Why do you need Car Insurance — Auto Insurance

Why do you need car insurance or Auto Insurance.

Reading an auto insurance definition isn’t quite the same as understanding why you need it. Because after an accident, you’ll probably be more interested in how it works and what exactly it does.

Car insurance is required in most states, so the first reason you need it is to meet your state’s minimum insurance requirements. But perhaps more importantly, car insurance provides financial protection. It keeps you from having to pay out of pocket for expenses that come up after a wreck, so long as they fit within your policy’s maximum limit.

The cost of an accident can quickly add up. For example, the average cost of property damage after an accident is $4,700 per vehicle, according to 2020 data from the National Safety Council.

But if injuries or death occur, expenses can climb to more than $100,000 per person. So unless you have $100,000 stashed in your sock drawer, a car accident could result in serious financial ruin.

Here’s an example of how much an accident could cost you:

Scenario: You’re driving through an unfamiliar part of town and hit another vehicle at an intersection. Your car costs $3,000 to fix, and the other driver’s repairs are $2,000. The other driver also needs back surgery because of the accident, and the medical bills come out to $30,000.

Total out-of-pocket cost without car insurance: $35,000

Because you were at fault in the accident, you’re responsible for paying all of those bills out of pocket if you don’t have auto insurance. But that’s not the only version of this story.

Let’s say that in this scenario, your car insurance policy covers $25,000 in medical bills per person, $50,000 for total medical bills and $15,000 for total property damage. You’re responsible for repairing your own vehicle, but your insurance covers the other driver’s car repairs and $25,000 of their medical bills. After your insurance pays out, you’re responsible for paying $5,000 for the other driver’s remaining medical expenses, plus $3,000 for your own car repairs.

Total out-of-pocket cost with car insurance: $8,000*

*Based on a liability-only car insurance policy with limits of $25,000 in bodily injury liability per person, $50,000 in bodily injury liability per accident and $15,000 in property damage liability. – source: nerdwallet

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