7 Killer Reasons To Have Car Insurance

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If you're not sure about your insurance policy or just want to know why you need it, it can help to know what you're paying for. Car insurance is a good investment because it protects you and your net worth, and most states require it.

Have you ever hit a limousine with your car?

My buddy did.

He saw the limo just in time to stop, so no one got hurt. No one missed their prom, either, because the limo was empty except for the driver.

My friend talked to the driver, he got a ticket, and his insurance company paid up. Aside from being a good story, the whole thing made me appreciate auto insurance in a strange and unexpected way.

Because, even if it was just a minor accident, things could have gotten a lot worse without auto insurance.

So why do we need insurance for our cars? Why do the states make it a law? (And does it make sense to pay for it in the two states where it's not needed?) How does auto insurance protect our house and, yes, even our relationships, and why should we be happy to buy it?

If you're not sure if you need to renew your policy or just want to learn more, here are 7 reasons why you need car insurance.

1. The law says to do it (in all but two states)

The most important reason to have car insurance is that, well, you have to. If you get caught driving without car insurance, you could get a big fine or even go to jail.

According to Car & Driver, if you drive without car insurance in Georgia, you can get in trouble like this:

• First time: Your license and car registration will be taken away for 60 days, and depending on why you were pulled over, you could spend up to a year in jail.
• The second time, your license and car registration will be taken away for 90 days, you'll have to pay a $85 fine, and the judge is more likely to send you to jail.
• When it happens again, you'll get the same punishment as the second time, plus there's a higher chance you'll go to jail and your driver's license will be taken away for good in Georgia.

Yeah, law enforcement isn't very kind to drivers who don't have insurance.

It's also important to know that the government won't let you get your license back until you show proof that you have insurance, and it's crazy expensive to get insurance with a suspended license. SR-22 insurance, as it is called, can cost anywhere from 150% to 400% more than a regular policy.

The "hidden fee" of driving without insurance is letting your insurance company overcharge you for SR-22 car insurance coverage. This can cost you $10,000 or more in extra premiums until your points go away.

Don't bother!

Two states where it is... legal to drive without insurance?

In fact, there are two states in the U.S. where it is legal to drive without insurance.

• Virginia lets you skip the state minimums if you either a) pay a $500 Uninsured Motorist Fee every time you renew your vehicle registration or b) post a cash bond, which is a big pile of cash to show you can pay for an accident out of pocket.
• New Hampshire also says that you don't have to have auto insurance if you can "show that you can provide sufficient funds" to cover the costs of an accident you caused. New Hampshire has one of the lowest rates of uninsured drivers in the US, at just 6.1%. This is because not many people use the flawed logic that they are "too rich to pay for insurance."

Even if you live in these states, you should still get car insurance for the other reasons listed below.

2. To Cover Someone Else If YOU Cause An Accident

The government makes us buy car insurance for the same reason it makes us wear seat belts: to protect us from terrible things that could happen.

Let's say you get into a car accident. You tried to pull out of a burger join during rush hour, but you didn't see a car speeding in the right lane and hit you. It's a mistake made in good faith, and it happens every day.

Both cars are damaged, and the necks of the other driver and her passenger are hurt. If you didn't have car insurance, the other driver and her passenger could sue you for all of their medical bills, loss of use, damage to their car, and other costs. Your total bill will be lucky if it's less than $100,000.

That's one pricey burger, and we haven't even thought about how much it would cost to fix or replace your own car.

It's important to note that if an uninsured driver causes an accident, everyone loses, not just the driver who doesn't have insurance.

• The accident victim can't get the money they need, so their debt keeps getting bigger and bigger as interest is added (and pulverizes their credit score).
• When personal injury law steps in and a "ambulance chaser" boosts the victim's compensation, the driver who caused the accident has to wait for the financial axe to fall (and their commission).
• The drivers are going to have a nasty legal battle, so the government has to give courtroom time, public attorneys, and tax money to it. They, too, have to pay for damage to public property, like fences and guardrails, out of their own pockets.

In an accident where no one has insurance, only the lawyers win. Everyone else has lost tens or even hundreds of thousands of dollars, and at least one person's life is basically over.

Tragically, this whole thing could have been avoided if the uninsured driver had just paid $1,000 for a 50/100/50 insurance policy ($50,000 per person, $100,000 per accident, and $50,000 for damage to property).

So, governments make sure everyone has insurance.

3. To Cover YOU If Someone Else Causes An Accident

On the other hand, if someone else hits you, you'll be glad the government made them get insurance.

Because if you get hit by a driver who doesn't have insurance, it could take you a long time to get the money you're owed. In the meantime, you have to pay for repairs, medical bills, and more. Your credit score and mental health are at risk.

So, it's called "liability coverage." The other driver is responsible for paying for the damage to your car and your medical bills. This is called "property liability coverage" (bodily injury liability coverage).

That's also why governments don't require collision or comprehensive insurance; to be blunt, they don't really care if you break your own stuff. They just want to make sure you can pay the bills for someone else (including theirs).

Still, for reason #4, you might want to get collision and comprehensive insurance.

4. To Get Your Car Fixed No Matter WHO Caused The Accident

Every driver needs liability insurance, but only some drivers need collision and comprehensive insurance.

• Collision insurance helps pay for the cost of fixing or replacing your car if you cause an accident or if the other driver's insurance doesn't cover the cost of your repairs (or doesn't exist at all).
• Comprehensive insurance covers damage to your car caused by "incidents" like vandalism, theft, floods, falling trees, rogue deer, alien invasion, etc.

Now, do you personally need collision and comprehensive insurance?

All of it depends on how you answer a simple question: If your car were badly damaged tomorrow, could you pay for repairs or even a new one out of your own pocket?

If you don't have collision and comprehensive insurance, paying for it up front can give you peace of mind and save you a lot of money. This is especially true if your health or your income depend on your car.

You don't need collision and comprehensive coverage if your car isn't worth that much and you have a few thousand dollars set aside for repairs or even a replacement.

Lastly, if you couldn't pay out of pocket to fix or replace your car, but you could live without it for a while, you might be fine without collision and comprehensive. After all, they aren't cheap, and the two of them can easily add $500 or more to a six-month premium.

Oh, and one more thing: you should also get collision coverage for your rental car. Luckily, it might be free if you have a rewards card. Check your card's benefits for something that says "Auto Collision Damage Liability Waiver" or something similar.

5.To Protect Your Other Assets

Let's say you cause an accident that costs $50,000 but all you have in your bank account is $5,000. The lawyers for the other driver can legally take other things you own to pay for what you owe.

This can include your investments, your car, and even your house.

Yes, even a small accident can cost you your home.

Remember that liability insurance doesn't protect you; it protects your net worth. It makes a "buffer zone" between the money the victim is owed and all of your things.

So, if you buy a house, you should raise the liability limits on your car insurance. 50/100/50 is a much larger buffer zone to protect the value of your home.

6. To Help Cover Passengers In Your Car

If an accident is your fault, you have to pay for your passengers' bills as well.

This can include both damage to property and medical bills. Say you're driving a friend to a photo shoot and they have a lot of expensive camera gear in the trunk. When you cause an accident, people get hurt and their things get broken.

You will have to pay for their medical bills and replace their expensive gear.

What would you rather say at this point:

"Don't worry, I'm covered."

Or

"Sorry, dude, but I don't know when I'll be able to pay you back."

It may sound dramatic, but it's the truth: auto insurance coverage protects friendships!

7. Simple Peace Of Mind

The last reason you need auto insurance is that it gives everyone peace of mind.

How would you feel if you knew that every time you left your house, another driver could hit you and leave you with $136,261 in bills until the other driver pays you back?

To be honest, I'd be scared to leave the house. I would sell my car and ride a bike.

I'd much rather have a system where everyone has to have insurance, especially since so many people are driving without thinking these days. A car insurance policy won't make them better drivers, but it will protect you from their carelessness.

Insurance can sometimes feel like a scam, but it really does keep society running. It gives people peace of mind, keeps their jobs safe, and keeps our courts clean.

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