Orlando Harmon
Auto insurance is a safeguard for your financial well-being in the event of car accidents, theft, or other incidents beyond your control. It is a contract between you and an insurance company, which protects you against financial losses in the event of an accident or theft. In exchange for your premium, the insurance company agrees to pay your losses as outlined in your policy. Most states require drivers to carry a minimum amount of liability insurance coverage, and some also require uninsured motorist coverage. Auto insurance can cover vehicle repairs, medical expenses, and damage or injuries you cause to others while driving. It's important to shop around for the best rates and choose a policy that suits your needs and budget.
| Characteristics | Values |
|---|---|
| Purpose | To protect against financial losses in the event of an accident or damage to the vehicle |
| Coverage | Property damage, bodily injuries, medical bills, funeral expenses, vehicle repairs, damage/injuries caused to others |
| Requirements | Most states require a minimum amount of liability insurance coverage; some also require uninsured motorist coverage |
| Costs | Premiums, deductibles |
| Pricing factors | Applicant's gender, age, years of driving experience, accident and moving violation history, etc. |
| Add-ons | Collision coverage, comprehensive coverage, gap insurance, etc. |
What You'll Learn
Understanding the basics of auto insurance
Auto insurance is a contract between you and an insurance company that protects you against financial losses in the event of an accident, theft, or damage. It is designed to safeguard your financial well-being and help pay for vehicle repairs, medical expenses, and damages or injuries you cause to others while driving.
Auto insurance provides coverage for:
- Property damage, such as repairs to your vehicle or reimbursement if your car is stolen or damaged beyond repair.
- Liability, which covers your legal responsibility for bodily injuries or property damage caused to others in an accident.
- Medical expenses, including the cost of treating injuries, rehabilitation, and sometimes lost wages and funeral expenses for you and your passengers.
Who Does Auto Insurance Cover?
An auto insurance policy typically covers you and other family members listed on the policy, whether driving your car or someone else's with their permission. It may also extend coverage to someone who is not on your policy but is driving your car with your consent.
It's important to note that basic auto insurance has its limitations. It generally does not cover:
- Maintenance or general wear and tear on your vehicle.
- People who regularly drive your car but are not listed on your policy.
- Commercial use of your vehicle, such as for delivery or ride-sharing services.
Nearly every state in the US requires car owners to carry a minimum amount of auto insurance, specifically liability coverage for bodily injury and property damage. Some states also mandate additional coverage types, such as medical payments or personal injury protection (PIP), and uninsured motorist coverage. Failing to meet the minimum auto insurance requirements in your state can result in fines, license suspension, or even jail time for repeat offenses.
The cost of auto insurance varies depending on several factors, including your age, driving history, location, vehicle type, and the coverage options you choose. The two primary costs associated with auto insurance are premiums and deductibles. Premiums are the monthly, biannual, or yearly payments you make to maintain your policy, while deductibles are the amounts you pay when filing a claim before the insurance company covers the remaining costs.
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What auto insurance covers
Auto insurance provides financial protection in the event of a car accident, theft, or other incidents beyond your control. The exact nature of what is covered will depend on the type of insurance policy you have.
Liability Insurance
Liability insurance covers damage to other vehicles, objects, and injuries to other drivers and their passengers if you are found at fault in an auto accident. It also covers legal expenses if you are sued due to an accident. Most states require drivers to have a minimum amount of liability insurance.
Collision Insurance
Collision insurance covers damage to your vehicle if it overturns or collides with another vehicle or object, including trees, guardrails, and fences. It also covers damage caused by potholes. Collision insurance is optional in most states but may be required by lenders or leasing companies.
Comprehensive Insurance
Comprehensive insurance covers damage to your car caused by events outside of your control, such as theft, vandalism, natural disasters, falling objects, animal collisions, and windshield damage. Like collision insurance, comprehensive insurance is often required by lenders or leasing companies.
Medical Payments/Personal Injury Protection (PIP)
Medical payments coverage pays for the treatment of injuries to the driver and passengers of the policyholder's car. Personal injury protection is a broader coverage that includes 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.
Uninsured/Underinsured Motorist Coverage
This coverage reimburses you if you are hit by a driver with no insurance or insufficient insurance to cover your total loss. This includes protection in the event of a hit-and-run or if, as a pedestrian, you are struck by an uninsured or underinsured motorist.
Additional Coverage Options
Other optional coverage options include rental car reimbursement, roadside assistance, rideshare insurance, and loan/lease payoff coverage.
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Auto insurance costs
Premiums
Auto insurance premiums vary depending on several factors, including the applicant's age, gender, years of driving experience, accident and moving violation history, and location. Most states mandate a minimum amount of auto insurance, but many people purchase additional insurance for greater protection.
Deductibles
Your deductible is the amount you have to pay when filing a claim before the insurance company will pay out. For example, if you have a $500 deductible and your car repairs cost $2,000, you will pay $500 while your insurer covers the remaining $1,500. Choosing a higher deductible can result in a lower premium, but you need to be reasonably sure you can afford the higher amount if you need to file a claim.
Location
Location is a significant factor in how insurers calculate rates. Insurance rates differ from state to state and even between ZIP codes. For example, Michigan residents pay the highest average insurance rates in the US, while residents of Maine pay the lowest. Within each state, urban areas tend to have higher premiums due to increased risk factors, while rural regions enjoy lower costs due to fewer risks.
Age
Age is another factor that influences insurance rates. Young drivers, especially teens, tend to pay the most for car insurance due to their inexperience and higher accident rates. Insurance rates tend to decrease as a driver ages, but premiums may slightly increase for those over 65.
Driving Record
A poor driving record will lead to higher insurance premiums. Drivers with speeding tickets, accidents, or driving under the influence (DUI) violations on their records will pay more for insurance. The severity of a driving violation significantly influences the additional amount charged by insurance companies.
Credit History
In most states, insurers evaluate credit scores as a way of determining financial responsibility. A higher credit score can lead to lower car insurance rates.
Vehicle Type
The type of car you drive also impacts insurance rates. Expensive cars, luxury vehicles, and high-performance vehicles tend to have higher insurance premiums due to the increased cost of repairs and replacements. Cars with advanced safety features and anti-theft systems often qualify for insurance discounts.
Gender
In most states, the gender listed on your driver's license also influences insurance costs, with male drivers usually paying higher rates than female drivers. However, some states do not allow gender to be used as a factor in insurance pricing.
Multi-Car Insurance
On average, households with multiple cars can save money by insuring several vehicles together under one multi-car insurance policy.
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How auto insurance works
Auto insurance is a safeguard for your financial well-being in the case of car accidents, theft, or other incidents beyond your control. It is a contract between you and an insurance company that protects you against financial loss in the event of an accident or theft. In exchange for your payment of a premium, the insurance company agrees to pay your losses as outlined in your policy.
Auto insurance provides coverage for:
- Property – such as damage to or theft of your car
- Liability – your legal responsibility to others for bodily injury or property damage
- Medical – the cost of treating injuries, rehabilitation, and sometimes lost wages and funeral expenses
Basic auto insurance does not cover maintenance or general wear and tear. It also won't cover people who regularly drive your car but aren't on your policy.
Auto insurance premiums vary depending on several factors, including the applicant's age, gender, driving history, location, and vehicle type. The price of auto insurance also depends on the coverage amount and the deductible. The deductible is the amount you have to pay when filing a claim before the insurance company will pay out anything to you for damages.
You can research coverages, get a quote, and buy auto insurance online. Before you get started, it helps to know the answers to the following questions:
- What type of car do you drive?
- How many miles a year do you drive?
- What is your driving history?
- Who will drive your car?
- Did you have any gaps in auto insurance coverage?
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Who does auto insurance cover?
Auto insurance covers the policyholder, their family members, and their vehicle. It also covers other drivers and their vehicles, as well as passengers, pedestrians, and personal property.
Who is covered by auto insurance?
The policyholder is the primary person covered by auto insurance. Basic auto insurance policies cover the policyholder and their family members listed on the policy. This includes when they are driving their own car or someone else’s car with permission. Personal auto insurance policies also cover other people who are driving the policyholder’s car with their consent.
Auto insurance also covers other drivers and their vehicles. If the policyholder is at fault in an accident, their liability insurance will cover the other driver’s expenses, including medical bills and property damage. This includes damage to the other driver’s vehicle and other types of property, such as a fence.
Passengers are also covered by auto insurance. If the policyholder causes an accident, their insurance will cover the medical expenses of individuals in the other vehicle(s). This includes medical expenses and lost wages. If the passengers are in the policyholder’s vehicle, they may also be covered by the policyholder’s personal injury protection or medical payments coverage.
Yes, auto insurance covers pedestrians. If a driver without insurance crashes into a pedestrian, the policyholder’s uninsured motorist coverage will pay for the pedestrian’s injuries. It will also cover the pedestrian’s lost wages, funeral costs, and other expenses.
Auto insurance also covers personal property. If the policyholder damages someone else’s personal property, their property damage liability insurance will cover the cost. However, personal items that are damaged in a wreck or stolen from a vehicle are usually covered by homeowners or renters insurance.
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Frequently asked questions
Auto insurance is a contract between you and an insurance company that protects you against financial losses in the event of an accident or theft. In exchange for your premium, the insurance company agrees to pay your losses as outlined in your policy.
Auto insurance provides coverage for property (damage to or theft of your car), liability (your legal responsibility to others for bodily injury or property damage), and medical costs (the cost of treating injuries, rehabilitation, lost wages, and sometimes funeral expenses).
Basic personal auto insurance is mandated by most states in the US and provides some financial protection in case of an accident. Auto insurance requirements vary from state to state, but nearly every state requires car owners to carry bodily injury liability and property damage liability.
Auto insurance premiums vary depending on several factors, including the applicant's gender, age, years of driving experience, accident history, and location. The cost of coverage may increase if you get a car loan or lease, as lenders may require certain types of insurance, such as gap insurance for expensive vehicles.
Auto insurance works as a safeguard for your financial well-being in case of car accidents, theft, or other incidents beyond your control. Your insurance company will help pay for vehicle repairs, medical expenses, and damages or injuries you cause others while driving, depending on your chosen coverages.
