What is Auto Insurance
An auto insurance is a policy purchased by vehicle owners to mitigate costs associated with getting into an auto accident. Instead of paying out of pocket for auto accidents, people pay annual premiums to an auto insurance company; the company then pays all or most of the costs associated with an auto accident or other vehicle damage.
BREAKING DOWN Auto Insurance
Auto insurance premiums vary depending on age, gender, years of driving experience, accident and moving violation history and other factors. Most states mandate that all vehicle owners purchase a minimum amount of auto insurance, but many people purchase additional insurance to further protect themselves.
A poor driving record or the desire for more complete coverage will lead to higher premiums. However, you can reduce your premiums by agreeing to take on more risk, which means increasing your deductible.
In exchange for paying a premium, the insurance company agrees to pay your losses as outlined in your policy. Coverages include:
- Property – damage to or theft of your car
- Liability – legal responsibility to others for bodily injury or property damage
- Medical – costs of treating injuries, rehabilitation and sometimes lost wages and funeral expenses
Basic personal auto insurance is required by most U.S. states, and laws vary. Policies are priced individually to let you customize coverage amounts to suit your exact needs and budget.
Policy terms are usually six- or 12-month timeframes and are renewable. An insurer will notify a customer when it’s time to renew the policy and pay another premium.
Auto insurance requirements vary from state to state. If someone is financing a car, the lender may stipulate requirements. Nearly every state requires car owners to carry:
- Bodily injury liability – covers costs associated with injuries or death that you or another driver causes while driving your car.
- Property damage liability – reimburses others for damage that you or another driver operating your car causes to another vehicle or other property.
Many states also require:
- Medical payments or personal injury protection (PIP) – Provides reimbursement for medical expenses for injuries to you or your passengers. It will also cover lost wages and other related expenses.
- Uninsured motorist coverage – Reimburses you when an accident is caused by a driver who does not have auto insurance.
Who Does Auto Insurance Coverage Protect?
An auto insurance policy will cover you and other family members on the policy, whether driving your car or someone else’s car (with their permission). Your policy also provides coverage to someone who is not on your policy and is driving your car with your consent.
Personal auto insurance only covers personal driving. It will not provide coverage if you use your car for commercial purposes—such as making deliveries. Neither will it provide coverage if you use your car to work for ride-sharing services such as Uber or Lyft. Some auto insurers now offer supplemental insurance products (at additional cost) that extend coverage for vehicle owners that provide ride-sharing services.
What are the different types of auto insurance?
You may already know how auto insurance works, but do you know what the different types of car insurance are? If you’re shopping for auto coverage, knowing the different types of auto insurance and their coverages is an important step in getting the policy that’s right for you. Here are a few of the basic car insurance types, how they work and what they cover.
Liability coverage is required in most US states as a legal requirement to drive a car. Liability insurance may help cover damages for injuries and property damage to others for which you become legally responsible resulting from a covered accident.
Collision insurance may cover damage to your car after an accident involving another vehicle and may help to repair or replace a covered vehicle.
Comprehensive insurance can provide an extra level of coverage in the instance of an accident involving another vehicle. It may help pay for damage to your car due to incidents besides collisions, including vandalism, certain weather events and accidents with animals.
Uninsured motorist insurance
Uninsured motorist insurance can protect you and your car against uninsured drivers and hit-and-run accidents. This coverage is often paired with underinsured motorist insurance.
Underinsured motorist insurance
Many drivers choose to carry the minimum in liability coverage to save money, but this might not provide enough coverage. Underinsured motorist insurance can protect you in the event of an accident with a driver whose insurance is not enough to cover the costs.
Medical payments coverage
Medical costs following an accident can be very expensive. Medical payments coverage can help pay medical costs related to a covered accident, regardless of who is at fault.
Personal injury protection insurance
Personal injury protection insurance may cover certain medical expenses and loss of income resulting from a covered accident. Depending on the limits of a policy, personal injury protection could cover as much as 80% of medical and other expenses stemming from a covered accident.
Car value can depreciate quickly, so an auto insurance settlement might not be enough to cover the cost of a loan. Gap insurance may help certain drivers cover the amount owed on a car loan after a total loss or theft.
Rental reimbursement insurance
Figuring out how to get around after an accident can be expensive. Rental reimbursement insurance helps pay for a rental car if your vehicle cannot be driven after an accident.
If you don’t currently have auto insurance, it’s crucial to get coverage as soon as possible. Get a free quote for the types of car insurance listed above so you’re protected from the unexpected.
Insurance terms, definitions and explanations are intended for informational purposes only and do not in any way replace or modify the definitions and information contained in individual insurance contracts, policies or declaration pages, which are controlling. Such terms and availability may vary by state and exclusions may apply. Discounts may not be applied to all policy coverages.