What are we paying for when we buy car Insurance?

Question

Does any one notice that we shell out thousands of dollars from our income for car insurance, and the insurance company gives us nothing back? Sure, if we get into a car accident, they cover the costs, but then they raise your rate. And you are paying far more than the cost of the accident anyway. And then if you don't get into an accident, what is all that money for? They don't give it back.

I just think its odd that we are required by law to pay for nothing, after we already have paid for the car. And then if you don't, you are penalized and punished, so you are given no choice. But really, you're paying all this money and getting nothing back. WTF

Peace of mind is a beautiful thing, but it sucks being forced to have it, and punished when you don't. So I'm paying for YOUR peace of mind? What are you paying for? And my question, if anyone noticed, was what happens to that money, when nothing happens? Peace of mind is not very tangible for those of us who have never been in an accident, but pay out the @$$, and get to watch my money (very little of which I have anyway) float away. Selling peace of mind, whoever thought of that is a genius.

And then lets not forget that if you DO get into an accident, and the insurance company does not find that the conditions of the incident are acceptable, they won't pay. So you paid your money, and you're still screwed. I do pay car insurance, I just think its a big waste of money.

Answer 1

Lovely question!

You pay premiums for auto insurance so that if you need it they pay for the damages and medical costs. Then they either raise your premiums to cover what they just paid out for you, or they drop you altogether. It sounds like a racket to me.

What is life insurance for...? By paying you are saying, "I'm going to die." The insurance company is saying either, "No you are going to live forever, or, we'll keep your money and use it until you want it back." You could have invested that money yourself and made more. Go figure.

Okay, I'm not even going to go into health insurance. We need nationalized health care NOW!!!

Answer 2

In a lot of states, you don't HAVE TO have insurance. You can just simply furnish you state's department of security a bond, cash, certificate of deposit, government securities, irrevocable letter of credit, or irrevocable trust in whatever amount they require and VOILA!....you're now self insured and can handle your own liability claims or damage to your own car(s) out of your own pocket and be F***ed no more by your insurance company. Enjoy your new found financial freedom away from those pesky insurance premiums!

You're buying piece of mind that if something happens, you don't have to bear the financial burden of the loss and not everyone is paying more in premium than an accident may cost. You don't get money back because you've essentially bought a promise by way of the insurance contract they'll handle your covered loss. The reasoning is the many share the burden of few but it doesn't always work that way.

If you were approached by 20 of your neighbors who said they would give you $15,000 ($750 each) on January 1, 2007, but you have to cover any collision, comprehensive, medical, and injury losses any of suffered for the entire year, would you do it? There's no way I would. It's a risk and that's what insurance is all about. Just look at Louisiana and how insurers paid $8.42 out for every $1.00 of premium the received in 2005. That's like paying your neighbors back $126,300. Ask anyone's who has caused a serious accident with injuries and what they would have done without insurance. The answer in most cases is bankruptcy.

Answer 3

I recommend that you try this site where you can compare rates from different companies: http://INSUREQUOTE.INFO/index.html?src=3YAve6Ara9lg

RE :What are we paying for when we buy car Insurance?
Does any one notice that we shell out thousands of dollars from our income for car insurance, and the insurance company gives us nothing back? Sure, if we get into a car accident, they cover the costs, but then they raise your rate. And you are paying far more than the cost of the accident anyway. And then if you don't get into an accident, what is all that money for? They don't give it back.

I just think its odd that we are required by law to pay for nothing, after we already have paid for the car. And then if you don't, you are penalized and punished, so you are given no choice. But really, you're paying all this money and getting nothing back. WTF
Update: Peace of mind is a beautiful thing, but it sucks being forced to have it, and punished when you don't. So I'm paying for YOUR peace of mind? What are you paying for? And my question, if anyone noticed, was what happens to that money, when nothing happens? Peace of mind is not very tangible for those of us who have never been in an accident, but pay out the @$$, and get to watch my money (very little of which I have anyway) float away. Selling peace of mind, whoever thought of that is a genius.
Update 2: And then lets not forget that if you DO get into an accident, and the insurance company does not find that the conditions of the incident are acceptable, they won't pay. So you paid your money, and you're still screwed. I do pay car insurance, I just think its a big waste of money.
Follow 17 answers

Answer 4

Like other people have said, you are buying peace of mind, but from the tone of your question and follow-ups to the question, I get the sense you don't have much to lose in the first place. I am not being sarcastic, either. My sense is that you are young, living on your own, and you drive a crappy car to a job you hate. You don't have much money in the first place and you are frustrated that the "mean old insurance company" is taking advantage of you.

If peace of mind is not a big deal to you, look at it this way:

I live in Illinois and the minimum liability limit for auto insurance is $20,000 per person. This means that if you hit me and injure me, your insurance will pay up to $20,000 for my injuries. Not a heck of alot of money if you do some serious damage, but probably about $20,000 more than you have in your checking account right now.

Since you don't have this money in the first place, you have to find someone else (an insurance company) willing to give you a blank check for $20,000 - just in case you cause an accident.

Insurance companies are not the Red Cross or the Salvation Army, so they would like to make a profit on this transaction. They try to figure out the odds of you getting into an accident. More correctly, they try to figure out the odds of people LIKE you in getting into an accident. They've done this a long time, and they've done it for millions of people, so they are pretty good at it. They know that more people get into accidents who:

Are 25 or younger
Are single
Drive older cars with no collision or comp coverage
Live in urban areas
Don't own a home
Park their cars on the street or in a parking lot
Have poor credit histories

Let's assume all of those characteristics applied to me, but I didn't tell you about them. I'm a complete stranger to you and I ask you the following:

"I really need $20,000 in my checking account. I'm not going to spend it, but I need it just in case I hit someone with my car. Can you give me $20,000? I'll pay some of it back to you every month. Oh, and one more thing. If you have to pay the full $20,000 today, tomorrow, or any day in the future, I can change my mind and not have to pay you back any more."

How much would you decide to make me pay for that $20,000 blank check? Would you start asking questions about what kind of car I drive? How old I am? How many tickets I've had? Of course you would.

Now don't get me wrong. There are plenty of crappy insurance companies that take advantage of people - the kind of companies that offer "LOW LOW RATES FOR YOUNG DRIVERS" and crap like that.

My advice - Find a good insurance company, not a CHEAP insurance company, and bite the bullet. Find a company that can afford to advertise during the Super Bowl. They've got that kind of money because they know what they are doing, they pay their people well, and they keep their customers happy.

Answer 5

Get and compare quotes from different companies at - INSURERATES.INFO-

RE What are we paying for when we buy car Insurance?

Does any one notice that we shell out thousands of dollars from our income for car insurance, and the insurance company gives us nothing back? Sure, if we get into a car accident, they cover the costs, but then they raise your rate. And you are paying far more than the cost of the accident anyway. And then if you don't get into an accident, what is all that money for? They don't give it back.

I just think its odd that we are required by law to pay for nothing, after we already have paid for the car. And then if you don't, you are penalized and punished, so you are given no choice. But really, you're paying all this money and getting nothing back. WTF

Answer 6

You do NOT have to buy insurance. There are provisions in every state that will allow you to 'self insure'. So, if you have 100K laying around that you are willing to place in a secured state bond go for it. The real issue is you really never need insurance...until you really NEED insurance. The moment you accidently bump into the rear of a school bus and 40 angry parents send you hospital bills for ER visits and MRI's (which would total into the tens of thousands of dollars) you will thank any God willing to listen you purchased insurance. Hell, a HEADLAMP on a Lexus costs over $1,200.00! What if you slide into one at 20 mph and cause $15,000.00 worth of damage? I complain everytime I write a check to my insurance company also but I would never be stupid enough to belive I'm not getting my money's worth or be stupid enough to drive without it.

Answer 7

You aren't required to insure the car itself, but you are required to insure the public at large against the possibility that you will injure or damage them with your car. Everybody contributes a little to the pool, and the pool pays the claims. The insurer is just a croupier, shuffling the money back and forth across the table and taking a piece of the action for their trouble. Sorry, but that's the way it is.

Answer 8

Your paying the insurance company to assume liabilty for your mistakes. If you hit someone and seriously hurt them, your insurance co. will pay for their injuries. If its bad.. them no matter how much they raise their rates, they will never get their money back.
Like everyone said, you are paying for peace of mind. No one likes buying an intangible product but unfortunately we live in a very litigious society where everyone sues for everything.
PS, you dont need to have insurance in most states. Just post a bond ($50,000 in NY) stating that you have the money to pay for damages in case of an accident.

Answer 9

OK, lets think about an accident situation. You get into a really bad accident. There are injuries to everyone involved, damage to your car and thiers and lets throw in some damage to that fence that you hit. You just paid $900.00 premium for the past 6 months and you carry minimum liability limits (in my state it is 25/50/25)
The other party is injured and sues 25,000
Your medical bills 20,000
damage to the fence 1,500
other people in other vehicle 25,000
Damage to other vehicle 10,000
damage to your vehicle 15,000
Total 96,500

You need to decide which is easier to pay, the 900.00 premium or the 96,500 in damages.

Answer 10

You get nothing back? You're joking, right! What about the peace of mind knowing that if some jerk steals your car and runs down a child you won't be left financially devastated? (YOU own the car and WILL be liable!)

How about the comfort of knowing that if some butt-wipe drives drunk and uninsured and rams your car, your hospital bills and lost wages will be covered -- you won't be put out on the street.

Get a CLUE!