Why Do You Need Car Insurance? Reasons Why You Should Get Coverage


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ByMargaret Wack
Edited byAmy Wilder
ByMargaret Wack
Edited byAmy Wilder

Updated: May 20, 2024

Advertising & Editorial Disclosure

You primarily need car insurance because it’s required by law in most states. Drivers must purchase a minimum amount of car insurance, which varies by state and generally includes liability insurance and underinsured or uninsured motorist coverage.

In many cases, you may want to increase your coverage limit above and beyond what is required by law since doing so can help to ensure that you’re protected financially in the event of an accident. Not having enough coverage could mean you’re stuck paying a huge amount out of pocket for car repairs or medical bills after an accident.

Table of Contents
Key Takeaways

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You need car insurance to comply with your state’s rules and regulations.

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Car insurance can also protect you financially in case of an accident.

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Purchasing the right car insurance coverage for your needs can help to ensure that you’re protected.

Why Do You Need Car Insurance?

Car insurance protects you from the financial consequences of a car accident. While required by law, car insurance is important to help protect you, your family, and your finances. Increasing your coverage limits above the minimum coverage requirements can help ensure you have the coverage you need to cover expenses in the aftermath of an accident.

1
The Law

Car insurance is mandatory in most states, and each state has a minimum car insurance requirement that specifies the coverage types and minimum coverage limits you’ll need to meet. To legally operate your vehicle, you must purchase an auto insurance policy that meets your state’s requirements.

2
Financial Protection

A robust auto insurance policy can provide financial protection if you get into an accident. Car insurance can help pay for covered damages to another person’s vehicle, injuries to other parties, or damage to your car. Full coverage auto insurance typically includes liability coverage, comprehensive coverage and collision coverage.

3
Repair Coverage

Having adequate auto insurance coverage limits will help cover damage to your car if you’re in an accident. If you’re at fault, your policy will also cover damages to the other car involved in the accident. Without auto insurance, you could be on the hook for extensive repair costs.

4
For Loaned Cars

If you lease your car or if a lender finances your vehicle, chances are you’ll be required to purchase collision and comprehensive insurance. The state doesn’t require these types of insurance, but they can help to protect your car (and your lender’s investment) if it gets stolen or totaled. You may also consider purchasing gap insurance if you’re driving a new car.

5
Personal Protection

Auto insurance can help you pay for your medical bills after an accident and fill in gaps in your health insurance policy. Medical payment or Personal Injury Protection (PIP) coverage can help to cover the cost of hospital visits, doctors' bills and surgery. In some cases, it may also cover a portion of your lost wages if you cannot return to work.

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AUTO INSURANCE IS A LEGAL REQUIREMENT

It’s never a good idea to drive a vehicle without your state’s required minimum auto insurance coverage. If caught, you could face a hefty fine, license suspension or even jail time, depending on state laws. Plus, you won’t have any financial protection if you're in an accident and may find yourself on the hook for auto repair and medical bills.

Why Is Car Insurance Mandatory?

Car insurance is mandatory in almost all states. Carrying car insurance protects you as a driver, as well as others on the road. Liability insurance covers damage you cause to other vehicles or individuals in an accident, while other types of personal car insurance, like collision and comprehensive coverage, cover damage to your own vehicle.

Requiring car insurance for all drivers helps ensure that an accident's results aren’t financially devastating, whether or not you’re at fault.

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WHY YOU SHOULD CHOOSE INCREASED AUTO INSURANCE COVERAGE

While it may slightly increase your monthly premiums, it’s best to opt for a coverage limit higher than the required minimum in the long run. Increased auto insurance coverage is a safety net that will help to protect you financially if you get into a car accident. While we all hope that we never have to use our car insurance, it’s often better to be safe than sorry when choosing your coverage.

How Much Car Insurance Should You Get?

When deciding how much auto insurance coverage you need, you may consider sticking to the 100/300/100 rule of thumb. This rule suggests you purchase $100,000 in bodily injury liability coverage per person, $300,000 in bodily injury liability coverage per accident and $100,000 in property damage liability coverage per accident.

In addition to liability coverage, PIP or UM/UIM coverage may also be required. Even if it’s not mandatory, these types of coverage can still be a good idea since they help to cover medical bills and repairs if you’re in an accident. You may also want to add comprehensive and collision insurance, which covers damage to your car.

Listed below is the cost of full coverage per company:

Average Annual Premiums for Full Coverage Car Insurance
USAAAverage Annual Premium$679
State FarmAverage Annual Premium$883
NationwideAverage Annual Premium$930
GEICOAverage Annual Premium$936
TravelersAverage Annual Premium$1,037
ProgressiveAverage Annual Premium$1,120
AllstateAverage Annual Premium$1,124
FarmersAverage Annual Premium$1,192
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WHY FULL COVERAGE IS A GOOD IDEA

Most states only require liability insurance, while some also require PIP or UM/UIM. But in order to fully protect yourself, you should consider full coverage insurance, which at a minimum, includes liability, UM/UIM, and comprehensive and collision insurance coverage.

Car Insurance Add-Ons You May Want to Get

In many cases, opting for additional auto insurance coverage above and beyond liability insurance is a good idea. In many cases, these additional coverage types aren’t that expensive, adding only a few dollars to your monthly insurance bill.

They can provide extra peace of mind and save you a lot of money if you end up in an accident. Not all of these add-ons are available from all insurers, so you should ask your insurance company which ones you can add to your policy.

Car Insurance Add-Ons
Car Insurance Add-Ons
Description

Roadside Assistance

Roadside assistance helps drivers with fuel delivery, changing flat tires, jump-starting batteries, vehicle lockouts and more. If you have another roadside assistance provider, like AAA, you probably don’t need this type of coverage.

Gap Insurance

Once you drive your new car off the lot, it immediately depreciates. Gap insurance waives the difference between your auto insurance settlement and the outstanding balance on your auto loan in the event of a loss, which can help to ensure that you don’t still owe your lender money if your car is totaled.

Custom Parts Coverage

Custom parts coverage provides coverage if any custom equipment, such as special carpeting, bars, height-extending roofs, custom murals, decals or graphics, are damaged or destroyed by a comprehensive type loss.

PIP

Personal Injury Protection Coverage covers medical expenses regardless of who is at fault in an accident. In some cases, it may also cover lost wages. PIP is required in some, but not all, states.

Uninsured or Underinsured
Motorist

UM or UIM coverage helps you to pay for damages caused by a driver who doesn’t have car insurance. If you’re hurt or an uninsured or underinsured driver damages your car, this coverage will help pay for medical bills and repair costs up to your policy's limit.

Frequently Asked Questions

With many different coverage types, car insurance can sometimes be confusing. We cover some common questions surrounding car insurance to help you understand what you need.

Do you have to have car insurance?
How much car insurance do you need?
Why is car insurance important?

About Margaret Wack


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Margaret Wack is a freelance writer who covers insurance, saving, investing, banking and more. Margaret earned a bachelor's degree in classics, comparative literature and poetry from Smith College and a master's degree from St. John's College.