3 Reasons Car Insurance Is a Necessity

There are plenty of really good reasons why having auto insurance is essential.

Car insurance is one of the most important purchases you'll make.

While auto insurance probably isn't something you think too much about, the reality is that car insurance is a necessary purchase, not an optional one -- so you need to make sure you find the right coverage.

So, why do you need to have car insurance if you're going to have a car (or drive one)? Here are three big reasons why getting covered is essential.

1. Almost all states require auto insurance

Auto insurance is typically required by law before someone can purchase or register a vehicle. While there are variations in the types and amounts of coverage states require, virtually every state mandates that drivers have certain types of auto insurance policies.

Specifically, most states require motorists to buy bodily injury liability and property damage liability coverage. Both protect other people on the roads. If a driver causes an accident, they could be held responsible for physical injuries other people suffer -- and for resulting damages from those injuries, such as medical bills and lost wages. A motorist could also be held responsible for property damage. Liability policies ensure a driver has the money to pay for these costs.

Some states also require other types of coverage. A driver may need personal injury protection, which provides payments for the driver's own medical costs and loss of wages in minor accidents no matter who is to blame. And a motorist may need uninsured or underinsured coverage too, which pays for their own personal losses if someone else causes a crash but doesn't have sufficient insurance to cover damages to the other driver.

A driver who doesn't have the insurance their state requires could be ticketed or cited for proof of insurance. This is considered a misdemeanor offense in some cases. No one wants to face fines, criminal penalties, or more expensive insurance in the future just because they didn't comply with minimum coverage requirements.

2. A lender may require drivers to have coverage

When someone gets a car loan, chances are good their lender will require them to have insurance. In fact, they'll probably need more insurance than their state mandates.

Many car loan lenders require people to buy collision coverage, which pays for repairs to the vehicle if that policyholder causes a crash. Comprehensive coverage is typically also mandated to cover any repairs or the replacement of a vehicle if it is stolen or damaged by something besides a collision (such as a tree falling on it).

And gap insurance could also be required. It pays the difference between what someone owes on their car loan and the amount their insurer would reimburse them if their car was totally destroyed. That's important because the fair market value an insurer will pay is often below what a motorist owes.

Lenders might be authorized by the car loan agreement to purchase very expensive insurance and charge the driver for it if they let their policy lapse. And in some cases they could even repossess someone's car if they're required to have coverage and fail to comply.

3. An insurance policy can protect a driver's assets

Even if no state or lender requirements applied, buying car insurance would still be essential.

That's because without it, a driver could be financially responsible for anything that goes wrong. This could mean paying all legal fees and damages if a motorist causes a crash and hurts someone. Or it could mean covering all the costs of repairing or replacing their own car if something happens to it.

Car insurance is such an important form of asset protection that you may want to consider buying more than your state or lender requires. That's because minimum coverage limits are typically pretty low. It would be easy to cause more damage to someone in an accident than an insurer would pay for if a driver had only minimum coverage.

Remember, if you don't want to bear the entire risk of a potential problem occurring, make sure you have insurance to share that risk. Paying premiums may be well worth it to get an insurer to commit to covering major losses if and when they happen.