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UPDATED: Mar 13, 2020
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There is a wide range of insurance products that consumers can purchase, and these products are generally designed to help you offset expenses related to different scenarios and events.
However, with many types of insurance that you could buy, coverage is optional, and it is up to the consumer to determine if it is worthwhile to purchase it.
Car insurance is one of the many coverage options available to you, and you may be wondering what benefits it provides to you and if you should buy a policy.
This coverage offers numerous financial benefits, and it actually is legally required in most areas. A closer look will tell you why you may need to start shopping around and comparing rates for car insurance today. Use our free comparison tool above to get started.
The Legal Need for Car Insurance
Many states have established laws that make drivers legally liable for any damages they cause to others while driving a vehicle. This includes property damage, vehicle damage, medical expenses, and more.
However, the expenses associated with a single accident can be more expensive than what most drivers can afford to pay out-of-pocket.
With this in mind, many states have established an insurance requirement that drivers must comply with.
Reviewing Your State’s Auto Coverage Requirements
Most states have a liability insurance requirement, and this type of coverage pays for the expenses that you generate for other parties when you are driving. This coverage will not provide any benefits for your own vehicle repairs, medical expenses, and other personal expenses.
Some states also have additional coverage requirements, such as requirements for personal injury or uninsured motorist insurance.
Note that the coverage types and limits vary by state, and you need to understand these requirements before you can buy a new policy today. Some states have very minimal requirements that offer limited financial benefits, and others have more comprehensive requirements.
Drivers are responsible for all damages they cause, and when your coverage limit has been met, you are personally responsible for the additional expenses.
If you live in a state that has relatively moderate or low coverage requirements, it may be worthwhile to buy more than the minimum amount of required by law.
Driving Without Insurance
Just as most states have liability insurance requirements that drivers must meet, they also often have penalties that you may face if you do not comply.
Some states may simply mail you a warning if they discover through a database that your insurance has lapsed or has been canceled, but other states may immediately issue a hefty fine.
You may also be fined or incur other penalties if a law enforcement official cites your violation of the insurance requirement. Some drivers have even lost their vehicle registration or their driver’s license because they were not properly insured.
A Lender’s Car Insurance Requirements
If you have a car loan on your vehicle, you may also need to comply with your auto lender’s insurance requirements. This requirement usually differs substantially from the state requirement, and it often includes collision or comprehensive insurance.
This requirement will be eliminated when you pay off your vehicle loan, and you can then downgrade your policy to save money on your premium.
However, you face financial risks by not having collision or comprehensive insurance on your vehicle at all times, and many drivers choose to keep their collision or comprehensive insurance in place after paying off a car loan.
Understanding Why Auto Lenders Have an Insurance Requirement
Collision insurance is one common requirement that auto lenders have, and this coverage will pay for repairs or a replacement to your vehicle if it is involved in an accident.
Comprehensive insurance takes the benefits a step further, and it includes coverage for events like:
- vehicle theft
- weather damage
Auto lenders are using your vehicle as collateral for the loan, and this coverage requirement protects their collateral. Notably, it also decreases your out-of-pocket expenses if you are in an accident or suffer another type of vehicle loss.
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The Financial Impact of a Theft or Accident
You may drive for many extended months or even years without a mishap, and you understandably may question the need to pay your auto insurance premium regularly. However, the financial impact of a theft or an accident can be significant.
Therefore, in addition to buying insurance to comply with the lender and state requirements in place, drivers can enjoy significant financial benefits.
Learning about the potential financial impact of an accident or of another type of loss event can reveal the importance of buying auto insurance.
The Issue of Liability
Because you are legally responsible for any damages you incur behind the wheel, you should analyze the potential expense of a typical accident. A minor fender bender can result in damage to another person’s car as well as to your own.
This crash can easily cost $1,000 or more per vehicle. A more serious accident may result in $10,000 of damage per vehicle or more, and there may be three or more cars involved in some cases.
Remember that you are also responsible for the medical expenses and damaged personal property that you cause.
If you cause an accident that injures multiple people, the financial burden of these medical expenses could be burdensome or even impossible for you to pay in some cases.
A simple surgical procedure or an emergency room visit for one person may be $1,000 or more, and some injuries may cause people to be in the hospital for several weeks or more.
Your Personal Expenses
Your liability expenses are only one factor to consider when you are looking at the total cost of an accident. Your vehicle likely is damaged, or it may even be totaled.
You may suffer injuries that require medical attention, or you may damage expensive items in your car, such as a computer. You may also incur towing fees and rental car fees as a result of the event.
Being Upside Down on Your Car Loan
You can see that the expenses associated with an accident or theft can be staggering, but the financial impact may be more severe if you have a high balance on your car loan.
Remember that you are legally responsible to pay off your car loan, and this requirement includes if the car is totaled or stolen.
Even with insurance, you may owe more money on your car than insurance will pay out on a claim.
If you find yourself in an upside down position with your car loan, you are responsible for paying off the remainder of the car loan on your own. Some drivers purchase GAP insurance to avoid this financial risk.
Buying Your Policy
Now that you are aware of the significant financial impacts associated with an accident, a vehicle theft, or another type of loss event, you may be ready to start shopping around and selecting a new auto insurance policy.
Some people will hire a broker to assist with this process, but the Internet makes it simple and easy to compare rates from leading providers on your own.
Coverage Types and Limits
Before you begin shopping around with various insurance providers, you must focus your attention on your coverage needs. Liability coverage is a necessity in most cases, but you must determine if you need to increase your limits beyond what the state is requiring. \
Researching other state and lender requirements beyond liability insurance is also beneficial as a starting point.
After you have determined what your minimum insurance coverage requirements are, your next step is to estimate the potential cost of a moderate or severe accident.
Consider if you have the financial means to pay expenses not covered by insurance levels. If not, you may need to increase your coverage limits.
You also need to decide which deductible amount you want for your policy before you request quotes, and this is because the deductible is directly linked to the premium cost.
A $500 deductible is fairly standard, but you can request a lower deductible if you think this amount is unaffordable for you. If you are focused on reducing your premium, however, consider setting up coverage with a higher deductible, such as $1,000.
How to Compare Quotes
Insurance companies will ask you for a wide range of information before creating a customized quote for you. This includes:
- Your name and contact information
- Your age and gender
- Your driving history or claims history
- Your vehicle information, such as the make, model, and year
- Your desired deductible amount
- Your desired coverage types and limits
- How far you typically drive
- How the vehicle is stored
It is wise to request the same coverage types, limits, and deductible from each provider you reach out to. This will make it easier for you to identify the best deal available on car insurance.
Selecting a Provider
You may be wondering which providers to contact for quotes. You could reach out to all of them, but there are dozens of providers. Most drivers will benefit from contacting a well-chosen group of three or four providers.
Spend time researching the financial strength of each company and learning about its claims process. By focusing your attention on these points, you can more easily determine which providers you should contact for quotes.
Look for Discounts
If you are focused on setting up the most affordable premium possible, you may be interested in learning more about some of the discounts offered by car insurance companies.
Each auto insurance provider has unique discounts available to drivers, but you may find that many offer discounts related to these factors:
- A clean driving history or a claims-free status
- Safety or security features on your car
- Driving infrequently
- Bundling coverage with other policies
- Insuring multiple drivers or vehicles on one policy
- Being a student, senior citizen, or military professional
- Paying your premium in full
For Drivers Who Cannot Find Coverage
Many drivers can easily locate the coverage they need by walking through these steps to shop online or by working with an insurance broker. However, some drivers may be considered high risk, and these are drivers who:
- Have no or minimal experience behind the wheel
- Who have a blemished driving history
- Who live in a zip code with a high accident or vehicle theft rate
If you cannot find coverage and are considered high-risk, you do have a few options available. For example, some providers specialize in offering high-risk coverage. You can also sign up for coverage through your state’s assigned risk pool.
Rates for both of these options will be higher than what other drivers may be paying, but you can nonetheless get the coverage that you need to comply with insurance requirements.
The Importance of Buying Coverage Today
In most cases, a driver is in violation of the legal coverage requirement if he or she is behind the wheel for even a brief moment without insurance.
Some states even consider it a violation if you are uninsured at any time, regardless of whether or not you have driven a car recently.
It is important that you understand the coverage requirements in place as well as the benefits of coverage, and you should take steps to buy the coverage you need today.
Enter your zip code into our free comparison tool below to see the rates of top insurers side-by-side.