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, such as:
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:
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.
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.
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.
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 under-insured 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:
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.
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