Personal Injury

Do I Really Need Car Insurance?

Reviewed by David Goguen, J.D., University of San Francisco School of Law
If you own a car, it's not just a good idea to make sure you have car insurance, it's also the law.

Especially if you’ve never been in a car accident, you may wonder why you even need car insurance. The number one reason is this: All states require you to carry car insurance or establish some other form of financial responsibility in case you get into an accident in your registered vehicle. But that's not the only reason to make sure you carry the right type and amount of coverage.

It's the Law, But It Also Protects You

After a car accident, the drivers and passengers involved may suffer harm in the form of injuries, property damage, lost income, and other kinds of losses (called "damages" in legalese). If you don’t have car insurance, you could be on the financial hook for some or all of these costs, especially if you caused the car accident. Few of us have that kind of cash lying around.

Car insurance protects you from personal financial loss by pooling what you pay for car insurance -- your "premium" -- with that of thousands or even millions of other drivers. This way, when you have a car accident, the insurance company covers your losses up to your policy limits, and you aren’t left holding a bag of debt.

What is a "Policy Limit"?

Your "policy limit" is the maximum amount your insurance company will have to pay if you are in an accident. Most states require that you purchase a certain minimum amount of automobile liability coverage, usually between $15,000 and $25,000.

Car insurance is most often sold with a "per person" and "per accident" maximum loss amount. These numbers are usually right on the front of your automobile insurance policy or insurance card. For example, if you're a California driver, you may wonder what 15/30/5 means:

  • The first number, "15" in this example, is the amount of automobile liability insurance for bodily injury. This means your policy would pay up to $15,000 per person injured in an accident you cause. Keep in mind that liability coverage won't cover your own losses, only those who are harmed in a crash that's deemed your fault.

  • The second number, "30" in the example, gives you the total amount your automobile insurance company will pay for all bodily injury damages arising from an accident you cause. For instance, if three people were in the other vehicle when you caused an accident, and all three people suffered injuries and made car insurance claims with your car insurer, the company would pay a maximum of $10,000 per person up to a total of $30,000.

  • The final number ("5") refers to the maximum amount of money your car insurance company will pay for property damage (that typically means vehicle damage resulting from the accident). Here, a maximum of $5,000.

How Do I Decide How Much Insurance I Need?

Often, the minimum coverage required by law won’t be enough if you are in a serious accident. When buying automobile insurance, remember that it protects you and your assets. You should think hard about how much coverage you might need if the worst-case scenario happens to you or the other driver. What if you are in the hospital for weeks? What if the other driver can’t work for several months? What if you are facing a long painful recovery? Learn more about different types of car insurance coverage and what they mean.

I Live in a No-Fault State; Do I Need Insurance?

"No-fault" simply means that, in certain states or with certain kinds of coverage (usually "personal injury protection" or PIP) there is no need to determine who is a fault in the accident in order to receive payment for claims from your automobile insurance company. Instead of seeking payment or filing a lawsuit against the driver who caused the accident, with no-fault or PIP, drivers seek recovery under their own policy.

That's often the exclusive remedy, especially after a minor accident, but in every no-fault state there are circumstances under which an injured person can step outside the no-fault system and file a liability claim or lawsuit against the at-fault driver, usually after the claim has exceeded a certain dollar threshold, or car accident injuries qualify as "serious" under a statutory definition. Learn more about no-fault car insurance.

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