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Why Car Insurance is Required

As a driver, getting car insurance is as important as getting your license. Without it, you could be subject to substantial debt if you got into an accident, lack further financial protection if your car is stolen, broken into, or vandalized, and in most states, you would be breaking the law. It’s pretty much a no-brainer.

“I don’t know why anybody wouldn’t have it,” said Mike Barry, spokesman for the Insurance Information Institute. “It’s a risk not worth taking.”

And yet, roughly one in seven drivers in the United States are uninsured, according to the most-recent estimates from the Insurance Research Council. There’s any number of reasons why people choose to forego insurance – they can’t afford the premiums, their car has depreciated to the point where it’s not worth insuring, or they simply neglected to renew their current plan. But If you need further justification for the added monthly bill – or could use the validation for already doing so – here are the key points as to why car insurance is a requirement for every driver.

Because Auto Insurance Protects Your Assets

Auto insurance provides protection from property damage and liability. By paying an established amount, or premium, each month, your insurer promises to pay your losses if you are in an accident, as set by your established policy. And, most important, you aren’t stuck footing the entire bill.

“It gets expensive very quickly,” said Barry. “Anybody who has been in a minor automobile accident knows the auto body repair charges are oftentimes significant, and the bodily injury bills are even higher if injury was involved.”

An auto insurance policy has six different types of coverages, some of which your state may require you to buy:

  • Property Damage Liability.

    This coverage pays for damage the driver causes to someone else’s property, including a car, as well as buildings, fences, and other structures your car hits.

  • Bodily Injury Liability.

    This coverage applies to injuries the driver causes to someone else. It also covers you and family members listed on the policy if you are driving someone else’s car.

  • Medical Payments or Personal Injury Protection.

    This covers the cost of treating injuries to the driver and passengers, and can include medical payments, rehabilitation, lost wages, and funeral costs.

  • Collision.

    This covers damage to your car caused by a collision with another car, object, potholes, or from flipping over, even if you are at fault.

  • Comprehensive.

    This covers damage to your car caused by something other than colliding with another car, such as fire, falling objects, earthquake, windstorm, hail, flood, vandalism, or contact with animals.

  • Uninsured or Underinsured Motorist Coverage.

    In the event that you are hit by an uninsured, underinsured, or hit-and-run driver and are not at fault, this coverage will reimburse you for damages. This also covers you if you are a pedestrian.

Think about it – if any of these scenarios happened to you, would you be able to afford the repairs to your car and any resulting medical bills? If you’re at fault, would you be able to cover your repairs and medical bills, and those of the other driver? According to the U.S. Census, there were 10.8 million motor vehicle accidents in 2009, from parking lot scrapes to major collisions. Between property damage, medical and emergency services, and lost earnings, those crashes cost a whopping $300 billion, according to research by AAA – or about $1,522 per person. Just looking at medical care and productivity losses, injuries from car crashes amount to more than $99 billion in 2010, according to the Centers for Disease Control and Prevention – or nearly $500 for every licensed driver in the United States.

Of course, car crashes aren’t the only perils that can cost you. According to the Federal Bureau of Investigation, there were an estimated 737,142 motor vehicle thefts in 2010 amounting to $4.5 billion. To break that down, the estimated rate of thefts was 238.8 per 100,000 inhabitants, and the average value of a stolen car was $6,152. With auto insurance, you could have significant financial help in replacing or repairing your car, or getting a rental. Take note, however, that you are protected from auto theft only if you have comprehensive coverage in your policy.

Because Odds Are, Not Having Auto Insurance is Illegal in Your State

Car insurance is not just a sound investment, it’s the law. Chances are, your state requires licensed drivers to carry car insurance for any registered vehicles, even if the vehicle is not in use. The only state that doesn’t is New Hampshire, according to the Insurance Information Institute. But even then, New Hampshire requires that drivers carry proof that if they cause an accident, they have sufficient assets to pay claims. Since many people would be unable to do that, by default, they’ll need to purchase car insurance.

At this point, you might be wondering what happens if you are caught without car insurance. According to the ABA Family Legal Guide, uninsured drivers are likely to face fines, suspension of their license, and pay court costs. The exact penalties vary by the state’s traffic law. In New York, for instance, uninsured drivers will have their license revoked for a year, pay a civil penalty of $750, may be fined between $150 and $500, may be imprisoned up to 15 days, or face both a fine and jail time. Generally, though, fines are the most common penalty, said Barry.

Because Your Lender Also Requires You To Have It

Your state isn’t the only entity that may require you to have auto insurance. If you have a car loan, most lenders also require you to have insurance to protect their interest in your car. Even if your policy lapses, the bank will obtain a policy and charge you for it to further protect the bank.

“It’s the same concept as a house,” said Barry. “Sometimes lenders will insist on it, but it comes back to [the fact that] the motorist most likely is living in a state where it’s mandatory anyway.”

Most terms will require that you provide comprehensive and collision coverage. Keep in mind, though, that the premium may be much higher and the coverage less than a policy you would get on your own.

Because One in Seven Drivers Don’t Have Insurance

When it comes down to it, one in seven drivers are willing to take the risk of violating their state law and not insuring their vehicle. If you were hit by an uninsured driver, the uninsured or underinsured motorist coverage of a car insurance policy would help you cover your losses. This coverage would also help you if you’re hit by an insured driver, but his or her insurance isn’t enough to cover your damages, or if you’re the victim of a hit-and-run. This is sometimes an optional coverage, though Barry recommends getting it.

“Car insurance is not optional, unless you want to flaunt the law. And studies have found that one out of seven drivers are willing to do that,” said Barry.