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Monday, 13 January 2020

If you're wondering why you need car insurance, there's a very simple answer: your state probably requires it.

Almost every state in the country requires car owners to have auto insurance. Also, if you have a car loan or lease, your lender will likely require you to have insurance, too.

But beyond the fact that it's probably mandatory, having auto insurance is vital to protecting yourself financially. Here's how:

Paying for vehicle damage

Whether it's a broken windshield or dented door, car repairs can be costly. According to cars.com, the average car repair bill is between $500 and $600, and one in three drivers can't pay this bill without going into debt. This is where auto insurance comes in.

Let's say you hit another car in a parking lot and damage both cars. Coverage varies by policy, but in most cases, your auto insurance will help pay for the repairs to both cars.

Most policies also cover damages not related to an accident, such as a tree falling on your car. They may provide coverage when you drive someone else's car or when someone else drives your car.

A word about deductibles

Okay, so you damaged your car and another. Using the average car repair bill of $500, let's say there's $500 in damage to your car and the other one, for a total of $1,000 in repair costs. Your auto insurance company should pay to repair both cars after you meet your deductible, which is out-of-pocket money you pay when you make a claim.

But how much is your deductible? That depends. You have options when it comes to how much your monthly premium and deductible are. For example, in most cases, you can get a lower monthly premium if you opt for a higher deductible. And, if you pay more each month, you could have a lower deductible.

For the purpose of this example, let's say your deductible is $250. You would pay $250 out of pocket, and your insurance company should pay the remaining $750 to repair the two cars.

Paying for medical bills and other expenses related to an accident

If you cause an accident that injures the driver or passengers in another car, you are liable for the cost of their medical care. What's more, you could also be sued for additional damages.

But, in most cases, your auto insurance should cover the cost of medical care for anyone injured and could even pay for any judgment against you. Again, you'd have to pay your deductible. But when you think about it, paying your monthly premium and a deductible are well worth protection from being wiped out financially.

Saving money on car insurance

Now that you know why you have to have car insurance, it's helpful to know you can find ways to save money. How much you pay is based on a lot of factors such as your driving record, what kind of car you drive and even where you live. If you have a good driving record, you should be able to shop around and get good coverage with an affordable premium.

However, considering the personal and financial safeguards auto insurance provides, it makes sense to get enough coverage to protect your bank account and give you peace of mind. 

The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial advisor about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates.

Links to third party sites are provided for your convenience and do not constitute an endorsement. BBVA USA does not provide, is not responsible for, and does not guarantee the products, services or overall content available at third party sites. These sites may not have the same privacy, security or accessibility standards.

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