Why do you need auto insurance?

You need car insurance because it protects you financially, it protects other people you hit in an at-fault accident, and it is required by law in most states.

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Rachael BrennanRachael BrennanSenior Editor & Licensed Auto Insurance ExpertRachael Brennan is a senior editor and a licensed auto insurance expert at Policygenius. Her work has also been featured in MoneyGeek, Clearsurance, Adweek, Boston Globe, The Ladders, and AutoInsurance.com.

Edited by

Anna SwartzAnna SwartzSenior Managing Editor & Auto Insurance ExpertAnna Swartz is a senior managing editor and auto insurance expert at Policygenius, where she oversees our car insurance coverage. Previously, she was a senior staff writer at Mic.com, as well as an associate writer at The Dodo.

Published|3 min read

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Auto insurance is required by law in most states, but why? There are actually a few basic reasons you need to have car insurance beyond the fact that it’s mandatory — but the most important is that car insurance protects you financially.

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Key takeaways

  • Car insurance is required by law in almost every state.

  • Liability insurance covers damage you cause to other people and their property when you’re in an at-fault accident. 

  • Having enough liability coverage means your assets won’t be seized to pay for damage you caused to someone else.

  • Comprehensive and collision insurance cover damage to your own car, no matter who is at fault; having these coverages means you won’t have to pay out-of-pocket to repair or replace your vehicle after an accident.

Why car insurance is necessary

Imagine someone runs a red light and hits you in the intersection, totaling your car, sending you to the emergency room and, after all of the costs have been added up, you are left with $45,000 in car repairs and medical bills

According to the Federal Reserve, the average American has about $5,300 in savings, checking, and money market accounts, which means the odds are good that neither you or the at fault driver will be able to afford these costs without selling off assets (like a car or house) or digging into a savings or retirement fund. [1]

You shouldn’t be expected to pay for damage caused by someone else. It also doesn’t feel fair to be forced to sell your house and drain your retirement savings to pay for an accident, whether or not you were the one at fault. 

When you buy a car insurance policy, you are protecting yourself from a lengthy court trial and a possible loss of assets, but you aren’t just protecting yourself — you are also taking responsibility for damage you caused to someone else and reducing the number of court cases in an already overloaded justice system.

→ Learn more about what happens when an at-fault driver doesn’t have enough insurance

What is auto insurance and why do you need it?

Car insurance is a general term for multiple types of insurance coverage. A typical car insurance policy is made up of different types of coverage, some you may need and some you may be able to go without. 

The various types of car insurance that most people need are listed in the chart below:

Coverage Type

Why you need it

Bodily injury liability

The part of your liability coverage that pays for medical bills if you've injured someone else in an at-fault accident.

Property damage liability

The part of your liability coverage that covers property damage you've caused in an accident.

Personal injury protection

Only necessary in some states, this covers medical expenses for you or your passengers after an accident.

Uninsured/underinsured motorist

Covers the bodily injury costs for you if you're in an accident caused by a driver with little or no car insurance.

Comprehensive

Covers damage to your car caused by things other than a collision, like fire and flooding.

Collision

Covers damage to your car after an accident, no matter who was at fault.

Collapse table

Almost every state requires drivers to have a minimum amount of bodily injury and property damage liability coverage, though the minimum amount of liability coverage varies from one state to the next. 

For example, Florida only requires $5,000 in property damage liability coverage and $10,000 personal injury protection (PIP), while Maine requires drivers to have 50/100/25 levels of coverage in addition to PIP and uninsured motorist requirements.

Comprehensive and collision coverage aren’t required (unless you are financing your vehicle) but they will pay to repair or replace your car, even if you were the one at fault for the damage.

Is it okay to not insure your car?

No, it is never okay to go without car insurance. Not only is it an important part of protecting yourself financially in the event of an accident, but it is required by law in 48 states. Only New Hampshire and Virginia allow drivers to go without car insurance, and even those states require drivers to prove they can afford to pay for damage out-of-pocket if they are in an accident.

Why do people choose not to have insurance?

Despite the fact that car insurance is a necessity and it's required by law, some people still choose not to buy it. In fact, 12.5% of U.S. drivers went uninsured in 2019.

In most cases, people who choose not to buy car insurance do so because they can’t afford it. 

Some states (California, Hawaii, New Jersey) have tried to reduce the number of uninsured drivers by offering low income car insurance with lower levels of coverage for more affordable policies.

Many people choose to buy uninsured and underinsured motorist coverage to protect themselves in case they’re in an accident with an uninsured driver, while some states include uninsured motorist coverage as part of the minimum level of coverage required for all drivers.

→ Learn more about uninsured and underinsured motorist insurance

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Frequently asked questions

What are three reasons you need auto insurance?

First, car insurance protects other people in an at-fault accident by paying for medical expenses and to repair or replace their vehicle, up to the limits of your policy. Second, it pays for accident-related expenses so you don’t lose everything in a lawsuit after an accident. Third, it is required by law in almost every state.

Why are you forced to have car insurance?

Drivers are required by law to have car insurance because it protects other people from being harmed financially if they are not at fault in an accident. It also helps keep the court system manageable, because without car insurance to pay for accident-related expenses, the only way to get reimbursed by the at-fault driver would be to sue them.

Why do you need commercial auto insurance?

Commercial car insurance is a form of business insurance that covers commercial instead of personal vehicles. Vehicles owned by a business require more financial protection than personal vehicles, which is why they need to be covered under a commercial policy.

Why do you need business auto insurance?

Business car insurance covers a company vehicle being used for business purposes. It is more expensive than a personal auto policy, but it also offers more coverage. The terms “business auto insurance” and “commercial auto insurance” are often used interchangeably.

References

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Policygenius uses external sources, including government data, industry studies, and reputable news organizations to supplement proprietary marketplace data and internal expertise. Learn more about how we use and vet external sources as part of our

editorial standards.
  1. federalreserve.gov

    . "

    Changes in U.S. Family Finances from 2016 to 2019: Evidence from the Survey of Consumer Finances

    ." Accessed January 25, 2023.

Author

Rachael Brennan is a senior editor and a licensed auto insurance expert at Policygenius. Her work has also been featured in MoneyGeek, Clearsurance, Adweek, Boston Globe, The Ladders, and AutoInsurance.com.

Editor

Anna Swartz is a senior managing editor and auto insurance expert at Policygenius, where she oversees our car insurance coverage. Previously, she was a senior staff writer at Mic.com, as well as an associate writer at The Dodo.

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