Whether you’re about to drive a new car off the lot or looking for methods to save money, you might be wondering if you really need car insurance.
In most circumstances, the answer is “yes.”
Driving without insurance is banned in all but two states: Virginia and parts of Alaska.
However, without insurance, you would be responsible for paying medical bills, repairs, and other expenses if you were involved in an accident. That’s why getting car insurance is typically easier (and more cost-effective). However, the amount of insurance you require is heavily influenced by your location and risk tolerance.Â
What’s the least amount of car insurance I need?
Every state has its own set of rules for what type of car insurance residents should have and how much of it they should carry.
Nearly every state requires drivers to have some form of liability insurance. Liability car insurance covers the medical costs, missed wages, and property damage you cause in a traffic collision. It will not cover your personal medical or car repair costs.
Depending on where you live, you may be required to pay for the following:
- Uninsured/underinsured motorist coverage: Covers your and your passengers’ medical expenses and car damages if you are hit by a driver who has little or no car insurance.
- Personal injury protection coverage, or PIP: Sometimes known as “no-fault insurance,” compensates for your and your passengers’ medical expenses, lost income, burial fees, and other expenses, regardless of who is at blame.
- Medical payments coverage, or MedPay: This also reimburses you and your passengers for medical expenses regardless of fault.
Should I get more than just the bare minimum?
Paying for car insurance may feel like you’re wasting money. This is particularly true if you have never been in an accident.
However, misfortune might strike at any time. While cars are becoming safer to drive, the National Highway Traffic Safety Administration’s most current data show that fatalities from car accidents are on the rise. A single car accident might result in a significant financial loss if you are uninsured or underinsured.
Most state minimum requirements are insufficient to cover all expenses resulting from significant car accidents, therefore if you are at fault, you will be responsible for the remaining sum.
Assume you live in New Jersey and have the minimal level of property damage liability insurance required: $5,000. If you cause an accident with another driver and the repair costs $15,000, you must pay the remaining $10,000 on your own. Don’t forget about your personal car repairs.
Take note: If you leased or financed your car, your lender will most certainly need you to obtain collision and comprehensive insurance in addition to any state-mandated minimums. These coverage categories cover the cost of repairing or replacing your own car in the event of an unforeseen incident.
Cover your net worth
Because you are legally accountable for any accidents you cause while driving, you should obtain enough liability insurance to protect your net worth in the event of a lawsuit.
To calculate your net worth, remove your entire debt (mortgage, credit card balances, and loans) from the value of all your assets.
If your net worth is minimal, meeting your state’s minimum car insurance needs may be sufficient. However, most states do not require you to get car insurance that reimburses you for your own medical or vehicle expenditures if you are found at fault in an accident or have another misfortune beyond your control.
What happens if I drive without insurance?
The penalty for driving an uninsured car vary depending on the state and the number of previous convictions.
If you’re found driving without insurance, expect to face any of the following:
- Fines can be as high as $5,000.
- Impoundment.
- Jail time.
- Suspended driver’s license.
- Suspended car registration.
- Insurance rate increases.
Where is it legal to drive without insurance?
If you live in one of the states listed below and complete the qualifications, you can drive without insurance:
- Virginia: Pay a $500 annual charge to the Virginia Department of Motor Vehicles.
- Alaska: reside in a remote area defined by the Alaska Department of Administration.
If you don’t live in Virginia or the Alaskan wilderness, you may still be able to drive without insurance provided you can demonstrate “financial responsibility” by submitting a bond, certificate of deposit, or other cash deposit to your state. The amount required varies; for example, Florida demands a $30,000 bond or cash deposit, but Nebraska allows a $75,000 bond or certificate. New Hampshire also requires a considerable sum of money as proof of financial accountability, but only if you are proven at fault in an accident.
Take note: In these cases, you’ll have to own your car outright, since nearly every lender requires full coverage insurance.
Purchasing car insurance is the most popular and simple way to demonstrate financial responsibility to your state. That’s because it’s often cheaper (and easier) to pay a monthly insurance payment rather than a large flat sum of cash or risk your entire savings.
