, hail, falling rocks or trees, vandalism or theft. Collision coverage provides compensation for damage done to the vehicle as a result of a collision with another vehicle or object. If your client only has liability auto insurance, they will face paying for repairs to their vehicle directly, which can be thousands of dollars.

How Auto Insurance Works Across State Lines

If your client gets into a wreck in a different state than the vehicle is insured in, they don't need to worry. For instance, let's say your client lives in and is insured in Arizona. They take a road trip to Texas and get in a wreck. Texas has much higher liability requirements than Arizona. Are they still covered?

In short, yes. The insurance company should automatically adjust the coverage to provide the correct amount of coverage so long as the driver is insured according to Arizona state law. Any driver with the minimum amount of car insurance from their home state will have their insurance carry over no matter the varying state requirements.

Make sure your clients understand their state laws and the difference between fault and no-fault auto insurance.

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