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Q

Why is auto insurance important?

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A

Auto insurance is important protection for not just your car, but for your financial liability as well. If you get into an accident without insurance, you could potentially be stuck paying for hundreds of thousands of dollars in damages and injuries.

Logan SachonKara McGinley

Logan Sachon & Kara McGinley

Published May 19, 2020

KEY TAKEAWAYS

  • Without car insurance you would be stuck paying out of pocket for any car accidents you are liable for, which could cost you thousands of dollars

  • All but two states require a minimum amount of car insurance coverage and if you are caught driving uninsured it could result in a license suspension or thousands of dollars in fines

  • Car insurance can also cover damage to your vehicle or any medical expenses you or your passengers incur after a collision

To understand why car insurance is important, you have to understand how car insurance works. Car insurance doesn’t only protect your car in the event that you get into an accident. It also protects you — from financial liability, medical expenses, and also from legal consequences.

Unlike, say, life insurance, car insurance is mandaed for most drivers. All but two states require you to have auto insurance so that you can pay for the damages you’re liable for after a car accident. If you don’t have car insurance, you’re risking financial liability in the event of an accident, which could potentially cost you hundreds of thousands of dollars. You would be stuck paying out of pocket for repairs to your own vehicle, too.

In this article:

Why is it important to have auto insurance?

Auto insurance is important because it is financial protection in case you get into a car accident and damage someone else’s vehicle or injure them. Car insurance can also protect your vehicle from damage caused by an accident or a different covered peril, like falling objects, fire, or theft.

If you don’t have car insurance for you and your vehicle, depending on the state you live in, you could potentially be breaking the law. Driving without insurance could result in fines and license suspension. The purpose of having auto insurance is so you’re able to reimburse others for damage you cause, and so you won’t get stuck paying out of pocket for the expenses from a car accident or a different kind of collision, like if you drive into a pole.

Depending on what type of coverage your car insurance contains, you could be protected from a variety of perils, such as:

  • Fire
  • Theft
  • Vandalism
  • Hail damage
  • Animal damage (like if you hit a deer or if rats infest your engine)

Learn more about what car insurance covers.

Car insurance is important even beyond collisions and accidents. If your car is stolen, you can file a claim with your car insurance company and they can pay to replace your car up to your policy’s limit. But if your car is stolen and you don’t have car insurance, or if you only have a limited amount of coverage, you’re going to be stuck paying for a new car yourself.

What happens if you get into a car accident and don’t have car insurance

If you're in an accident and don’t have car insurance, depending on the state you live in you may face fines for not having insurance, plus additional fines if you’re ticketed for the accident.

The average cost of a car accident can be staggering – in 2013, the average insurance claim for bodily injury was $15,506, according to the Insurance Research Council. If you don’t have auto insurance and you cause an accident, you could be on the hook for paying for all of the damages and injuries.

If you have auto insurance, your policy would cover the other driver’s medical bills and the cost to replace their car (up to your insurance policy limits). The law says that you’re liable for the damages done to another person and their property in a car accident you cause, so if you don’t have insurance and you can’t afford to pay for the other driver’s repairs and medical bills, you could end up in jail, or a court could decide to send a chunk of your paycheck every month to the person you hit.

What happens if you get pulled over and don’t have car insurance

It is illegal to drive without car insurance in every state except for Virginia and New Hampshire. If you’re driving and don’t have proof of insurance, that’s a problem. And in some states, you don’t even have to get pulled over in order to get caught driving uninsured. Many states actively monitor whether registered vehicles in the state have insurance and issue fines or suspend licenses if they see you have no insurance. States require drivers to have insurance so that you are protected and can afford to pay for damages in the event of an accident.

If you are pulled over, the officer will ask for proof of insurance from your car insurance company. If you don’t have it, what happens next depends on the state you’re in.

If you get pulled over without car insurance, there are a few things that could happen:

  • You’ll likely be ticketed and receive a fine, which could be hundreds or even thousands of dollars
  • Your license may be suspended
  • Your car may be impounded

You’ll need to provide proof of insurance and pay more fees before you could get your license reinstated and your vehicle back. When you get insurance, you may need your insurer to file an SR-22 form with your state as a way of proving that you’re now insured.

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What type of auto insurance is important to have?

Every car insurance policy is actually made up of several different coverage components, all of which provide important types of protection. Each type of coverage is important, however not all coverage components are required by law. Every state has their own rules about how much car insurance is required. Some states only require liability coverage, which covers bodily injury (BI) and property damage (PD) you cause someone else. Some states require types of medical coverage, like personal injury protection (PIP), which covers medical expenses that you or your passengers incur after a collision.

When you purchase auto insurance, you choose the coverage you want, plus the limits and deductibles for each. Though some car insurance coverage is optional, it’s important to have more than just the basic coverage amounts required by law — if you are underinsured your coverage might not be enough to pay for extensive damage or injury.

Below are the basic components of what’s typically referred to as a “full coverage” car insurance policy:

Coverage TypeWhat It Does
Bodily injury liabilityThe part of your liability coverage that pays for medical bills if you've injured someone in an accident
Property damage liabilityThe other part of liability coverage, covers the cost of property damage you've caused in an accident
Personal injury protectionCovers medical expenses for you or your passengers after an accident
Uninsured/underinsured motoristCovers the costs if you're in an accident caused by a driver with little or no car insurance
ComprehensiveCovers damage to your car that happens when you're not driving
CollisionCovers damage to your car after a car accident, no matter who was at fault

Important additional car insurance coverage

Most car insurance companies offer additional coverage that you can add to your policy, too. For example, gap insurance provides coverage for people who have auto loans. If your car is totaled in an accident or stolen, most car insurance policies will pay you the actual cash value of the car, which could be less than what you still owe on the loan. Gap insurance pays for the difference between the actual cash value of the car and what you still owe on the loan.

Roadside assistance and rental car coverage are also important coverage components to consider adding to your car insurance policy. This additional coverage can pay for your car to be towed, cover other roadside emergencies, or pay for a rental car while yours is being repaired.

Insurance Expert

Logan Sachon

Insurance Expert

Logan Sachon is the co-founder of The Billfold, a groundbreaking personal finance site for millennials that was named one of Time's 25 Best Blogs of 2012. Her work has been published in New York Magazine, Glamour, The Guardian, BuzzFeed and more.

Insurance Editor

Kara McGinley

Insurance Editor

Kara McGinley is an Insurance Editor at Policygenius. She previously worked as a freelance writer and a copywriter for various startups. Her work can be found in Teen Vogue, The Culture Crush, and more.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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