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Auto insurance — why do you need it?
Why buy auto insurance?
In all but three US states, it’s mandatory to carry a minimum liability insurance when you drive on a public road. Why is this?
If you are unlucky enough to be a victim of some bad driving, you need money to cover your medical expenses and repairs to your own vehicle. Just think how bad it would be if the driver at fault had no savings. Insurance companies have deep pockets and can cover your losses. That’s why almost all states make it a criminal offense to drive without insurance. If you are caught, there’s usually a fine. In some states, your vehicle is confiscated.
What is the minimum insurance requirement?
The mandatory minimum varies from state to state. Many of the limits were set forty years ago so the amounts can be quite small. If you check your local law, you will see the amounts set as, say, 25/50/25. This means your insurer will pay up to $25,000 to cover one person’s injuries. There’s a maximum of $50,000 for all medical claims from a single accident. The maximum amount to cover damage to property is $25,000. Some states have recognized these amounts are too small in most cases and are now increasing the minimum amounts. This means premium rates are likely to rise in those states.
What insurance should you carry?
The problem is simple. If you are at fault, you are liable to pay for all the losses you cause. Once your insurer pays the minimum liability amount, you are left to face the claim for everything else. This is not a real threat if you have no assets. But if you own your own home or have savings, the people injured can go to court and claim what you have. So now it’s a simple choice. With no assets to protect, the legal minimum will be enough.
If you have an auto loan
It’s usually a term of the loan that you carry more than the minimum. Depending on the value of your vehicle, you will be required to carry collision and comprehensive cover.
What else should you consider?
As family budgets come under pressure, more people are taking the risk of driving without insurance or driving only with the minimum. You can buy cover should you be injured by an uninsured or underinsured driver.