Having car insurance means you are cautious, prepared for the unknown, and law-abiding. Why?
Most states in the US, except New Hampshire, require all drivers to carry car insurance. But even in New Hampshire, the law requires drivers to show proof that they can take care of certain costs out of their pocket when they’re involved in an accident.
This is why, as a driver and car owner, you must accept the inevitable and buy car insurance. So, why do you need car insurance?
What Is Car Insurance?
To understand why you need car insurance, you must first understand what car insurance is.
Typically, car insurance is a contract between the carrier (insurance agency or company) and an individual or car, just like all other insurance premiums. Insurance is aimed to protect you (the individual) from financial loss in the event of a car accident, vandalism, or theft.
You have to pay an insurance premium to get insurance coverage.
In exchange for you paying the agreed premium, the insurer will pay your damages or losses as spelled out in your policy.
Depending on the type of insurance policy, car insurance covers:
- Liability – This includes bodily injury or property damage to another person.
- Medical – This includes the medical costs associated with treating injuries and rehabilitation and often payment for lost wages and funeral expenses if there is loss of life.
- Property – for instance, theft of or damage to your car.
- Legal fee – the insurer will pay your legal responsibility to other people for property damage or bodily injury
Why Is Car Insurance Mandatory?
Car insurance is mandatory in most states because it is a requirement of the law.
This means the law requires every driver to carry car insurance. Why?
It’s all about liability.
Car insurance protects you from being liable (responsible) when you get involved in an accident that causes people injury or property damage. This is especially important when you are responsible for the accident — also called a fault accident.
Each state sets its minimum liability coverage limits that drivers must carry. In most states, you need to maintain at least this minimum level of liability insurance to drive your car around.
Generally, the minimum car insurance coverage that most states require is third-party liability insurance that covers bodily injury and property damage.
If your vehicle is financed or leased, you may need to carry more than just third-party insurance. You can opt to carry comprehensive and collision coverage and agree on low deductibles and gap insurance.
Most financiers or leasers want to protect their investment, and third-party insurance will not do that for them. So, they require you to buy insurance that will guarantee their investment in case of any loss — such as comprehensive and collision coverage.
Although comprehensive and collision insurance are optional, you can consider having them even if your car is not financed. Since your car can cause physical harm or property damage, you need to carry enough insurance that will cover the costs related to these damages.
Which Other Car Insurance Coverages Are Mandatory?
If you’re a driver or car owner, you need to carry your state’s minimum liability coverage. But some states require more than just minimum liability coverage.
You need to check with your state’s DMV department to find out how much coverage you must have.
For example, some states require drivers to carry more comprehensive insurance coverage. No-fault states, for instance, require higher levels of coverage such as Personal Injury Protection (PIP) coverage together with bodily injury and property damage coverages.
In these states, the PIP insurance covers the cost of medical bills for you and your passengers when you’re involved in an accident. But the level of PIP coverage required still varies by state.
Can I Drive My Car Without Insurance?
No, you cannot drive your car without insurance. It is illegal and not recommended to drive your car without insurance. Why?
You risk being fined for driving without insurance or proof of financial responsibility.
Repeat offenses of driving without insurance can dramatically escalate the severity of the penalties. You may get your license suspended.
In case of an accident, property damage, bodily injury costs (such as medical expenses), and legal costs can become unaffordable if you’re held liable without insurance.
This is why, when you’re buying a new car, the dealership always requires proof of insurance or proof of financial responsibility for the car before you can drive off the lot.
What Happens If You Drive Without Car Insurance?
If you’re found driving without insurance, you could face stiff penalties, including:
- Fines, costly tickets, and fees.
- Having your vehicle impounded.
- License suspension/revocation and license reinstatement fees.
- Legal action by the state.
- Lack of financial protection in case you’re involved in an accident.
- SR-22 requirements.
- Possible jail term.
Note: These penalties vary from state to state, the at-fault driver, and the possible damage caused. Also, you may receive one or a combination of these penalties depending on your state, driving record, and offense.
In Arizona, for example, you must have at least the minimum car insurance, or you risk a possible jail term alongside other penalties. This will also affect your future insurance premiums.
How Much Is Car Insurance?
The law mandates that every driver must carry minimum liability car insurance, but requirements vary from state to state.
In many cases, insurance providers place the pricing of car insurance coverage individually (a la carte) – per product. This allows them to customize insurance premium amounts to suit each driver’s budget and exact needs.
There is no one price for every type of insurance coverage. The factors that affect the premium rates (also called insurance rating factors) are:
Your state: the state you live in might require just the basic minimum insurance or additional insurance on top. This can increase the cost of insurance.
- The type of car: Expensive/luxury vehicles are costly to insure.
- Age: Newbie drivers – usually under the age of 25 years – are more prone to accidents than the more seasoned drivers and pay higher premium rates.
- Credit history: A low credit score affects your premium rates as much as it can affect a loan facility from a bank.
- Driving record and claim history: Drivers switch more tickets, and more claims in their history will pay more in terms of premiums.
- Location: Where you live dictates your security and other factors like natural disasters. Insurance factors all these things when calculating the premium costs.
- The type of policy: The policy you select determines what you pay. If you choose a plan that covers everything required of car insurance and other add-ons, you will pay more.
- Deductibles: The more deductible you agree to pay, your premiums reduce to factors in your deductible.
Insurers also issue policies in particular time frames – usually six-month or one-year periods. The policies are renewable at the end of each policy period.
The bottom line is that it is a criminal offense to drive your car around without insurance. You need car insurance to protect yourself from financial liability and ensure that you are covered in the event of an accident. If you’re caught driving without insurance, you risk penalties and legal charges.