Why is auto insurance important?

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Why is auto insurance important?

Seventeen-year-old Ryan Karsdale is pretty excited. He worked his tuckus off (as his grandmother would say) all summer in order to afford his uncle’s old Honda Civic. It’s not exactly sexy, but it would be his own car, his own set of wheels, that he could use to go wherever he wanted – as long as it’s within twenty miles of the house, his father would remind him before being shushed by his mother.

He figured he’d need a bit of extra cash to get it in working order, and maybe a few new parts here or there. What Ryan didn’t take into account is car insurance. Sure, he vaguely knew that car insurance was a thing – he’s seen a Geico commercial or two – but he didn’t realize just how much it would cost. According to the agent his uncle brought him to, his rates would actually be even higher than everyone else’s because he’s a dude and he’s young. Ryan left the office feeling frustrated – is auto insurance really that important?

To understand why car insurance is important, you have to understand what, exactly, it does. Car insurance isn’t really about protecting your car in the event that you get into an accident. It’s about protecting you.

Say Ryan gets into an accident a few months after he buys his uncle’s Civic. He’s fine – he walked away with just a few scratches – but the accident totaled both the Civic and the other guy’s car. Plus, the other driver broke one of his arms.

Ryan doesn’t have the money to pay for the Civic to get repaired, let alone the other guy’s car, PLUS the other guy’s medical bills.

What Ryan does have is car insurance. His car insurance policy covers the other driver’s medical bills and the cost to replace the car. While Ryan does have to deal with increased car insurance premiums – he’s proven to them that he’s not exactly the perfect driver – it’s much better than the alternative.

And what is the alternative? Well, the law says that you’re liable for the damages done to another person and their property in a car accident you cause, regardless of whether or not you have insurance. If you can’t afford it, you could end up in jail, or a court could decide to take a big chunk of your paycheck every month to send to the person you hit.

The average cost of a car accident can be staggering for most Americans – in 2013, the average insurance claim for bodily injury was $15,443, and the average claim for property damage was $3,231. If you don’t have auto insurance, you’d be on the hook for all of it. Depending on where you want to go to school, you could pay for a semester or two of college with that cash.

Even though not every state in the union requires car insurance, every single state has laws that says you’re liable for damages in a car accident that you caused. Auto insurance is, hands down, the cheapest and best way to cover this liability for the large majority of people.

If you’re worried about the monthly cost of auto insurance, check out our tips for saving money on car insurance. You can also save money by shopping around – you may be able to save hundreds of dollars per year by switching to another insurer!

Image: Paul D'Ambra