“Car insurance? Nah, I don’t need that.” If you’ve ever spoken these words, there's a good chance you might be a millennial. In fact, only 64% of Americans ages 18 to 29 have auto insurance, compared with an average of 84% for all older drivers, according to a survey commissioned by insuranceQuotes.com.

Of course, this doesn’t come as a surprise. The millennials are generally an optimistic and sometimes overconfident group. “I’m an awesome driver! Nothing will ever happen to my car.” However, the odds are something will happen to your car—and when it does, you’re going to have to fork over some serious dough.

Traffic Accidents and Insurance

According to the National Highway Traffic Safety Administration, there were over 6.7 million police-reported traffic crashes in the U.S. in 2018 (the most recent data available)—not to mention an estimated 10 million unreported car accidents. To make matters worse, these crashes are costing drivers a lot of money. In 2018, the average collision claim was $3,574. Could you afford to pay that amount out of pocket?

Look, we get it. Car insurance isn’t the most exciting way to spend your money. Collision coverage doesn’t offer instant gratification like a brand-new iPhone and shelling out for liability insurance takes a bite out of your travel budget. But car insurance is not only smart; in most states, it’s a legal requirement.

Even with excellent driving skills, accidents happen. What if an oak tree falls on your parked truck? What if your hybrid is crunched in a highway pileup? Without auto insurance, an accident like this could catapult you into financial hardship. It's essential to think of car insurance as being worth your while, so keep reading to figure out what type of coverage you need.

Uninsured/Underinsured Motorist Coverage

If your car is struck by a hit-and-run driver or someone who doesn’t have auto insurance, uninsured motorist coverage will pay for your vehicle repairs. It also covers any medical bills, pain-and-suffering costs, and (worst-case scenario) funeral expenses for any passengers in your car. This type of coverage is mandatory in some states. 

Collision Coverage

This is exactly what it sounds like: If you’re in a car collision, this coverage helps pay for your vehicle repairs. If the repairs add up to more than the value of your car, your insurance company will probably cut you a check for the total value of your vehicle instead of paying for repairs. If you have a brand-new—or relatively new—car, collision insurance is a must-have.

Bodily Injury Liability Coverage

If you’re in an accident that causes injury to others, this insurance covers medical treatment, rehabilitation costs, funeral expenses, legal fees, and pain-and-suffering costs. It covers your passengers, as well as drivers and passengers in other cars and injured pedestrians. This type of coverage is mandatory in most states, and minimum limits vary from state to state.

Property Damage Liability Coverage

If you cause a car accident, this not only covers the damage you cause to other cars—it also covers property damage. Let’s say you swerve to miss a dog or a deer and slam into someone’s fence. Property damage liability coverage will help pay for the fence repairs or replacement. However, this coverage rarely covers damage to your own car. To pay for those damages, you’ll need collision coverage.

Property damage liability is mandatory in all states, and the minimum required coverage limits vary from state to state. For example, the minimum coverage in Florida is $10,000, but in Ohio, it’s $25,000. However, these required minimums generally aren’t enough coverage to fully protect you—especially when you consider the average cost of a new car is $40,857, according to Kelley Blue Book. Talk to your insurance provider to discuss how much property liability coverage you need.

Comprehensive Coverage

When you see the word “comprehensive,” you may assume this is all the coverage you’ll need since it obviously covers everythingBut that’s actually not the case. (Yes, car insurance terms can be misleading.)

Comprehensive insurance pays for any damage to your car that isn’t caused by a collision. That includes theft, vandalism, riots, fire, natural disasters (think hurricanes, floods, and tornadoes), damage caused by animals (you hit a deer), and falling objects (think objects flying off the back of trucks on the highway or trees collapsing on your car). This insurance also pays if your car and/or its contents are stolen. Many lenders require this type of coverage. If you still owe money on your vehicle or you’re leasing a car, check with the lender to see if comprehensive coverage is a requirement.

Rates of New vs. Old Cars

You may presume new cars are more expensive to insure since they are usually worth more. However, this isn’t always the case. Insurance for new cars is often affordable because these vehicles are designed with advanced safety features. Car insurance rates are determined partly by the expected damage to your car. When your car includes more modern safety features, it’s less likely that your car will be damaged in a crash, which is a factor in lower rates.

At the same time, if you own a much older vehicle that’s already paid off, you may not need a lot of insurance. While you’ll probably need to purchase liability coverage (especially if it’s mandatory in your state), collision and comprehensive coverage may not be worth the expense—especially if you could afford to repair or replace your car. If your car is worth $5,000 or less, the premiums you'll pay over time will probably exceed the payout, even if your car is totaled.

Car Insurance When Leasing

If you’re leasing a car, the dealer may require you to purchase gap insurance. In the event that you’re involved in an accident or your car is stolen, this coverage pays the difference between the value of the car and the amount you owe on the lease. Some leases include this coverage without additional fees, so read through your leasing contract carefully before you purchase this coverage on your own.

You may also be required to maintain collision and liability insurance on a leased car. After all, your vehicle belongs to the lease company—and it obviously wants to make sure its investment is covered if the car is damaged or stolen. Again, read through your contract and ask your leasing company about insurance requirements and minimum coverage limits.

The Bottom Line

If you own a car, lease a car, or even drive someone else’s car, auto insurance is a must-have. Not only are certain types of coverage mandatory in most states, but the right type of auto insurance could protect you from financial disaster if your car is stolen, damaged, or, even worse, if you cause a crash that injures you or others.

While you definitely need to buy car insurance, don’t overpay for coverage you won’t use. Look up your state’s coverage requirements and figure out what type and how much coverage you need based on the age of your car, your driving habits, and your current financial situation.

It's important to shop around to get the best deal. Request quotes from multiple auto insurance companies and find the policy that works best for you and your budget. If you're under age 25, comparison shopping is especially important because you will likely pay more for insurance than your older friends or family members, especially if you're a male, as young men statistically have more accidents.