About Auto Insurance
Auto insurance protects you against financial loss if you have an
accident. It is a contract between you and the insurance company. You
agree to pay the premium and the insurance company agrees to pay your
losses as defined in your policy
provides property, liability and medical coverage:
Property coverage pays for damage to or theft of your car.
Liability coverage pays for your legal responsibility to others
for bodily injury or property damage.
Medical coverage pays for the cost of treating injuries,
rehabilitation and sometimes lost wages and funeral expenses.
An auto insurance policy is comprised of six different kinds of
coverage. Most states require you to buy some, but not all, of these
coverage's. If you're financing a car, your lender may also have
Most auto policies are for six months to a year. Your insurance
company should notify you by mail when itís time to renew the policy
and to pay your premium.
You must have
auto insurance to drive
Almost every state requires you to have auto liability insurance. All
states also have financial responsibility laws. This means that even
in a state that does not require liability insurance, you need to have
sufficient assets to pay claims if you cause an accident. If you donít
have enough assets, you must purchase at least the state minimum
amount of insurance. But insurance exists to protect your assets.
Trying to see how little you can get by with can be very shortsighted
If you've financed your car, your lender may require comprehensive and
collision insurance as part of the loan agreement.
What to expect
in your auto policy:
Your auto policy may include six coverage's. Each coverage is priced
1. Bodily Injury Liability
This coverage applies to injuries you, the designated driver or
policyholder cause to someone else. You and family members listed on
the policy are also covered when driving someone elseís car with their
Itís very important to have enough liability insurance, because if you
are involved in a serious accident, you may be sued for a large sum of
money. Definitely consider buying more than the state-required minimum
to protect assets such as your home and savings.
2. Medical Payments or Personal Injury Protection (PIP)
This coverage pays for the treatment of injuries to the driver and
passengers of the policyholder's car. At its broadest, PIP can cover
medical payments, lost wages and the cost of replacing services
normally performed by someone injured in an auto accident. It may also
cover funeral costs.
3. Property Damage Liability
This coverage pays for damage you (or someone driving the car with
your permission) may cause to someone else's property. Usually, this
means damage to someone elseís car, but it also includes damage to
lamp posts, telephone poles, fences, buildings or other structures
your car hit.
This coverage pays for damage to your car resulting from a collision
with another car, object or as a result of flipping over. It also
covers damage caused by potholes. Collision coverage is generally sold
with a deductible of $250 to $1,000óthe higher your deductible, the
lower your premium. Even if you are at fault for the accident, your
collision coverage will reimburse you for the costs of repairing your
car, minus the deductible. If you're not at fault, your insurance
company may try to recover the amount they paid you from the other
driverís insurance company. If they are successful, you'll also be
reimbursed for the deductible.
This coverage reimburses you for loss due to theft or damage caused by
something other than a collision with another car or object, such as
fire, falling objects, missiles, explosion, earthquake, windstorm,
hail, flood, vandalism, riot, or contact with animals such as birds or
Comprehensive insurance is usually sold with a $100 to $300
deductible, though you may want to opt for a higher deductible as a
way of lowering your premium.
Comprehensive insurance will also reimburse you if your windshield is
cracked or shattered. Some companies offer glass coverage with or
without a deductible.
States do not require that you purchase collision or comprehensive
coverage, but if you have a car loan, your lender may insist you carry
it until your loan is paid off.
6. Uninsured and Underinsured Motorist Coverage
This coverage will reimburse you, a member of your family, or a
designated driver if one of you is hit by an uninsured or hit-and-run
Underinsured motorist coverage comes into play when an at-fault driver
has insufficient insurance to pay for your total loss. This coverage
will also protect you if you are hit as a pedestrian.