Financial literacy means that you take some precautions and insure yourself and your properties. If you own a house, you want to protect it. Same logic applies here. It’s a protection to you, your passenger and your property.
In the United States, if you drive without a valid car insurance, you are going to get a ticket. Why is car insurance mandatory?
The most obvious purpose is to protect people from suffering major financial losses caused in an accident. It gives people a piece of mind that they don’t have to pay a huge amount of money. Accidents cannot be foreseen or expected. Nobody is an exception when it comes to an accident or property damage. We can only try to avoid it. However, when it does happen, we don’t want to risk our house or bank deposit. The good thing about car insurance is that it protects both the at-fault and non-fault driver, even your passengers.
States require people to have insurance and pay for the monthly premium in response to political pressure. By doing this, they can ensure the insurance companies have a greater share of business than they might otherwise in a “free market”. It benefits the insurance companies and the government as well.
The insurance coverages are very important concepts. Once you understand them well, you will realize car insurance is actually a good thing.
Let’s say you have an accident and it’s not your fault. Unfortunately the other driver is an uninsured or underinsured driver. Now the uninsured and underinsured coverage will help you with the damages.
Car insurances also save you from liability. Who knows what will happen on the street one day. There is always a possibility that you will inflict damage to other drivers, vehicles, or properties as you drive around the streets. Maybe you are driving in a slippery road in a snowy day, and you bumped into a street sign. You are liable for the damage caused to the street sign. In your car insurance coverage, you definitely have the mandatory property damage coverage, so you don’t have to pay for the street sign. You just need to pick up the phone and let insurance company pay for it.
If you have coverage for collisions, it will cover any damage for your own vehicle if you are involved in an accident. Say you rear-end someone’s car. Now you are at fault for this accident. The other driver will use your property damage coverage to pay for his car’s damage. What about your car? You will need to use collision coverage now. It’s a first party coverage, which means no matter you are at fault or not at fault, if your car suffers damage from an accident, you can use this coverage if you carry it on your policy. This coverage will give you financial support and a piece of mind especially if you have a new car.
You can also have insurance companies pay for other people’s hospital bills, provide you with roadside assistance, pay for your car if it’s stolen. You just need to understand what each coverage mean and how you can benefit from it.