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Explaining the ‘Freeloader Effect’

With the economy in such peril and money being as tight as it is, many people decide not to pay for everyday needs. An example of this is the increasing number of people that are choosing not to purchase car insurance for their vehicles. Many people avoid owning car insurance to skip out of a monthly bill because it “saves” money. However, in reality it does the exact opposite. Laws are becoming stricter on car insurance violators and, in the end, you could be paying more than you are “saving.” Not paying a monthly bill is not worth losing your car over.

When you do not pay for car insurance you impact the entire economy using the “freeloader” effect. The freeloader effect occurs when a driver is uninsured and causes the price of insurance to rise because the company that sells the car insurance has to make a profit. When you look at the larger picture, when you pay car insurance, you not only help the economy by lowering the cost of insurance but also help yourself by lowering the price you pay for insurance, as well. That monthly fee will save you thousands of dollars if you are ever involved in a car accident.

When asked, most people say that their main reason for not paying for car insurance is that it saves them money. If you are an uninsured driver and you are involved in a car accident, you may have to buy a new car entirely. New cars can cost in upwards of $30,000 and this is much more than a full year’s worth of insurance payments. The advantage of the insurance payment is that it will help you finance the damages that are done not only to your car, but the other vehicles involved in an accident. In the end, you are paying much, much more if you are not insured.

New laws are being made every day to prevent people from not owning car insurance. Most states make you pay a fine of $200. Michigan has recently voted to raise that fine. However, some states take it even farther than that. In Texas, you have one warning to buy car insurance and if you receive a second offense, the police will impound your car. Texas has an uninsured driving rate of 20%. This number has dropped since 2005 because Texas legislators are trying to take away the first warning, and allow police to immediately impound cars that are uninsured. You may be saving money by skipping your monthly bill, but you may also lose your car as a result of not having minimum Texas car insurance coverage.

There are so many disadvantages to not purchasing Texas car insurance. Consequences range from losing your car in an accident, to paying fines in upwards of $200. Texas will soon be able to instantly impound any car they find that is not insured. The only thing worse than losing a car in an accident is losing a car that is in perfect condition because you do not have Texas car insurance. Everyday, laws become stricter. Soon or later, the law will catch uninsured drivers. If you think you are smart by not paying car insurance, think about the damages that the “Freeloader” effect has on the economy as a whole.