Never Overlook These Key Car Insurance Requirements

Buying auto insurance isn't just a smart financial choice. For most people, having certain kinds of coverage in place is mandatory. Not purchasing the required coverage could have dire consequences for a driver's personal finances and could even affect their ability to drive in the future.

Here's what drivers need to know about car insurance requirements.

State requirement for auto insurance

It is absolutely critical that every driver comply with their state's laws on auto insurance coverage. While the rules vary by location, some common types of required auto insurance include:

• Bodily injury liability: Bodily injury liability is required in almost every state. It pays for injuries the policyholder causes to others. States usually mandate a set minimum amount of coverage, such as $25,000 per person and $50,000 per accident.
• Property damage liability: Property damage liability coverage is also required pretty much everywhere. It pays for property damage the policyholder causes to others in an at-fault accident. States may require $10,000, $25,000, or some other set amount of property damage liability coverage.
• Uninsured/underinsured motorist coverage: Some states require this coverage, which will pay for the policyholder's losses if the policyholder is involved in a crash with a driver who's not properly insured.
• Personal injury protection (PIP): A minority of states mandate this coverage, which pays for losses caused by minor injuries the policyholder experiences, no matter who is at fault. PIP is usually required in no-fault states, where drivers cannot sue for more minor injuries.

Driving without the required insurance can lead to fines, as well as license or registration suspension and other potential consequences, depending on state laws. Every single driver should check with their state's Department of Motor Vehicles (DMV) or Department of Insurance to make sure they know the minimum requirements for coverage and put a policy in place. The best auto insurers offer all types of coverage, and drivers may qualify for discounts depending on their age, affiliations, or driving history.

Lender requirements for auto insurance

In addition to knowing what the state requires, drivers also don't want to overlook car insurance requirements imposed by their lender or leaseholder if they are financing or leasing a vehicle.

Different lenders set different rules, but most lenders require drivers to go beyond the minimum required insurance for their state. Lenders usually mandate that drivers have the following kinds of coverage:

• Collision coverage to pay for losses to their own vehicle in a crash that aren't covered by another driver.
• Comprehensive coverage to pay for losses to their own vehicle not resulting from a crash.
• Gap insurance, which pays off any outstanding loan balance due if a car is totaled and the vehicle's fair market value is below the amount owed on the loan (this is important since an insurer only pays market value for a car declared a total loss).

Anyone who doesn't have the coverage their lender requires could find themselves getting stuck with force-placed insurance. Basically, force-placed insurance is insurance the lender buys for the driver who has failed to maintain minimum coverage. This almost always costs much more in exchange for much less coverage.

Drivers can check their loan and lease agreements to find out what kinds of insurance are required. This is important, because drivers who overlook these mandates could find themselves in a world of financial trouble -- even if they never get into an accident.