Introduction to Auto Insurance

Introduction to Auto Insurance

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 protect themselves further.

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.

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

Most U.S. states require basic personal auto insurance, 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.

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