Const & Coverage
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Car insurance is not just the law, it’s your liability.
To understand why car insurance is important, you have to understand what, exactly, car insurance does. Car insurance isn’t really about protecting your car in the event that you get into an accident. It’s about protecting you — from financial ruin, sure, but also from legal consequences.
That’s right: Every single state has laws that says you’re liable for damages in a car accident that you caused, and most states require you to have auto insurance so that you can pay for the damages you’re liable for. If you don’t have car insurance, you’re breaking the law, risking both your freedom (from jail, in some states) and your finances (from fines and being sued).
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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. Many states actively monitor whether registered vehicles in the state have insurance and issue fines or suspend licenses if they’re not.
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. You’ll likely be ticketed and get hit with a fine, which could be hundreds or even thousands of dollars. Your license may be suspended and your car may be impounded, and you’ll need to provide proof of insurance and fork over more fees before you can get either back.
If you’re an accident, you’re looking at all the same fines as if you were simply pulled over and found to be driving without insurance, plus any 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 $15,443, and the average claim for property damage was $3,231, according to the Insurance Research Council. If you don’t have auto insurance and you cause an accident, you can be on the hook for all of it.
If you have auto insurance, your policy would cover the other driver’s medical bills and the cost to replace the car (up to your insurance policy limits). But if you don’t have insurance, the law says that you’re liable for the damages done to another person and their property in a car accident you cause. If you can’t afford to pay for the other car’s repairs and bills, you could end up in jail, or a court could decide to send a big chunk of your paycheck every month to the person you hit.
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Car insurance is made up of several types of coverage, and they are all important for you to consider. Some, however, are required by law.
Liability insurance provides coverage for if you hurt another person or cause property damage with your. For car insurance, liability coverage limits are split between bodily injury liability (BIL) and property damage liability (PDL). Every state that requires you to have car insurance, except Florida, mandates a minimum amount of liability coverage, though most people should probably buy more than is legally required in order to be more fully protected.
Personal injury protection provides coverage if you or your passengers are injured in an accident. Many people who have health insurance can opt out of this protection, as your own health coverage would pay for your injuries, and your passengers’ health coverage would pay for theirs. But this coverage can also pay for lost wages if you’re injured in an accident, so it may be worth it.
Collision coverage provides coverage to repair or replace your vehicle if it’s involved in an accident. Collision insurance isn’t usually mandated by law, but it can be helpful if you don’t have the cash on hand to repair or replace your car.
Comprehensive coverage provides coverage for damage to your vehicle caused by something other than another vehicle. Comprehensive insurance is what protects you from theft, vandalism, and weather damage.
Uninsured/underinsured motorist insurance (also called uninsured motorist coverage) provides coverage for if you’re in an accident with someone who is driving with no or too-little insurance, and the accident is their fault. If that person had insurance, their insurance would pay for your injuries and to repair or replace your car. If they don’t have insurance, this coverage pays instead.
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.
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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