Guide

Home > Money Guide

Four Reasons Why You Need Car Insurance

Nobody likes paying their car insurance bill – honestly, neither do we! – but the truth is that car insurance is essential in several different, important ways. If you drive a car, you need to have car insurance, and most of us need to have insurance beyond the mandated minimums. Read on to learn more.

  1. Protect Yourself From Liability

Depending on the policy you pick, car insurance can have a lot of benefits, but what it’s meant to do and what it does best is protect you against liability. If you are at fault in a car crash – and no one ever wants that to happen or thinks it will happen to them, which is why it’s called an accident – you will be responsible for all financial damage related to that crash. With newish minivans topping $50,000 and luxury vehicles often quite a bit higher than that, you could be facing a huge payout, especially if there is more than one vehicle involved in the crash. That’s just the vehicles themselves; you could be responsible for other property damage or pain and suffering caused by the crash. You don’t want to have to be paying for the rest of your life for one bad call, which is why you need to maintain liability insurance, and preferably in amounts far higher than the mandated minimum.

  1. Repair or Replace Your Vehicle

Liability insurance covers damages done to others, but if your car is damaged in the crash, you’ll probably need to get it repaired or replaced as well. As stated above, cars are expensive! You may not be able to write a check for a new vehicle right away, and if you had a newer model vehicle that was financed, you may already be upside-down and not able to finance another one. But you still have to get to work, the kids have to get to school, and life has to go on. If you carry car insurance with collision and comprehensive coverage, that insurance will either pay to have your vehicle repaired or pay out its value so that you can purchase a new vehicle. Many policies also cover a rental car while yours is being repaired or until they process your payment and you can go shopping.

  1. Cover the GAP

As alluded to above, many people who finance vehicles make relatively low down payments. Monthly payments that you do make are amortized over the life of the loan, which means that they pay interest first and then principle. Consequently, there are a lot of people out there who are upside-down on their car loans, which means that they owe more than the vehicle is actually worth. If someone who is upside-down in their vehicle crashes that vehicle, conventional car insurance will only pay out what the vehicle is actually worth. This leaves the owner in a place of owing money on a vehicle that they can no longer drive. GAP insurance covers that gap and will get you back to a neutral position; you still won’t have a car, but you won’t owe any money either, and you can start fresh.

  1. Obey the Law

Quite simply, it’s the law to carry at least liability insurance with at least $200,000 in liability coverage ($500,000 in Quebec). You have to have it. If you’ve financed a vehicle, it’s almost certainly in the contract that you need to carry full coverage, or collision and comprehensive insurance as well. There are a lot of good reasons to have good insurance, but the bottom line is that whether you agree that they are good reasons or not, you still have to have it.