Car insurance – You buy insurance so you don’t go bankrupt when you cause damage to property or persons after a collision. Insurance shields your assets up to limits of coverage. If you are underinsured, as are most people, your insurance will soften the impact but you may still become a defendant in a personal injury lawsuit.
Many people think the role of insurance is to fix your car but don’t consider medical expenses incurred by their victims. That is why you buy the “bodily injury” coverage. A collision resulting in trauma to victims generates very high medical bills. The initial ambulance ride for one victim can cost $1000, for example. Daily hospital stay costs $1500-3000+/day. Do the math on how far that 15/30/5 (15 per person, 30 per incident, 5 for property – California minimum) coverage will last.
Ever wonder how personal injury attorneys can afford pervasive advertising? They often settle the suit for the limits of coverage. If those limits are insufficient, you can certainly go broke after your assets get seized.
Sure, collision and comprehensive coverages for when you are at fault are nice to have and required by the lender when you finance a vehicle, but only liability is required by law. Cars are cheaper to fix or write off as total loss than humans.
Moral of the story – don’t total someone’s Porsche unless you have high enough limits.
I own a business and so my limits are high enough to not have to be concerned about liability exposure. My friends who have more money carry even higher limits.