If you have never filed a claim, are a new driver, or are new to car ownership, making car insurance payments can be increasingly frustrating. The high cost, combined with the feeling of not getting anything in return, makes it seem like a sunk cost.
But believe it or not, car insurance does have a purpose and is not a scam. Understanding what car insurance is for, and why it’s important to have, will alleviate some of your concerns.
What Is the Purpose of Car Insurance?
Car insurance is for your financial protection. If you never have an accident, it is possible that you will never have to file an insurance claim. But it’s statistically likely that you will be in at least one accident in your lifetime, and the consequences can be deadly. The Centers for Disease Control and Prevention estimates, “More than 32,000 people are killed and 2 million are injured each year from motor vehicle crashes.”
What Is Car Insurance?
Car insurance is a contract between you and the insurance company that shelters you from financial loss if there's an accident or theft. In exchange for your paying a premium, the insurance company agrees to pay the losses as outlined in your policy.
If you cause an accident, and you don’t carry any insurance coverage, you will be on the hook for the total financial cost of any damage you cause—and you will also be in legal trouble for not having insurance coverage, which is required by law in most states.
If you only carry personal liability and property damage (PLPD) coverage on your car, the minimum required coverage by law in most states, you will at least be off the hook for a portion of the costs of the damage you cause in the event of an at-fault accident. PLPD does not cover physical damage to your own car. It does, however, offer you protection for other types of losses:
- Injuries, pain, and suffering to others, depending on your state's laws
- Property damage
- Medical costs for you (if you live in a no-fault state)
In short, PLPD car insurance can protect you against financial ruin. If you are at fault in a car accident, the injured party will want compensation. Without car insurance, you will be held financially responsible and potentially forced to pay for all the damage out of your own pocket. Most people cannot afford to self-insure, which is why most states require at least PLPD to be purchased for all drivers.
Years without a claim may make you wonder whether you need car insurance at all. You may think that since nothing ever happens, you shouldn't need to keep paying the premiums.
It is good to not have any claims. That will keep your insurance rates lower, and you can avoid claim hassles. By continuing to carry car insurance, you are legal to drive, and you will have protection for a possible future claim.
It's Also for Physical Damage Repairs
Car insurance can pay to repair your vehicle after an accident, depending on what coverage you select. A vehicle is often a major expense, and you want to protect it. Comprehensive and collision insurance each offer coverage for physical damage, which comes with a lot of rules regarding what is covered and what is not.
- Comprehensive coverage is for anything other than a collision. Fire, theft, vandalism, deer, rats, and storm damage all fall under comprehensive insurance. Usually, comprehensive insurance is required to get roadside assistance. It is also required in order to purchase collision coverage.
- Collision coverage protects your vehicle against accidents. Collisions with automobiles, mailboxes, light posts, trees, and any other inanimate object are covered. A deductible is often required to be paid before you can get your repaired vehicle back. Collision coverage most often comes into play when you are at fault or do not know who damaged your vehicle.
Car Insurance Is Not for Mechanical Repairs
Unless your mechanical damage was caused by an exterior factor such as vandalism, fire, or a collision, your car insurance will not cover it. Wear and tear or bad workmanship are not matters your car insurance handles. All mechanical repairs are your responsibility or possibly covered by your warranty, if you have one.
Car insurance is for sudden accidental occurrences, not auto maintenance. For those of you who feel that you have paid into your car insurance way more than you will ever get out of it, consider yourself lucky. Claims, especially severe claims, are always best avoided. Think of car insurance as protection against the unthinkable. Car accidents occur every single day.
Each state mandates its own set of car insurance laws and enforces strict penalties when someone is caught driving without it. Car insurance laws protect you from not yourself but also the other drivers on the road. Keep your car insurance active at all times; you might be extremely grateful one day for that "useless" policy.