Just why do you need car insurance, anyway?
You already know you need car insurance in order to drive. It’s usually required before you can even register a vehicle with the state. If you let your insurance lapse, your vehicle registration and even your license could be suspended. And states are getting more strict, using automated systems to monitor policies for any lapses.
That’s a lot of potential trouble for … what, exactly?
There are good reasons to want auto insurance. It is the most helpful way to get through a car accident without facing legal and financial penalties that could affect you for the rest of your life.
But auto insurance doesn’t work the way you might think, which can make it confusing.
In most cases, when you buy insurance, you are actually helping to protect the other driver.
How exactly does that work? Let’s take a closer look.
The Benefits of Car Insurance Work Differently Depending on Where You Live
There are two different approaches to auto insurance: “at fault” and “no fault.”
The majority of states are “at fault” states. This means that when you are in a car accident, the other driver makes a claim against your insurance and vice versa. The person who is found to be responsible for the accident is liable for all the costs that arise from it. That includes things like medical care and property damage.
Because of this, basic car insurance always includes at least the following coverage:
- Bodily Injury Liability: This pays for medical treatment costs incurred after an accident
- Property Damage Liability: This pays for vehicle repair or replacement and other damage
The problem? If your auto insurance isn’t enough to cover all the costs of an accident, the other driver can take you to court. You could still face a lawsuit for the extra amount that your auto insurance benefits don’t cover.
The second approach to auto insurance is the “no fault” state.
In a “no fault” state, you always make a claim against your own insurance first when you are in an accident. That’s true no matter who is responsible for the event. In some states, it may never be necessary to make a determination about who was at fault. In these states, certain policy options provide enhanced protection at the cost of limiting your right to sue another driver unless your injuries were extremely severe.
No fault states require drivers to hold PIP insurance (Personal Injury Protection). This extra insurance coverage pays for your immediate medical costs in the wake of an accident. PIP can usually be tapped for a variety of other needs, including lost wages and some household services you may need due to temporary disability.
PIP insurance benefits can be very robust. You may receive lost wages for as long as three years from the date of the qualifying accident. The amount of covered medical care you qualify for can range from a few thousand dollars to virtually unlimited, depending on the rules in the state where you are insured.
The Benefits of Car Insurance Also Protect You Against Uninsured Drivers
Auto insurance companies consider uninsured drivers to be a big problem.
When someone is uninsured, it means they are personally responsible for the costs of an accident. Injured parties have to take the uninsured driver to court if they plan to collect medical or property damage costs.
But that raises an obvious issue: Most uninsured drivers don’t have tens of thousands of dollars lying around in case they get into an accident. If they did, they would probably save the hassle and just buy auto insurance!
As an insured driver, you could find yourself out of luck unless you have uninsured motorist coverage.
This can be divided into two types of coverage:
- Uninsured Motorist: Pays for your costs when an accident is caused by someone with no insurance
- Underinsured Motorist: Pays for your costs when the other driver’s insurance benefits aren’t enough
Some states consolidate both of these under “Uninsured Motorist.” No matter the case, though, Uninsured Motorist coverage is separated into Bodily Injury Liability and Property Damage Liability. Even if you are not too concerned about property damage, it can be a wise idea to hold that Bodily Injury Liability coverage.
Uninsured coverage benefits you by making sure you don’t end up having to pay for all the costs of an accident out of pocket, especially when you were not responsible for what happened. It can also save you the legal fees associated with taking an uninsured driver to court.
The Benefits of Car Insurance for Optional Coverage
There are many forms of auto insurance you are never – or very rarely – required to hold.
That includes things like Comprehensive Coverage, which can protect your vehicle against theft, vandalism, and severe weather. You may be required to take on a Comprehensive Coverage policy if you decide to finance a new car. When you’re done paying off the car, you can choose to drop the policy.
Some of the less common forms of auto insurance include:
- Collision Insurance: Provides repair costs if you are in a collision with a stationary object
- Sound System Insurance: Provides for repair or replacement of your vehicle’s audio system
- Classic Car Insurance: Protects older vehicles, generally produced between 1915 and 1948
- Towing and Labor: Covers emergency services needed after a breakdown or an accident
In addition to these, there are dozens of other forms of auto insurance for very specialized scenarios. You may never need to worry about any of those. It’s interesting to notice, though, that unlike standard bodily injury and property damage coverage, many of these insurance policies pay you directly.
Your Auto Insurance Keeps You Out of Trouble, Too
One of the biggest benefits of car insurance is simply that it keeps you out of trouble with the law.
States from coast to coast are working overtime to make it more difficult for anyone to drive without the right insurance. Over the last several years, more states have developed computer systems that allow them to find out instantly, directly from insurance companies, as soon as any policy is closed or cancelled.
Many states have extremely severe penalties for driving without insurance.
Depending on where you live, you could have your license and vehicle registration suspended. In some cases, the Highway Patrol will impound your vehicle, forcing you to pay a reinstatement fee and impound fee before you can reclaim it. Plus, you will have to show evidence of current auto insurance.
Driving without insurance can also land you an expensive SR-22 auto insurance endorsement. Having this endorsement shows you’re meeting auto insurance obligations, but it can be twice as expensive as a standard policy. It marks you as a “high risk driver,” usually for about three years.
In severe situations, your driver’s license could even be revoked permanently.
All in all, it’s best to be proactive and get the auto insurance you need. Now that you know about the kinds of auto insurance and their benefits, it’ll be much easier for you to find a great deal. You can compare auto insurance policies online at Cheap Insurance right now.