10 Problems You May Face if You Don't Have Enough Car Insurance

Many Americans are uninsured, which is why in some states uninsured and underinsured motorist coverage is required. Even if you meet state minimum requirements for car insurance, if you have the lowest amount of liability coverage on the car and cause a major accident you may find out you’re underinsured. The gap may be covered if the other driver has uninsured motorist coverage, which also covers underinsured drivers. However, the insurance company may still come after you.

Having insufficient car insurance can lead to significant financial, legal, and personal problems that even extend to the workplace. In some instances, wages can be garnished and you may be left to pay for repairs to your own car and injuries to your passengers. Here are some of the most common problems you may encounter if you don’t have enough car insurance.

1. Out-of-Pocket Cost of Having No Car Insurance

Without enough car insurance, you may have to pay out-of-pocket for damages or injuries resulting from an accident. Let’s break down the types of losses you may incur below.

Vehicle Repairs to the Other Car With Low Liability Limits

You may have the minimum liability limit in your state and find yourself owing money for repairs to the other driver’s car, if you are held responsible for the accident. Vehicles are expensive, especially new ones, with all the new technology, like sensors and cameras.

Remedy: Increase liability limits and even consider buying an umbrella policy if you have assets to protect. An umbrella policy simply increases your liability limits, for car insurance and even homeowners insurance, in case someone is hurt on your property.

Vehicle Repairs or Replacement for Your Car

Liability coverage will never pay for fixes to your car, and it won’t pay if you total it. It makes no sense to buy collision coverage for a car worth less than $4,000 but anything over that value would best be protected with collision insurance.

Keep in mind that if your car is totaled, you will receive the Kelley Blue Book value of the car the day of the accident.

Remedy: Buy collision coverage and consider comprehensive too, which is the only type of coverage that will help you replace a stolen vehicle or one that is damaged due to non-collision related causes.

Medical Bills Without Enough Car Insurance

Liability covers the passengers of the other vehicle as well as the other driver but not your own passengers. Hospital bills can be astronomical and the lowest limits may not be enough to cover everyone who’s been injured. Also, your passengers will not be covered by your liability insurance, if you are at fault in the accident.

Remedy: Increase liability limits and buy medical payments coverage so that your passengers are covered for injuries.

Other Property Damage

Other cars aren’t the only type of accident you may have. You may have hit a power line or some other public structure that you’ll be responsible for in terms of necessary repairs. Liability coverage would cover the cost, unless the damage is so extensive that your limits are too low. Also subject to liability claims are buildings or landscaping that you may damage.

Also, your car will be covered by collision insurance. Any type of damage caused by impact would only be covered by collision, since you are the one at fault.

Remedy: Make sure you have liability coverage. Buy collision coverage if your car is worth $4,000 or more.

2. Legal Consequences

Driving without sufficient insurance can have legal repercussions. Legal bills may not be covered, depending on the situation.

Fines and Penalties

If you have no insurance, you may face heavy fines and penalties if you are caught driving without state-required insurance coverage. You will also be penalized with a higher car insurance rate when you do buy it. While there are no fines or penalties for having too little insurance, there are financial setbacks.

Remedy: Be aware of all the types of car insurance you are required to have. Increase liability limits to an amount that will cover a bad accident with a new car.

License Suspension

If you drive with no car insurance, your driver's license could be suspended or revoked. You will then be classified as a high-risk driver and will pay more for car insurance. You cannot lose your license for having insufficient coverage, unless you don’t have your state’s required coverage.

Remedy: Don’t drive while uninsured. If you do and are caught, compare rates with a high-risk insurer. They may offer you a more reasonable rate.

Legal Liability

If you cause an accident, you will be held liable for damages exceeding your car insurance coverage limits but you may have to pay for your own legal representative. Once your car insurance company pays its agreed upon limit, the rest falls squarely on your shoulders. If you don’t have the money for the remaining balance, your wages may be garnished and your assets may be seized. That’s why it’s important to have higher liability limits and even consider umbrella coverage if you are a person of means.

Remedy: Buy higher liability limits and umbrella coverage, especially if you are a high-net worth individual.

3. Debt and Bankruptcy

If you don’t have enough car insurance to pay for the other driver’s damages and injuries and you lose your car too, you may easily fall into debt or even bankruptcy, if you are sued and your assets are seized.

Debt From Being Underinsured

Medical bills can wipe out your bank account quickly. Add to that legal fees and property damage, and you can easily sink into a deep debt.

Bankruptcy

If the financial weight of an accident is heavy enough, you may need to file bankruptcy.

Remedy: Always buy more than the state required minimum liability limit to protect your financial interests and prevent having to file chapter 11.

4. Seizure of Assets

If you have an outstanding balance after your insurance company pays out the other driver for injuries and property damage, you may get sued. If that happens, you may lose everything you have, including portions of your paycheck.

Liquidating Assets

You may be forced to sell personal belongings, including your home or car, to pay a legal judgment. All your assets will be taken into consideration.

Wage Garnishment

If you do not have any or many assets, you’re not off the hook. Your paychecks may be garnished to pay for the damages you owe. There may be a levy against your bank account too.

Remedy: Prevent a situation where you are forced to sell your hard-earned possessions by buying adequate liability coverage and an umbrella policy.

5. Increase in Car Insurance Premiums

Being in an accident alone will increase your car insurance rate. Not having sufficient insurance will mean you owe more money on two fronts.

Higher Premiums

If you have no insurance, you will immediately be classified as a high-risk driver, which means higher premiums when you renew your policy or purchase a new policy.

Remedy: Compare car insurance rates to find an insurer who specializes in high-risk drivers and offers lower rates.

6. Gaps in Coverage

Different types of coverage protect against different types of losses. For instance, you can have very high liability limits but will have no coverage for your own losses without certain add-on coverages.

Collision Gap

If you don’t have collision coverage and you caused the accident, you have no coverage to fix or replace your car.

Comprehensive Gap

Without comprehensive coverage, you will not be protected against damages from theft, vandalism or natural disasters.

Medical Payments Gap

If you don’t have medical payments coverage, your passengers will have to use their medical insurance to pay for injuries, which means a deductible. If they have no health insurance, they will have to pay for medical costs out-of-pocket.

Gap Coverage Gap

Many people who buy a new car have an upside-down loan. What that means is that they owe more on the car loan than the car is actually worth. What happens after an accident is that you may find yourself owing money even if the claim is paid out because you didn’t have gap coverage on the car.

Roadside Assistance Coverage Gap

You may get stranded on the side of the road and will have to pay a high price for towing. Roadside assistance coverage also includes lock-outs, fuel delivery and tire change or towing.

Uninsured Motorist Coverage

Why go through the hassle of taking someone to court when they probably don't have much money or assets? Uninsured motorist coverage will cover the cost of repairing or replacing your car, if the other driver in the accident is at fault and has no insurance or insufficient insurance. This coverage is required in some states.

Remedy: Consider all the gaps in your coverage and make sure you’re as protected as possible. Never buy gap coverage from a car dealership because they charge insane amounts for this otherwise affordable type of insurance. Roadside assistance is a good coverage to have for peace of mind, especially if you don’t drive a new car.

7. Dent in Credit Score

Unpaid medical bills or legal judgments you can’t afford can impact you financially. You may not be able to pay your bills on time, which will hurt your credit score. In most states, your credit score is used to determine your car insurance rate and even homeowners insurance. Your financial problems will snowball.

Unpaid Bills

If your wages are garnished or you spend all the money you have on a legal judgment for what you owe in damages and injuries, your credit score will suffer and make car insurance even more expensive.

Remedy: Have more than the minimum amount of liability coverage, drive safely and pay your bills on time. Consider collision, comprehensive and gap coverage depending on how much your car is worth and how new it is. Always have roadside assistance. A transmission can fail on a brand-new car. What would you do?

8. Emotional, Mental and Physical Health Problems

Sleepless nights, anxiety attacks, nightmares. All of that takes a toll on your emotional and mental health as well as your physical health. The financial and legal consequences of inadequate car insurance can lead to disease. Finding yourself underinsured after an accident will take its toll.

Emotional Strain

The heavy toll of an accident, legal problems and financial strain can destroy your health.

Remedy: Pay a little more each month to truly have peace of mind with all the coverages you need. That’s it!

9. No Access to a Car

Without sufficient insurance, you may face restrictions on your ability to drive because you didn’t meet state requirements: Or you may have no money to buy a car after paying accident-related debt. If you don’t have roadside assistance, you may get stranded on the side of the road and pay a hefty price for towing, especially if you are far from home.

Inability to Drive

Legal consequences such as license suspension for driving while uninsured can limit your ability to drive.

Loss of Vehicle

If you don’t have comprehensive coverage and your car gets stolen, you will be without financial help in buying another vehicle.

Stranded on the Road

Without roadside assistance coverage, you can’t get fuel delivery or towing or a simple tire change unless you pay a lot of money going straight to a towing company.

Remedy: Buy the coverages you need, liability, PIP if it’s required, collision, comprehensive and roadside assistance. Gap coverage is great for new cars that are being financed for more than the car’s Edmund’s value.

10. Future Employment Challenges

Employers can check driving records. Some prospective employers even do a credit check to gain insight into behaviors. Having an uninsured accident or a partially insured one can wreak havoc on your career.

Negative Impact on Prospective Employers

If an employer finds out about an accident, it’s bad enough, but if they find out that you’re in the hole because of it, much like your insurance company, they will consider you high-risk. :

Remedy: Stay covered with the right insurance products based on your job, your lifestyle and the value of the car. Keep your liability limits at an amount you’d expect to pay for the total loss of a new car on the market. Consider umbrella coverage if you have many assets, in case of a lawsuit. Drive safe, and never buy too much for car insurance, not even a fully loaded policy.

Car insurance rates are based on many variables, and you never know who will offer the best price until you shop around. SmartFinancial can help you find a car insurance policy with higher limits at the lowest prices on the market at no charge. Just enter your zip code here and get started comparing your car insurance options.