Auto Liability insurance, is it worth it?

Auto Liability insurance, is it worth it?

Deciding if auto insurance liability is worth it is difficult for some. Drivers may feel that if they are good, safe drivers paying hundreds of dollars every year to pay for accidents they will not have is a waste of money. There is no doubting that auto insurance is not cheap. The average expenditure of drivers on insurance every year in the United States is around 820 dollars. Multiply that by 10 years and add the interest you could have got for that cash in the bank and you could buy yourself a new car for the price of insuring one for 10 years. And that is an average price, in some areas and states like D.C and Florida the yearly insurance bill averages around 1,150 dollars.

So does it make sense to pay such high premiums for something that might not even happen. This kind of thinking has bred lines of thought like: “Insurance is for pessimists”. Is that so? There is not black or white answer to that although the overwhelming majority of businesses, countries and individuals support insurance in principle. The idea is to manage risk. If you take on an insurance and you don’t need to use it, well you “lost” some money. However if your house burns down, or more to the point you have a terrible accident that kills someone or causes serious injuries and you don’t have insurance, well you’re screwed. The philosophy is that it is worthwhile paying regular and affordable payments if that protects you from serious accidents or problems you would not be able to cover financially on your own.

To illustrate this point, most countries make it compulsive to have some level of insurance cover if you drive a car. This is because of the high risk of causing serious damage while driving. The government wants to make sure that innocent pedestrians, drivers and property owners that are affected by a car accident will be protected and compensated. So the answer is yes, car insurance is worth it and you should invest in it.

Of course there is a smart and a foolish way of investing in auto insurance. It is not smart to have a higher coverage for damages to your car than the worth of your car as the insurance company will only cover the market value of your car.

It is also a bad idea to have a high coverage on medical expenses if you have a separate medical insurance policy. In fact in the case of medical insurance, if you already have coverage it is a good idea to have a lower coverage and a high deductible.

Liability insurance is a type of coverage you don’t want to be stingy with. Blame culture has spread throughout the world, fueled by humongous liability cases in the U.S and other western countries. An apparently small accident or mistake could lead you to bankruptcy if you don’t have suitable insurance coverage.

Source: U.S. Department of Labor, Bureau of Labor Statistics; National Association of Realtors