Auto insurance is a contract between the customer and the insurance company that protects against financial loss in the event of an accident or theft. In exchange for paying a premium, the insurance company agrees to pay your losses as outlined in your policy.
Auto insurance can offer coverage for:
- Vehicle damages
- Property damage
- Medical bills or funeral expenses
Auto Insurance Coverage
Your auto policy will cover you and other family members on your policy, whether driving your car or someone else’s car. Your policy also provides coverage if someone who is not on your policy is driving your car with your consent.
Your auto policy only covers personal driving, whether you are commuting to work, running errands, or taking a trip. It will not provide coverage if you use your car for commercial purposes.
Auto insurance will also not provide coverage if you use your car to provide transportation to others through a ride-sharing service such as Uber or Lyft. Some auto insurers, however, are now offering supplemental insurance products that extend coverage for vehicle owners providing ride-sharing services.
Is Auto Insurance Coverage Compulsory?
Auto insurance requirements vary from state to state. If you are financing a car, your lender may also have its 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 – which reimburses others for damage that you or another driver operating your car causes to another vehicle or other property, such as a fence, building, or utility pole.
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How does Auto Insurance work?
In exchange for paying a premium, the insurance company agrees to pay your losses as outlined in your policy. Policies are priced individually to let you customize coverage amounts to suit your exact needs and budget. An insurer will notify a customer when it is time to renew the policy and pay another premium.
Regardless of whether they mandate having a minimum amount of auto insurance, nearly every state requires car owners to carry bodily injury liability, which covers costs associated with injuries or death that you or another driver causes while driving your car. They may also require property damage liability, which reimburses others for damage that you or another driver operating your car causes to another vehicle.
Several states go a step further, mandating car owners carry medical payments or personal injury protection, which reimburses medical expenses for injuries sustained by 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. Underinsured motorist coverage is designed to protect you when you are involved in an accident with a driver who has some insurance but not enough to cover the full cost of a claim.
Auto Insurance Costs
There are two primary costs associated with purchasing car insurance: premiums and deductibles.
Auto insurance premiums vary depending on age, gender, years of driving experience, accident and moving violation history, and other factors. Again, most states mandate a minimum amount of auto insurance. That minimum varies by state, but many people purchase additional insurance to protect them further.
Also, if you are financing a car, the lender may stipulate that you carry certain types of car insurance. For instance, you may need gap insurance if you are purchasing an expensive vehicle that will likely depreciate very quickly once you drive it off the lot. Gap insurance can help to pay off the difference between the vehicle’s value and what you still owe on it if you are involved in an accident.
A poor driving record or the desire for 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.
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Types of Auto Insurance
You may already know how auto insurance works, but do you know what different types of auto insurance are? If you are shopping for auto coverage, knowing the different types of auto insurance and their coverage is an important step in getting the policy, that is right for you. Here are a few of the auto insurance types, how they work, and what they cover.
Liability Coverage
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
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
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.
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Gap Insurance
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.
Towing and Labor Insurance
Available if you already have comprehensive car insurance, towing and labor insurance may reimburse you for a tow and for the labor costs to repair your vehicle.
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.
Classic Auto Insurance
Classic auto insurance provides specialized coverage designed for the unique needs of vintage and classic car collectors. Find out if classic car insurance is right for you.
If you do not currently have auto insurance, it is crucial to get coverage as soon as possible. Get a free quote for the types of car insurance listed above so you are protected from the unexpected.
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FAQs – Auto Insurance and Different Types of Auto Insurance
What is auto insurance?
Auto insurance is a contract between an individual and an insurance company that provides financial protection against financial loss in the event of a car accident, theft, or other covered incidents. It typically includes coverage for property damage, liability, and medical expenses.
Why do I need auto insurance?
Auto insurance is essential for protecting you financially in case of accidents or unexpected events. It helps cover the costs of repairs, medical expenses, and legal liabilities, providing financial security for you and other parties involved in an accident.
What does auto insurance typically cover?
Auto insurance can cover various aspects, including liability coverage (for injuries and property damage to others), collision coverage (for damage to your vehicle), comprehensive coverage (for non-collision events like theft or natural disasters), and medical payments coverage.
What factors influence auto insurance premiums?
Insurance premiums are influenced by factors such as the driver age, driving history, type of vehicle, location, coverage options, and credit history. Safer drivers with a good record often receive lower premiums.
What is liability insurance?
Liability insurance covers the cost of injuries and property damage that you may cause to others in an accident. It typically includes Bodily Injury Liability (BIL) and Property Damage Liability (PDL) coverage.
What is collision insurance?
Collision insurance covers the cost of repairs to your vehicle in case of a collision with another vehicle or object, regardless of who is at fault.
What is comprehensive insurance?
Comprehensive insurance provides coverage for damages to your vehicle caused by events other than collisions, such as theft, vandalism, natural disasters, or hitting an animal.
What is uninsured/underinsured motorist coverage?
Uninsured/underinsured motorist coverage protects you if you are involved in an accident with a driver who has no insurance or insufficient coverage. It can cover medical expenses and property damage.
How can I lower my auto insurance premiums?
You can lower your auto insurance premiums by maintaining a good driving record, bundling policies, increasing deductibles, driving a safe vehicle, and taking advantage of available discounts.
How can I choose the right auto insurance coverage for me?
To choose the right coverage, assess your needs, consider your driving habits, and evaluate your budget. Consult with insurance agents, compare quotes from different companies, and understand the terms and conditions of each policy before making a decision.
Always review your auto insurance policy regularly and update it as needed to ensure you have adequate coverage for your current circumstances.