Car insurance is expensive, but states require it for a reason. In case of an accident, it can save you a lot of money and a lot of stress. Here's why you need car insurance.
Sometimes it seems that states mandate us to have car insurance just to make insurance companies rich.
But is this really the case? Or are other factors at work?
Let's dig a little deeper.
According to the National Highway Traffic Safety Administration (NHTSA), there were 6,264,000 auto accidents in the US in 2015. Those accidents resulted in 35,092 fatalities and 2,443,000 injuries. Property damage occurred in 4,548,000 of accidents.
Those statistics represent the cumulative driving experience of 210 million licensed drivers in the US. That means that there's about 3 percent chance you'll get into an accident of some kind in any given year. That may seem low, but if you do get into an accident and you don't have insurance, the consequences can be overwhelming and even financially devastating.
So let's visit the reasons why you need car insurance.
To compensate you for an accident caused by someone else
As much as you might hate the concept of car insurance, the fact that it's required can be a major comfort if you get into an accident that's caused by someone else.
In that situation, you're the victim and in need of compensation for injuries that you sustained, as well as any damage to your vehicle. Car insurance enables a person who may have no other financial resources, to compensate you for your loss.
Were everyone not required to carry car insurance, you'd likely have to bring a lawsuit against the offending party. Not only would that cost you money in legal fees, but there's no guarantee that you'd collect compensation even if a court decides in your favor.
A court can issue a judgment in your favor, but they do not enforce collection on the judgment proceeds.
You may be forced to wait years before the defendant is able to make the payment, if they ever pay at all. On the other hand, if you have car insurance, you can usually be compensated by the other party's insurance company within a few weeks.
So you can compensate someone else for an accident you caused
Let's say your involved in an accident that's clearly your fault. If you didn't have car insurance, you can be the person on the other side of a lawsuit. That can cause your credit score to crash and put a cloud of uncertainty over your future.
For example, if you needed a mortgage to purchase a home, the lender would require you to pay off the judgment before you can close on the loan.
Having car insurance enables you to get on with your life, even if the accident is your fault. Sure, your premium will go up after the accident, but you will be able to drive off knowing that the real cost of the accident will be covered by your insurance company.
To get your car fixed no matter who's fault the accident is
Car repairs are expensive. A single, seemingly harmless fender bender, could easily cost a couple thousand dollars. In more serious cases, your car may not be drivable.
If you didn't have car insurance and you were the cause of an accident, you would have to pay out-of-pocket for the repair.
But because of car insurance, your car will be repaired or replaced fairly quickly.
To protect your assets
Let's say that you think you have enough money that you could be "self-insured" in the event of an accident. Maybe you have at least a quarter of a million dollars, and feel that you don't need car insurance.
That may be the case, but you do really want to lose your hard-earned savings in a car accident.
If car insurance does nothing else, it will protect your assets. This is because if you're determined to be at fault, the other party will pursue your insurance company, not you, to get compensation.
To protect your auto lender
If you have a loan on your car, the lender will need to know that you have adequate car insurance because the loan is secured by your vehicle. If anything were to happen that would damage the car, it would also diminish the value of it. That would weaken the car lender's collateral.
Lenders are most interested in knowing that you have collision and comprehensive coverage as part of your car insurance policy. Collision covers damage related accidents, while comprehensive covers non-automotive events, such as theft, vandalism or natural destruction - like a tree falling on the car during a severe storm.
Both types of coverage specifically protect the physical value of the car, and that's why they are required by car lenders.
It's required by state law
We've saved this one for last because it's the most obvious reason why you must have car insurance. But all the reasons given above are why states mandate car insurance coverage. By requiring that everyone has it, everyone is protected from the risks of owning and driving a car.
In fact, car insurance is mandated in 48 states. The lone exception is New Hampshire, but even in the Granite State, there is a legal requirement to have coverage if you have a loan on your car.
Remember
Car insurance is mandated for a reason - it protects you and others in the very real event that you get into a car accident.
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