Does a Car Need to Be Insured? You Betcha! Find Out Why

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Written by Eric Schad Edited by Nick Versaw

Updated November 16, 2022

Does a car need to be insured? The question resonates with many car owners and new car buyers when they see the bill for car insurance. Unfortunately, this is an expense you can’t avoid. With the notable exceptions of New Hampshire and Virginia, every state and territory in the United States requires car insurance.

But don’t think of it as a sunk cost. Car insurance provides a useful service by protecting you in the event of an accident — regardless of who’s at fault. Find out more about why cars need to be insured and how you can make the most of one of life’s necessary expenses.

Does a Car Need to Be Insured?

In 48 out of 50 states and all U.S. territories, you need to have a car insurance policy. There are several reasons for this: These laws eliminate excessive court litigation. They also save you from extreme out-of-pocket costs in the event of an accident. Finally, some states seek to compensate the driver who is not at fault in an accident. It’s the simple idea of not putting the financial burden on someone who was completely innocent and following the rules of the road.

The amount of insurance coverage you need varies from state to state. In an at-fault state, which requires the at-fault driver in an accident to compensate the other party, liability coverage ensures that the other party gets reimbursement for medical bills, lost wages, and property damage to their car.

And that’s just what liability insurance is: When you purchase liability coverage, your insurance company provides bodily injury coverage and property damage coverage if you’re the at-fault party in an accident.

Every state has a minimum car insurance coverage or coverage limit requirement that you must meet in order to legally get behind the wheel. Without a policy that meets this minimum requirement, you risk tickets, fines, lawsuits, and potentially paying tens of thousands of dollars or more out-of-pocket to pay for the other person’s bills if you’re involved in an accident.

As such, buying at least the minimum car insurance isn’t just a legal requirement — it’s a savvy move on your part, even though it’s required by the state.

No-Fault State Auto Insurance Requirements

One thing that often confuses drivers is the difference between an at-fault state vs. a no-fault state. In a no-fault state, you carry personal injury protection (PIP) insurance that covers your own medical bills. While it doesn’t cover any property damage — no-fault states still require property damage liability coverage — you pay for your own medical bills.

The idea behind no-fault states is that it lessens the burden on small claims courts and lawsuits. If people have to buy coverage for their own medical bills, they’re far less likely to file a suit against the other driver or fake injuries.

Currently, there are 12 no-fault states in the country:

• Florida
• Hawaii
• Kansas
• Kentucky
• Massachusetts
• Michigan
• Minnesota
• New Jersey
• New York
• North Dakota
• Pennsylvania
• Utah

If you live in one of these states or are making the move, double-check to find out exactly what type of coverage you need. Does a car need to be insured in a no-fault state? You betcha.

What Happens If I Don’t Get Car Insurance?

If you don’t get car insurance, you unleash a whirlwind of potential problems that are easily avoided by just getting car insurance. The list includes:

• Tickets and fines for driving uninsured
• The risk of having to pay out-of-pocket for property damage and medical expenses for another driver if you’re at fault in an accident
• Higher car insurance rates in the future because of a lapse in car insurance coverage
• Possible driver’s license suspension
• Possible vehicle impoundment
• Possible jail time
• Potential loss of your time and money due to litigation

With all of the risks associated with driving uninsured, it just makes sense to buy an auto insurance policy. Regardless of your driving record or incidents that may have caused your rates to spike, it’s far cheaper to pay for insurance than to pay for the effects of not having it.

What Type of Insurance Do I Need?

While liability coverage is required in every state, several automobile insurance options are available to suit your needs, budget, and peace of mind. The vehicle you drive, whether you have a car loan, and other state requirements will dictate the type of insurance you need, as well as the monetary coverage level you’re looking for. Here’s a quick breakdown of what type of insurance you might need depending on your situation.

Uninsured Motorist and Underinsured Motorist Coverage

Twenty states plus the District of Columbia require you to carry uninsured/underinsured motorist coverage. This type of coverage pays for your medical expenses and property damage in the event that you’re in an accident with an at-fault driver who has no insurance or if their coverage limits don’t meet your total bills.

Even in states that don’t require this coverage, it’s still a strong consideration to include in your motor vehicle insurance. With 12.6% of all drivers cruising around without car insurance, it’s a safety net that you should certainly contemplate.

Car Insurance for Car Loans

According to recent statistics, around 85% of buyers of new cars take out a car loan. That’s not surprising considering the increased cost of new vehicles. However, your agreement with your lender typically requires you to get full coverage car insurance.

Since your car is the collateral and acts as a security in a car loan, lenders want to make sure it’s protected in the event of an accident. As such, “full coverage” provides a three-pronged level of coverage:

• Collision coverage: This type of coverage pays for damage to your vehicle if you’re at fault in an accident — regardless of whether it’s a collision with another vehicle or a single-car accident. These policies also have a deductible, which is the amount you pay out-of-pocket before your insurance pays for the rest. Typical deductibles range from $0 to $1,000.
• Comprehensive coverage: This type of additional coverage pays for damage to your vehicle that isn’t the result of an accident or your car being in motion. The list includes vandalism, theft, civil unrest, animal damage, or acts of God. Like collision coverage, comprehensive insurance also comes with a deductible.
• Liability coverage: To reiterate, liability coverage provides bodily injury coverage and property damage coverage if you’re the at-fault party in an accident.
• Gap insurance: This insurance isn’t always required, but some insurers are now requiring it. Gap insurance pays the difference between the loan balance and the actual cash value of the car if it’s in an accident and deemed a total loss. For example, you owe $40,000 on your car, but it’s only worth $35,000. Gap insurance covers the $5,000 difference.

Keep in mind that the lender requires the first three of these — and possibly also gap insurance — to buy a car. It’s an added expense that you’ll need to factor into your budget when buying a new car.

Save Money on the Car Insurance You Need

So, does a car need to be insured? Definitely. Along with death and taxes, car insurance payments may be one of the inevitabilities of life, but that doesn’t mean you need to pay a huge premium to make sure you’re covered.

Regardless of what type of coverage you need, Compare.com makes affordable car insurance quick, easy, and convenient — just like shopping for car insurance should be.

No matter where you live or your driving history, you can shop for quotes and lower your car insurance costs in ways you never knew were possible.

Enter your ZIP code below to get the insurance you need at a price you’ll love.

Eric Schad Insurance Writer

Eric Schad has been an expert content writer for nearly a decade. Before getting behind the keyboard, he worked in the finance and music industries. With eight years of writing experience in the automotive and insurance industries, he enjoys communicating information that makes shopping for car insurance a breeze. Away from the computer, Schad is a blues guitar shredder, crazed sports fan, and always down for a spontaneous trip anywhere around the globe.