It is mandatory to have valid car insurance at all times in every state. That being said, some statistics from the Insurance Research Council (IRC) indicate that over 14% of drivers nationally are uninsured–that means, if you’re in an accident, you have a 1 in 7 chance that the other driver isn’t insured. That quite a risk! Plus, these statistics vary widely from state to state, with states such as California, Alabama, and Mississippi having uninsured rates of 25% or higher, and our home state of Indiana having a higher-than-national average of 16%. Keep in mind, these statistics don’t even include underinsured drivers, which can be almost as problematic.
These rates have been on the rise since the recession, as researchers have uncovered a close correlation between the health of the economy and the number of uninsured motorists on the roads. Of course, common sense says you don’t want to be in an accident with such a driver, but the consequences depend on your state’s laws.
Tort versus No Fault
In “tort states,” such as Indiana, the motorist at fault is required to pay damages. So if you get into an accident with an uninsured or underinsured driver, and they are at fault, you could be in trouble. If they don’t have insurance, chances are they won’t have the assets to pay your damages either. Currently, 38 states are tort states. In these states, you should have uninsured/under-insured motorist coverage on your vehicle at all times.
In “no-fault states,” fault doesn’t matter. Each driver pays his or her own damages. That means your insurance will cover you, even if the other driver was at fault in the accident. In these states, uninsured motorist coverage–or UM/UIM as it’s called–isn’t as important. However, it can still help you in the event that you incur severe damages, and you are either unable to sue the at-fault driver (your ability to do so is somewhat limited in no-fault states), or else you can sue but the other party doesn’t have sufficient assets to pay your damages.
UM Coverage on a Financed Vehicle
There are many major lenders who require that you carry this type of insurance throughout the life of any loan you may have on your vehicle. If you let coverage lapse, some states allow lenders to acquire coverage for you, then add it to the balance of your loan. Since lenders are not required to find the least expensive coverage or even consult you about which company they use, you can have thousands of dollar added to your balance over the life of your loan.
Luckily, uninsured/under-insured motorist insurance is a fairly inexpensive addition to a standard car insurance policy.