Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health insuran...

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Chris Harrigan has an economic degree from Limestone College and an MBA from Clemson University. He previously managed auto insurance claims for Enterprise Rent-A-Car. Currently, he is using his business and insurance expertise to provide insurance data analysis and visualizations to enhance the user experience.

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Reviewed by Chris Harrigan
Former Auto Insurance Claims Manager Chris Harrigan

UPDATED: Apr 13, 2022

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Key takeaways...

If you wish to legally operate a motor vehicle on a public road anywhere in the United States, you are required to carry a minimum amount of car insurance or provide proof of financial responsibility.

And since every state has different requirements, you must be sure that you have the required amount of insurance as mandated by the state you live in.

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Components of a Typical Mandatory Car Insurance Policy

There are many working parts of car insurance. While most states require some form of liability, you can add coverage as needed:

  • Bodily Injury Liability Coverage – This component covers you if you are involved in an accident and are responsible for any physical injury to another person.
  • Property Damage Liability – This component covers you if you are involved in an accident and cause property damage to another vehicle or other property and were found to be responsible for the accident.

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Additional Requirements When Financing a Vehicle

When you finance or lease a vehicle, the Lender will almost always require you to carry more than the minimum mandated amount of auto insurance.

They insist on extra coverage in order to protect their interest in the vehicle.

You are usually required to carry comprehensive and collision coverage.

Collision coverage compensates the policyholder for damages to their vehicle that was the result of a collision with another vehicle or object.

If you have collision insurance, the insurance company will pay up to the amount of the policy’s coverage limit.

The amount paid will be reduced by any deductible you may have elected to place on the policy. If the car is totaled, the lender will receive the proceeds from the insurance company.

If there is less money owed on the car than the insurance settlement check, the policyholder will receive a refund for the difference.

Finally, collision insurance pays out whether or not you were at fault.

If the other driver caused the accident, your insurance company has the legal right to go after either the other driver’s insurance company or the other driver to recover any money.

If your car is stolen or damaged in some other way besides collision, adding comprehensive car insurance to your policy will cover the cost up to the insured value. Like collision, it also comes with a deductible.

Some examples of when these types of car insurance might be useful include damage caused to your vehicle by acts of vandalism, a tree or other falling object or a wind or hail storm.

Optional Coverage You May Want to Consider

Uninsured or Underinsured Motorist coverage will cover you, members of your immediate family, and any other relatives who have established a residence in your house.

It covers bodily injury caused by another party that is either uninsured or does not have adequate insurance to take care of your injuries and any medical bills that you may incur as a result of the accident.

If you do not have medical or health insurance and are involved in an accident in which you suffer serious injuries, you may face huge medical bills.

If your car needs to be towed to the mechanic for repair, towing coverage can come in handy.

It generally adds only a few dollars to the annual premium on your auto insurance policy.

People, who are members of an auto club, generally do not need this extra insurance because they are already covered for towing as a member of the auto club.

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Reimbursement for Renting a Car

When your damaged vehicle has to go to the shop for repair, you probably will still need a way to get around until the vehicle can be fixed.

By selecting rental reimbursement insurance, the insurance company will pay a predetermined amount per day toward the cost of renting a vehicle.

Coverage is usually limited to about 2 weeks, but different insurers have different rules regarding rental reimbursement.

Generally, you are reimbursed from the time your car enters the repair shop and you rent a car, until the day the repairs have been made.

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Some States Do Not Require Standard Car Insurance Coverage

In certain States, a driver can elect to forego regular auto insurance and choose to demonstrate financial responsibility in some other way.

For example, in the State of Missouri, you can demonstrate financial responsibility by posting a bond at least equal to the state’s mandatory minimum coverage requirements for bodily injury and property damage liability.

In Missouri, the limits are $25,000 per person for bodily injury or $50,000 for all bodily injury as the result of a single accident. Property damage is required in the amount of $10,000.


Every state requires a driver to carry a minimum amount of liability insurance. Some states allow a driver to demonstrate personal financial responsibility in lieu of carrying auto insurance from an insurance company.

They must show that they have the financial resources to at least meet the minimum mandatory State liability requirements.

Additional coverage is usually only required if you are financing a car.

However, in order to protect yourself, it is usually prudent to carry more coverage than the state minimums.

If your car is paid off and is still worth more than a few thousand dollars, it probably pays to have Collision and Comprehensive coverage.

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  1. https://www.geico.com/information/aboutinsurance/auto/
  2. https://www.allstate.com/tools-and-resources/car-insurance/property-damage-liability-insurance.aspx
  3. https://www.esurance.com/info/car/uninsured-and-underinsured-coverage
  4. https://www.healthcare.gov/get-coverage/
  5. https://www.allstate.com/tools-and-resources/car-insurance/rental-reimbursement.aspx
  6. https://www.thebalance.com/understanding-minimum-car-insurance-requirements-2645473