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What is car insurance and why do I need it? Can I drive without car insurance? Where are the best places to find car insurance?
What Is Insurance?
Before we get started, a review of what insurance is will be helpful. The whole point of insurance is based on something called indemnity. Basically, the idea to to restore you to the exact state you were in before a loss. A loss is anytime there is damage to property or personal injury.
Insurance is there to indemnify you after a loss. With car insurance, that may be paying your medical and repair bills to your vehicle. But with home insurance, that may be replacing a roof or flooring after a natural disaster.
With life insurance, since you cannot replace a life, a defined cash amount usually goes to its beneficiary. Medical insurance usually is there to protect you against diseases or huge medical bills.
Is Insurance Mandatory?
Some types of insurance may be mandated by law or agreement.
For example, if there is a mortgage on your house, you may agree to keep homeowners insurance on the property. That not only protects you, but protects the bank or mortgage issuer against a total lose. That would be mandatory insurance but not legally required.
In some countries, health insurance is required by law. Until recently, the United States required that citizens carry health insurance. If they didn’t, they would have to pay an additional tax. However, that was later removed from law.
All states require drivers to carry liability car insurance in order to drive on public roads. The only exception is when a driver, with the required paperwork, decides to self insure. This is an option in several states. However, you usually have to have several hundred thousands of cash available at all times to cover any damage for which you may be liable.
What Is Legally Required?
You usually are only legally required to carry your state minimum liability coverage in order to drive. However, depending on your circumstances, you may also be required to have certain car insurance coverages by agreement.
The most common reason you may have to carry certain coverages is if you financed your car. Just like a mortgage holder may require a homeowner to insure a house, a car financier may require you to insure your car. This protects them from a total loss.
The most commonly mandated car insurance coverage is full coverage. This is a policy with liability as well as collision and comprehensive coverages. That way, even if you are at-fault in an accident, they will be able to receive payment for the value of your vehicle.
However, you also will probably want Gap coverage if you have a note on your car. This covers the difference between the value of your vehicle and the amount left on your car loan.
What Is Different About Car Insurance?
Because no one knows when a car accident will occur, the government has decided that everyone will have to have car insurance. Although this may seem a bit extreme, drivers are rather prone to accidents.
Car accidents can be extremely expensive to remedy. Not only are there the cost of potential replacing hundreds of thousands of dollars in cars, but they can cost millions of dollars in medical bills, depend on the injuries.
If someone is dismembered or disabled from an accident, you may be liable for their lost livelihood. Although this is rare, $100,000+ medical bills are rather common.
However, most Americans do not have sufficient wealth to cover those expenses. Because of this, it makes sense to require drivers to have coverage on the open road. How would you feel if someone recked your car, sent you to the hospital, and then you had to pay for all those bills yourself?
Why Do I Have To Have Car Insurance?
In addition to it be required by law and often agreement, it makes a lot of sense to carry car insurance. One thing I think about it is what it would be like if I were self-insured and I had to pay $250,000 to another driver because of an accident I caused.
Even if I had ten times that in the bank, I think I would much rather have an insurance company pay for my mistake even if I could afford to pay for it myself. Not only is there the opportunity cost of having that money sitting somewhere, but car insurance premiums are generally only a couple hundred dollars a month.
Of course, if you have the funds, many states will let you self insure. The only times I see this being of great benefit is when you have a large car collection or a fleet of vehicles. Even then, an antique policy may be a better option.
Can I Drive Without Car Insurance?
In several states, if you are caught driving without insurance, they will actually take you to jail. Of course, it is not always that severe. Some states require that you come back with proof of insurance and they charge you a fee for a first time offense.
However, driving without insurance is illegal. Furthermore, it is never a good idea. Would you really want someone to empty your bank account with their bills? If you own a home, it is an even worse idea.
If you are in an accident, even with insurance, and the judge finds you responsible for more than policy limits, you are personally liable for the rest. Or, for example, you have only $25,000 of liability coverage but the other driver has $100,000 of medical bills, you are still responsible for the $75,000 that remains.
This is one of the reasons $100,000 per person and $300,000 of liability coverage is seen as the industry standard. Back to homeowners, if your insurance doesn’t cover the injury, they can actually force the sale of your home. They would keep your equality to pay for their damages.
Where Is The Best Place To Find Car Insurance?
Of course, the cost of car insurance can vary drastically. Unlike a gallon of gas, not everyone pays the same rate. It is an approval process, similar to getting a mortgage or a credit card.
It varies on a whole bunch of individualized factors. Because of that, it really isn’t helpful to see what your friends pay or any advertised number. Your quote will probably be different than theirs.
Usually, online is the best place to shop for car insurance. It saves you time from having to drive around to different offices. It also alleviates some of the worry of pushy salesmen. If you don’t like the website or the company, you can always go to another one.
Sometimes, using a device to track your driving will give you a discount. There are also some companies that give you a quote by tracking your driving. They usually offer some of the best rates.
No matter how you drive, those devices will not make your rate go up. So go ahead and try them to save some money!
Start With Comparison Shopping Sites
Start your search by using a comparison site. This will give you a pretty good idea of how much your insurance will cost. After that, get a quote on the official company website for the two or three cheapest sites. This ensures that you are not paying extra for using the comparison site. It also saves you time because you won’t have to check all 10-15 sites all at once.
However, the biggest downside to these sites can be that they share your personal information. They may sell your name and number to insurance agents. Or they may try and upsell you to buy roadside. Sometimes, they will even advertise cell phone companies. These websites exist to generate leads.
But, there really is no substitute for them. The alternative is to visit each company’s website individually. Even then, they may share information with their agents. You can try an agent that works with several companies. However, nothing requires them to get you the cheapest price. Legally, they can even lie and say they got you the cheapest price available.
Generally, it is best to start with one comparison site. After that, you will at least have a good idea of where to look next.
After reading this article, my hope is that you will have a better understanding of insurance. Maybe you now know why it is important to have car insurance. You should even know a few places you can look when you’re shopping for car insurance. This guide should be the starting point in your journey.
In order to learn more about car insurance, please read through a few articles on this website. It will teach you what you need to know to lower your rates. You can get all the tips and tricks for cheaper quotes.
Keep reading to learn the secrets!
Adam is a license Property and Casualty Insurance Agent for over two years in 25 States. He has worked with 10 different insurances companies. His interests include marketing, insurance, sales, and personal finance.