What is Auto Insurance: It is important to protect your investment when you purchase or lease a vehicle. Auto insurance can provide reassurance if your vehicle is damaged or stolen or vandalized. Instead of having to pay out-of-pocket, auto insurance companies charge annual premiums.
The company pays all or most of the expenses associated with auto accidents or any other vehicle damage.
What is Auto Insurance?
Car insurance is essentially a contract between you and an insurance company. You agree to pay premiums in return for financial protection in the event of an accident or other damage to your vehicle.
Auto insurance may offer coverage for the following:
Vehicle damage, including your vehicle or that of another driver
Accidents can cause property damage and bodily injury.
Injuries sustained in an accident can result in medical bills and/or funeral expenses.
You can choose additional coverage options or meet the minimum coverage requirements of your state to determine what is covered. Except for New Hampshire, every state requires drivers to have minimum coverage for bodily injury and property damage.
Auto insurance costs
Two main costs are associated with buying car insurance: deductibles and premiums.
The premiums for auto insurance vary based on gender, age, driving experience, accidents, moving violations, and other factors. Most states require that auto insurance be purchased at least once a year. This minimum amount varies from one state to the next, but many people buy additional insurance to ensure they are protected.
If you finance a vehicle, your lender might require you to have certain types of insurance. If you purchase a high-end vehicle, which will depreciate quickly after you drive it off of the lot, gap insurance may be required. If you are involved in an accident, gap insurance may help you pay the difference between the vehicle’s value and the amount you owe.
Higher premiums will be charged for drivers with poor driving records or those who want complete coverage. You can lower your premiums by accepting more risk. This means that you will need to increase your deductible.
The deductible is the amount that you must pay before your insurance company will pay any damages. For example, a policy might have a $500 deductible or a $1000 deductible. A higher deductible may result in a lower premium, but you would need to be able to pay the additional amount should you have to file a claim.
How Auto Insurance Works
The insurance company will pay the losses you have incurred in exchange for a premium. You can customize your coverage to meet your budget and needs by pricing policies individually. The policy terms are typically six- to twelve months in length and can be renewed. The insurer will inform the customer when it is time to renew the policy or pay another premium.
No matter whether the state mandates minimum auto insurance, almost all states require car owners to have bodily injury liability. This covers injuries or deaths caused by you or another driver while driving your car. You may also need property damage liability. This covers damage to other vehicles or property caused by you or another driver.
Some states require car owners to carry personal injury protection (PIP) or medical payments. This reimburses you for medical expenses incurred by you and your passengers. It will also pay for lost wages and related expenses.
Uninsured motorist coverage covers you if an accident is caused by a driver without auto insurance. Underinsured motorist coverage protects you if you are involved in an accident with someone who does not have enough insurance to cover all the costs.
Who does Auto Insurance Coverage Protect?
Auto insurance policies will protect you and your family members, regardless of whether you drive your car or someone else’s (with their permission). You can also provide coverage for someone else who is not covered by your policy, provided they are driving your car with your permission.
Personal driving is not covered by personal auto insurance. You cannot use your car to make deliveries or for other commercial purposes. It will not provide coverage if your car is used to ride-sharing services like Uber and Lyft. Some insurers offer additional insurance products at an extra cost that cover vehicle owners who provide ride-sharing services.
The bottom line
Although other insurance types, such as homeowner’s and health, may seem more important than auto insurance, owning an insurance policy will save you money and aggravation over the long term. To get the best rates on car insurance, shop around.