The primary benefit of car insurance is to protect your personal assets after an accident. The person at fault in an accident is responsible by law for paying for the damages to the other car and medical expenses for the driver. Without insurance, your savings, home, vehicles, and other property could be taken by the court to compensate the driver.

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If you’re at-fault in a wreck which causes $30,000 in damages to a vehicle and $10,000 in medical bills for the other driver, you’re responsible for paying that driver $40,000. Because this would create an extreme financial hardship for most people, car insurance is the cheapest way to ensure you can pay for an accident and not lose everything.

How does car insurance work?

We’re all familiar with the concept of buying in bulk. Large chain stores can get lower prices from manufacturers because they buy thousands of products at a time. Auto insurance works much the same way.

The insurance company charges all their clients a fee called a premium. This money is then pooled together. Out of the thousands of clients, only a small percentage is in a car accident in any given year. The insurance company uses that pooled money to pay for the damages incurred in those accidents.

Clients are able to buy protection worth far more than they pay because there are so many of them. It is the power of purchasing in volume.

Do the insurance companies make money from this?

Absolutely, but they are offering you a valuable service. For the price of a few hundred dollars a year, they pay thousands of dollars of damages that you caused in a wreck. Visit the website for Weiss Ratings for a list of the most financially sound car insurance companies.

What if I don’t carry auto insurance?

If you’re caught driving without car insurance, in nearly every state you will receive a ticket. The fines for these are usually hefty. A few states will impound your car and may even send you to jail. In many states, you can’t even register a vehicle or renew a driver’s license without proof of liability insurance.

If you have a car loan, the lending institution requires you to carry comp and collision on top of the state mandated liability. If they discover you’re not carrying it, which you agreed to do when you signed the loan papers, you could also lose your car.

The worst that could happen is that you’re in a costly wreck with no way to pay for the damages. If you hit someone, totaling their car and sending a couple of people to the hospital in critical condition, you could be looking at hundreds of thousands of dollars you would owe. You could lose your house, your savings, and your 401(k) just to pay the debt, ruining you financially.

How can I save money on car insurance?

Now that you’re convinced you need car insurance, there are ways to save money on the premiums. The first thing is to set as high a deductible as you can afford. The higher the deductible, the lower the premium.

When signing up for car insurance, ask for discounts. If you haven’t had a ticket or accident in several years, you usually qualify for one. Insurance companies offer a large variety of discounts, so talk with your agent to see if you qualify for any. If you’ve taken defensive driving courses recently, be sure to let them know since it yields yet another discount.

Also, buying car insurance from the same company as you buy homeowner’s or renter’s insurance will save money. The companies bundle the services together and give a discount on both. If you have other property like a boat, RV, or motorcycle, or need life insurance, see how many policies you can get together, as the discount increases with multiple lines of insurance.

The car you drive also affects the premium price. Sports car owners usually pay a higher premium, as do luxury car owners. When you’re in the market for a new or used car, go to sites like Kelley Blue Book to see what cars are more expensive to insure.

We all love to save money, but going without car insurance will cost you more money in the long run. The smartest course of action is to buy insurance and try to save as much on the premiums as possible.

Another way to save money is to compare car insurance rates from several companies. You can do that right now for free by simply typing in your zip code in the box on this page.