Why buy car insurance?

Why buy car insurance? We get this question all the time. So let’s test your car insurance IQ. Answer true or false to the following statements:

  1. The state of Tennessee requires you to have car insurance.
  2. You have to have car insurance in order to make that phone call that might save you an average of $400.
  3. Having car insurance helps make the insurance companies lots of money.
  4. Pay as little as possible now so when you have a claim, the insurance company can pay you back for all those years of paid premiums.
  5. Car insurance helps to protect your assets and your future earnings in the event of a devastating accident.
  6. You get car insurance to help keep you out of bankruptcy.

Now, read the explanations below to see how well you did.

1. True. Most states require you to provide proof of auto insurance in order to obtain new auto tags or renew your present ones. Tennessee is not one of them. But Tennessee does have a mandatory auto insurance law: If you own a car, you must have liability insurance.

That way, if you accidentally injure someone or damage their property, then your insurance company will pay for the damages. Otherwise, you’d be paying for them. Of course, the amount of coverage you purchased determines how much the insurance company will pay.

If you’re pulled over you must show proof of your car insurance. If you don’t have it, you’ll receive a little gift from your friendly local law enforcement officer. The state of Tennessee does require you to have car insurance to be a legal driver, but that’s not the only reason you’ll need it. Keep reading to see why.

2. False. Making a phone call in the hopes of saving an average of $400 is not the reason to buy car insurance. Think of all the claims that the big-brand insurance companies make. The claims are called advertising. If they can prove that one customer ever saved $400, then they can get away with making claims about savings.

The cost of those huge, national advertising campaigns raises the price of the companies’ products. Insurance companies pass those costs on to their customers. These companies probably won’t save you $400. Buy one of their policities, however, and they’ll certainly charge you an extra $400 a year for having induced you to call them.

It stands to reason that independent companies not advertising all the time will have better rates. Why? Because they deliberately keep their own advertising costs to a minimum. Therein lies the rub: the companies that make the biggest claims are ones least likely to make good on them.

3. False. Insurance companies make a lot of money, but they may also lose a lot of money. We all pay our share of the cost of insurance so we can transfer the risk of an accident and claim to the insurance company.

Whether you’re a 16-year-old texting while driving, a twenty-something drinking and driving, or a forty-something paying close attention, the insurance company assumes your risk. Do you think insurance companies make money on 16 year olds? I don’t think so either.

4. False. We all pay our share so that the insurance company assumes our risk and pays for any claims that occur. Insurance companies aren’t piggy banks. You don’t put money in and then pull it out again at claim time. Looking at insurance that way will most likely result in higher premiums after the company cancels your old policy because you made too many small claims. Significant claims are a no-brainer. But paying out-of-pocket for a fender bender might save you money on higher premiums in the long run.

5. True. If you own and operate a machine that can kill or maim someone, our civil laws say you could be held liable or responsible for someone you injure or property you damage.

How much might you be liable for?

You will be liable for whatever amount a jury decides to award the injured party. If that amount is more than the amount of insurance you purchased, then your assets and your future earnings are at risk. If you don’t think this happens, watch your local news.

Still not convinced? Think about the personal injury attorney commercials you’ve seen on television. What do those attorneys do? They invite people involved in an accident to call them, and they help the victims sue the responsible party, often for large sums.

6. True again. Please see (4) above. If you lack sufficient assets or future earnings need to resolve a lawsuit judgment that exceeds your insurance coverage, then bankruptcy is staring you in the face.

Why buy car insurance? Hopefully, you have a good answer now. You need car insurance in order to obey Tennessee laws, pass off your risk to the insurance company, and protect your assets and future earnings.

Maybe a better question is this one: Are you overpaying if you’ve currently got your policy with a big-brand insurance company?

If you’d like to know for sure, give us a call: 615-269-4561.

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