If you own or drive a car, you must have heard of auto insurance. You know you need some form of coverage and you must have heard about deductibles, premiums and the likes. This article will explain some of the auto insurance basics you must be familiar with.
What auto insurance is
Auto insurance (also known as vehicle insurance, car insurance or motor insurance is insurance purchased for road vehicles, whose primary purpose is to offer protection against property damage and bodily injury resulting from traffic accidents.
Why you need auto insurance
Accidents happen even to the best of drivers. Here is where auto insurance comes in — it will protect you, your passengers and your assets against expensive and sometimes devastating surprises. Depending on the policy you own, auto insurance can and will:
- protect your vehicle; in case of an accident, your insurance company will have it fixed or, should it be damaged beyond repair, reimburse you for your loss;
- pay for medical bills; auto insurance will take care of the medical bills after an accident;
- protect your vehicle from theft, vandalism or natural disasters;
- protect you and your passengers from uninsured or under-insured drivers;
- protect the rest of your assets: if you are found at-fault in an accident, your auto insurance company will pay for damages and medical expenses. If you don’t have insurance, you will have to cover all these out of your own pocket.
Most popular types of auto insurance
Liability insurance is the bare-bone coverage type. It protects other traffic participants from accidents caused by you. If you smash into someone else’s car, your Liability policy will pay for the repairs of that vehicle and the eventual medical bills of the passengers in that car, but not for your car or your passengers.
Liability insurance is required in most American states. In fact, the only three states where insurance is voluntary — New Hampshire, California and Wisconsin — compel their drivers to have alternative ways to prove financial responsibility.
Collision insurance is, as the name says, protection against collision with other vehicles and non-moving objects (fences, kiosks, poles or the side of the road). Collision insurance protects your car regardless of who was at fault in the accident. As an exception, Collision doesn’t cover you from impacts with animals on public roads — such incidents are covered by a Comprehensive insurance policy.
Comprehensive insurance covers all types of incidents that are not included under Liability or Collision terms. It protects your vehicle from theft, vandalism, natural disasters and the likes.
Collision and Comprehensive policies are subject to a deductible, i.e. an amount you are supposed to pay out of your own pocket before the insurance company provides the difference. If you have, for example, a $500 deductible and the damage is assessed at $350 then you will have to cover the whole amount, while if the repairs are going to cost $2,200 then you pay the first $350 and the insurer pays $1,850.