Why Is It Important to Have Auto Insurance?

First and foremost, auto insurance is important since a certain level of liability coverage is required in the United States (the amount that is required varies by state). If you are pulled over by a police officer and have to produce proof of insurance and fail to do so, you could be given a ticket, and your right to operate motor vehicles could be revoked. You might incur fines as a result of going without insurance, and repeated offenses can lead to arrest. It is best to get at least the minimum amount required by your home state in order to drive legally.

Now why does the government require liability coverage? It's not because they want you to waste your money, or because they impose some behind-the-scenes taxes on your premiums. Liability coverage protects drivers against damages that are their own fault: if you have no liability insurance, you will be responsible to pay for such damages out of your own pocket. You can choose not to repair your own vehicle if you can't afford it, but most people don't have the money to pay for someone else's car damage. Liability coverage ensures that you don't go bankrupt because of an accident.

Apart from the required liability insurance, auto insurance plans can also include collision insurance, which will pay for damage incurred by your vehicle, even if an accident is not your fault. Collision insurance is important to protect the investment of a vehicle, since most people rely on their vehicle for their jobs, and would be unable to get to work without one. The cost of a total loss on a car is more than the average person is able to absorb easily. New cars are especially important to protect with collision insurance, since they have much higher value.

Another part of an auto insurance policy is comprehensive insurance, a component that covers a vehicle for damage from all kinds of sources apart from normal car driving collisions. Have you ever wondered what happens to those cars that are crushed by trees during a storm, or riddled with golf ball-sized hail? Such events are often called acts of God, and comprehensive auto insurance covers damage to a vehicle caused by such events, and often things like theft and hitting animals an the road. Like collision insurance, many people would be financially burdened if they experienced a total loss of a vehicle due to a random event.

Some level of car insurance is important for every vehicle--at least to the minimum liability coverage required by law--but it is not always the best choice to get collision and comprehensive coverage. Basically the point of auto insurance is to protect the driver from an unforeseen cost that she cannot afford to bear. Each driver will have a different amount of loss that she can stand to bear. Someone driving an old beat up minivan that is worth $500 can probably stand to lose the car and just buy a new one. Someone driving a brand new Lexus that cost $50,000 can probably not bear to lose her investment, or even damage that might come from hail, so that person might be better off getting full coverage.