Importance of Auto Insurance

Most states legally require drivers to keep auto insurance coverage. Insurance protects you financially by providing coverage for you and your passengers if you are in a crash.

There are different kinds of auto insurance policies that cover different things. The benefits of car insurance may depend on the type of policy you buy. Liability coverage will help you pay for covered losses related to the other party, such as medical expenses and vehicle damages, if you are at fault in a collision.

MoneyGeek breaks down why auto insurance is important, its purpose and the different types of coverage you may need.

Why Is Auto Insurance Important & Why Do I Need It?
Standard Insurance Coverages You May Need
Car Insurance Coverages You May Want to Add
Frequently Asked Questions About the Importance of Car Insurance

Key Takeaways

The purpose of auto insurance is to protect against possible financial loss if you are in a covered incident.

There are different types of auto insurance policies with varying coverage options. The best type for you will depend on your needs and circumstances.

Most states legally require drivers to have auto insurance. Each state has its own minimum coverage requirements.

Why Is Auto Insurance Important & Why Do I Need It?

Having auto insurance helps protect your finances so that you don’t have to pay out of pocket for damages resulting from a crash. Coverage may help pay medical and legal fees. Keeping insurance also prevents you from facing legal consequences for not having insurance.

Car Insurance Is a Requirement in Most States

Most states require state minimum car insurance coverage by law. It is important to find out if you live in a no-fault state. If you do, you will have to pay for your injuries and damages regardless of who is at fault in a collision.

You should also evaluate your needs and circumstances to determine how much car insurance to buy. The best policy will vary per person. For some, the state minimum may not be enough.

It Helps Give You Financial Protection

Typically, the person who caused the accident will be held liable for its expenses. If you do not have coverage, you would likely need to pay all costs out of pocket. In no-fault states, each party is responsible for their own expenses.

How Insurance Protects You Financially

The type of policy you choose will determine the extent of your insurance coverage. Liability insurance typically covers repairs for another party’s vehicle damages after a crash if you are at fault. Your policy will also cover your car if you carry comprehensive and collision coverage.

Auto insurance may also include part replacements, which could be part of the repairs necessary after a covered accident.

The right car insurance policy can protect you against lawsuits. If you are served with a lawsuit, your car insurance may cover the legal fees.

An insurance policy can cover medical fees. Depending on your coverage, this could be either for the other party’s expenses or your medical costs.

In some cases, the person at fault for the collision has no insurance or not enough coverage. If that happens, having uninsured or underinsured motorist insurance will help pay for the expenses you may incur.

Car Insurance Protects You and Your Passengers

Auto insurance may protect anyone who drives your car. Depending on the coverage you choose, you can have additional protection, like roadside assistance.

Some insurance companies also offer rewards. Typically, driving safely or having safety features in your car could make you eligible for significant discounts.

Standard Insurance Coverages You May Need

For states where auto insurance is a must, there is a minimum coverage requirement. While this varies depending on the state, it typically includes bodily injury liability and property damage liability. However, there are other insurance types you may want to consider for more coverage, like comprehensive and collision.

Types of Auto Insurance

Classification	Best For
Bodily Injury Liability	Other than being a state requirement, it’s good to have this type of insurance because it pays for the injuries incurred by the driver and occupants of the other car. Bodily injury liability coverage covers medical expenses, pain and suffering and lost wages.
Property Damage Liability	Most states require property damage liability. This coverage pays for damages the policyholder may cause to another person’s vehicle or property.
Personal Injury Protection (PIP)	Drivers living in no-fault states are typically required to have PIP insurance. Policyholders with PIP insurance get coverage for medical expenses related to injuries that they or their passengers may incur in an accident. This coverage applies to the policyholder regardless of who is at fault for the accident.
Uninsured/ Underinsured Coverage	Individuals who want to protect themselves against motorists with not enough insurance or no insurance can benefit from underinsured or uninsured motorist coverage. This type of coverage includes expenses incurred in an accident, including medical bills, lost wages, funeral expenses, pain and suffering and car damage (in some states). Some states may require this type of coverage.
Comprehensive Auto Insurance	If you want protection against possible damages to your car, you may want to consider comprehensive insurance. This coverage pays for repairs caused by non-collision incidents, such as fire, vandalism or weather-related events like floods or hail.
Collision Auto Insurance	Drivers who want to cover the repair or replacement of their vehicle after an accident may benefit from collision auto insurance. This coverage includes damages caused by collision accidents, such as hitting another vehicle or any object.

Car Insurance Coverages You May Want to Add

Apart from the usual car insurance coverage, you may also want to consider additional coverages. Keep in mind that these are optional and may require you to pay extra. These types of coverage also depend on the car insurance provider.

Auto Insurance Add-Ons

Classification	Best For
GAP Insurance	Having GAP insurance can be a good thing because it covers the difference between your car’s value and the amount you owe on it. This type of insurance is best for individuals who purchased a vehicle using a loan or those leasing their vehicles. It is also good for drivers whose cars depreciate faster than the average vehicle.
New Car Replacement	Getting new car replacement insurance is an excellent idea if you want to protect the value of your new car. This coverage applies to newly bought cars. Insurance companies may have a required period to allow an individual to buy this coverage. The policyholder needs to have full coverage insurance to be eligible for this type of insurance.
Roadside Assistance	Roadside assistance insurance provides protection for unexpected circumstances. It covers various situations, such as towing, lockouts, flat tires and fuel delivery.
Rental Car Insurance	Individuals renting a car may benefit from rental car insurance. This is typically available in rental car companies, but you may also get it from a third-party provider. This coverage protects you from covered losses due to certain accidents or even theft.

Frequently Asked Questions About the Importance of Car Insurance

Auto insurance offers various benefits. MoneyGeek answers some of the frequently asked questions to help you better understand the importance of auto insurance.

Do I have to pay for auto insurance?

Depending on which state you live in, you may need to carry auto insurance. The cost will vary per person as insurance providers consider individualized factors like age, gender, credit history, driving record and location when calculating auto insurance premiums.

Who needs auto insurance?

In most states, it is illegal to drive without auto insurance. State laws also mandate the minimum coverage requirement drivers need to carry.

Should you get auto insurance?

If you plan on buying a car or driving one, you should get auto insurance. This will protect you from possible financial loss in the event of an accident.

What are the different types of insurance?

Insurance protects against financial loss. Aside from auto insurance, you may also want to consider homeowners, renters, motorcycle, health, life or pet insurance. It’s wise to evaluate your needs and circumstances before buying an insurance policy.

Why do I need auto insurance?

Aside from being required by most states, you would need auto insurance to mitigate possible expenses related to car crashes and other covered incidents. With this, you minimize the amount you will have to pay out of pocket, especially if you are the at-fault party.

About Mark Fitzpatrick

Mark Fitzpatrick is a Licensed Property and Casualty Insurance Producer and MoneyGeek's Head of Insurance. He has analyzed the insurance market for over five years, conducting original research and creating personalized content for every kind of buyer. He has been quoted in several insurance-related publications, including CNBC, NBC News and Mashable.

Fitzpatrick earned a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He is passionate about using his knowledge of economics and insurance to bring transparency around financial topics and help others feel confident in their money moves.

Read Full Bio »

Why Is Auto Insurance Important?

Table of Contents