Why do I pay for car insurance?
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UPDATED: Oct 14, 2021
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Car insurance is something that everyone needs. Like health or life insurance, it is there to take care of financial loss for people who have an accident, illness, or death.
In the case of life insurance, the money from the claim would go to the family of the deceased to take care of final expenses.
Health insurance covers expensive medical procedures and hospital stays that you could probably not afford out of your pocket.
Auto insurance is required in every state except two:
- New Hampshire.
It is illegal to drive without auto insurance in every other state but these two states, and even they have their own unique auto insurance requirements that all drivers must meet to legally operate a vehicle on public roads.
That being said, it’s important to understand some of the other reasons you pay for car insurance.
Make sure you’re not paying too much, though! Enter your zip code above and get started comparing coverage options.
It Lessens the Number of Individual Lawsuits
Before the advent of car insurance, there were many lawsuits in which people sued other individuals for damages that they caused to their car or themselves.
Going back to the day when cars were invented, many tort cases arose from individuals who were seeking restitution for damages due to negligence on the part of another driver.
If you are ruled at fault in a car accident and someone dies as a result of the accident, you could be sued for “wrongful death.” This is a civil action but can be very serious.
Legally, it is one way that a family could seek monetary damages when no criminal charges have been filed for the incident.
To avoid such situations, you need to carry personal injury protection and make sure your liability and bodily injury are at least at the state minimums.
Some people wonder why some of their premiums should go to car insurance agent commissions, and they complain that they feel this increases their premiums.
While it’s true that a portion of the premium does go to pay agent commissions, this is only fair since the agent sold you the policy and it is not as large of a portion as you might think.
Insurance companies take a percentage to pay their agents after you pay your premium so you don’t have to worry about this, and there is no added fee for agents.
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Reasons to Have Car Insurance
Here are some of the reasons to have auto insurance, besides the ones we’ve mentioned so far.
- Peace of mind – It gives you peace of mind as you drive when you know that your insurance policy will cover injury or damage you cause to others. If you are in an accident that causes damage or harm to others, your insurance will cover it.
- Protection of your financial assets – Having car insurance gives you peace of mind so that when you travel, you know that you are protected from serious financial loss or loss of the value of your car if your car is totaled or damaged.
- Credit-worthiness – Your car insurance, like many companies, reports to credit bureaus in most cases regarding your payment history and behavior. If you pay your premiums on time each month, it can help your credit rating over time.
- Legal compliance – By having the state-required coverages, you have the assurance that you are following the state laws and are free from the worry of large fees of other citations due to failure to carry the proper insurance.
The only two states that don’t have mandatory auto insurance are Virginia and New Hampshire. If you live in Virginia, they do not require that you carry the state minimums.
However, if you do not have this protection, you will be required to have uninsured motorist protection, which costs $500. This insurance covers you if you are in an accident involving another driver who is not carrying any insurance.
The DMV of Virginia reminds citizens that all Virginia drivers must at least provide proof of uninsured insurance to register their vehicle and mandatory car license plates and tags.
What is proof of financial responsibility?
If you live in New Hamshire, you need to know that, while your state does not require carrying the state minimums in insurance, it is considered a “fault” state. This means that they require you to pay in full for any damages or injuries you cause if you’re in an accident.
You must provide records of your bank statements and assets to show that you have enough financial backup funds to cover an accident to avoid license suspension in the event of an accident.
New Hampshire drivers may, of course, opt to carry the optional car insurance. If you do, the following state minimums are required:
- $25,000 per person injured in an accident
- $50,000 per accident if more than one person is injured
- $25,000 per accident for property damage
- $1,000 in medical payment or “med pay” benefits
Some Take the Hard Road
Despite these two exceptions, drivers in Virginia and New Hampshire would be better off to carry car insurance anyway, even though the law in those states does not dictate it.
This is because it is far more expensive to them not to carry insurance in the long run than to try to avoid it.
Likewise, drivers in any state should weigh the consequences of carrying no auto insurance.
It can be very costly if you are caught without proper coverage, even if a routine traffic stop. This site shows the penalties and typical fees that you may be assessed if you cannot produce proof of insurance.
Also, the potential property loss, wrongful death cases, or legal actions that may be taken against you are too great to risk.
Shop and compare policies and make sure you have enough coverage for peace of mind so that you can drive fearlessly.