In this article:
- 1. Offers Financial Protection if You Cause an Accident
- 2. Helps Cover Medical Costs for Yourself and Your Passengers
- 3. Keeps You in Compliance With State Law
- 4. Helps Pay Off Your Auto Loan or Lease After an Incident
- 5. Safeguards You Against Uninsured Drivers
- 6. Helps Keep Your Vehicle in Good Condition
- 7. Provides a Helping Hand When You Need It
The cost of car insurance can tempt you to skip it, but going without is like walking a tightrope without a net. The many advantages of auto insurance far outweigh the cost. Here are seven benefits of car insurance, including safeguarding your finances, covering medical bills, protecting you from uninsured drivers and helping keep your car in great shape.
1. Offers Financial Protection if You Cause an Accident
Accidents happen, but if you're at fault in a car accident and don't have auto insurance, it could decimate your finances. The average cost of a car accident not involving injuries is $6,100 per vehicle, according to the National Safety Council. You might be able to pay that amount out of pocket, but what if someone is injured (or worse)? Here are the average costs you might be responsible for:
| Average Cost of a Car Accident in 2022 | |
|---|---|
| Severity of Accident | Average Cost |
| Death | $1,869,000 |
| Disabling | $162,000 |
| Evident | $42,000 |
| Possible | $26,000 |
| No injury observed | $7,100 |
| Property damage only (cost per vehicle) | $6,100 |
Source: National Safety Council. An evident injury is a minor injury that is visible at the scene of a crash, but is not fatal or serious, while a possible injury is one that isn't visible.
Liability insurance, required of drivers in every state except New Hampshire, provides a financial safety net if you cause a car accident that injures or kills someone or damages their vehicle or property. Liability insurance covers:
- The other party's medical expenses
- The other party's property damages, such as damage to a vehicle, fence or mailbox
- The other party's lost wages if they can't work due to an injury
- Funeral expenses for other parties killed in the accident
- Your legal fees if you are sued
For extra protection, you can add umbrella insurance. This coverage kicks in if your liability for a car accident is more than your car insurance's liability limits.
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2. Helps Cover Medical Costs for Yourself and Your Passengers
Liability insurance covers the other party in an accident you cause, but what if you or your passengers are hurt? With personal injury protection (PIP) or medical payments coverage, you can rest easy: Both types of insurance pay medical expenses if you or your passengers are injured in an accident, no matter who caused it. PIP may also pay other expenses connected to the accident, such as funeral costs or lost wages, if injuries prevent you or your passengers from working.
If another driver caused the accident, their liability insurance should cover your medical expenses. However, it can take a long time for claims to settle and the other party's insurance to pay out. PIP or medical payments coverage help you and your passengers get necessary medical care immediately. It can also supplement your health insurance if medical expenses exceed your health insurance limits or there are things your insurance doesn't cover.
Learn more >> What Is the Difference Between PIP and Liability Coverage?
3. Keeps You in Compliance With State Law
Drivers in every state except New Hampshire must carry a minimum amount of auto liability insurance. (New Hampshire drivers must prove financial ability to cover the cost of a car accident.)
In addition, 20 states and the District of Columbia require uninsured motorist coverage; 14 of those require underinsured motorist coverage too. Some states also require personal injury protection or medical payments coverage. Drive without the required coverage, and you could lose your license, be fined, have your car impounded or go to jail.
Learn more >> Do You Need Car Insurance?
4. Helps Pay Off Your Auto Loan or Lease After an Incident
If your car is financed or leased, the lender or auto leasing company usually requires collision and comprehensive coverage. If your car is stolen or totaled in an accident, the insurance payout goes toward your outstanding loan or lease. Without car insurance, you'd have to pay off the balance of your lease or loan—and somehow find funds for a new car too.
Since new cars depreciate quickly, you may owe more on your auto loan or lease than the totaled car is worth. Guaranteed asset protection (gap) insurance helps bridge that gap by paying the difference between your outstanding balance and the car's value.
5. Safeguards You Against Uninsured Drivers
Despite state minimum insurance requirements, some 14% of drivers nationwide don't have car insurance, according to 2022 Insurance Information Council data. In some states, the figure is 40% or more.
If you're involved in an accident with an uninsured driver, you'd have to sue them to get compensation. However, if your car insurance includes uninsured motorist coverage, you can just file a claim with your insurance company. Uninsured motorist coverage pays to repair or replace your car after a covered loss. It may also pay medical costs, funeral expenses or lost wages for you and your passengers. As of December 2023, 20 states and the District of Columbia require uninsured motorist coverage.
6. Helps Keep Your Vehicle in Good Condition
A fender bender damages your car's backup camera. The repair shop quotes $5,000 for repairs, so you decide to skip it. Driving with a disabled backup camera could put you at greater risk of accidents. With collision and comprehensive car insurance, though, you don't have to choose between safety and savings.
Collision insurance pays to repair your car if it's damaged in a collision with a vehicle, animal or other object. Comprehensive coverage pays for repairs if your car is damaged by something other than a collision, like a windstorm or falling tree. Simply file a claim and the insurance will pay to fix your bumper, minus your deductible.
7. Provides a Helping Hand When You Need It
When your car is damaged or you're injured in a car accident, having an insurance company on your side takes the hassles off your hands. Once you file a claim, your insurance company's claims adjuster will be there to help.
The claims adjuster will gather information about the incident, inspect your car to assess the damage, get estimates for repairing or replacing your vehicle and deal with the other party's insurance company so you don't have to. If you have rental reimbursement coverage, some insurance carriers even deliver a rental car to your door to temporarily replace your damaged vehicle. Without auto insurance, you'd have to negotiate all these headaches on your own.
Learn more >> How to File a Car Insurance Claim
Frequently Asked Questions
In every state except New Hampshire, drivers must carry a minimum level of liability insurance. Some states also require uninsured motorist insurance, underinsured motorist insurance, personal injury protection insurance or medical payments insurance. If you lease or finance your vehicle, the lessor or lender usually requires additional car insurance. Driving without insurance can break state laws and your loan or lease contract.
Full coverage car insurance includes the following:
- Liability insurance pays for property damages or bodily injuries to another party in an accident you cause.
- Collision insurance pays for damage to your vehicle from colliding with another car, object or animal.
- Comprehensive insurance covers damage to your car due to risks other than collisions, such as fire, theft, tornadoes or vandalism.
- Personal injury protection (PIP) insurance or medical payments insurance covers your or your passengers' medical costs if you're injured in an accident, no matter who caused it. PIP may also pay lost wages or funeral expenses.
- Uninsured and underinsured motorist insurance covers your and your passengers' injuries and property damage caused by an uninsured or underinsured driver.
On average, auto insurance costs $1,765 annually, according to 2023 AAA data. Your car insurance may cost more or less depending on things like:
- Your vehicle
- The amount and type of coverage you buy
- Your annual mileage
- Your age
- Your gender
- Where you live
- Your deductible
- Your driving record
- Your claims history
The Bottom Line
Car insurance may seem costly, but the peace of mind it provides is priceless. Keeping your credit in good shape could help reduce its cost. In many states, insurers consider your credit-based insurance score when setting premiums. Although this differs from your consumer credit score, they're both based on data in your consumer credit report. Paying bills on time and keeping credit utilization low could help boost both types of scores and lower your car insurance premiums.
You can also save on car insurance by comparing rates from different insurance providers. Experian's free auto insurance quote tool gathers quotes from top insurance companies in one place, helping you find the right coverage at the right price.