Auto insurance is a contract between you and the insurance company that protects you against financial loss in the event of an accident or theft.
In exchange for your paying 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 personal auto insurance is mandated by most U.S. states, and laws vary. Auto insurance coverages are priced individually (a la carte) to let you customize coverage amounts to suit your exact needs and budget.
Policies are generally issued for six-month or one-year timeframes and are renewable. The insurance company sends a notice when it’s time to renew the policy and pay your premium.
Is auto insurance coverage mandatory?
Auto insurance requirements vary from state to state. If you’re financing a car, your lender may also have its own requirements. Nearly every state requires car owners to carry:
Bodily injury liability – which covers costs associated with injuries or death that you or another driver causes while driving your car.
Property damage liability – which reimburses others for damage that you or another driver operating your car causes to another vehicle or other property, such as a fence, building or utility pole.
In addition, many states require that you carry:
Medical payments or personal injury protection (PIP), which 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—or in the case of a hit-and-run. You can also purchase under insured motorist coverage, which will cover costs when another driver lacks adequate coverage to pay the costs of a serious accident.
What other types of auto insurance coverage are typical?
While most basic, legally mandated auto insurance covers the damage your car causes, it does notcover damage to your own car. To cover your own car, you should consider these optional coverages:
- Collision: reimburses you for damage to your car that occurs as a result of a collision with another vehicle or other object—e.g., a tree or guardrail—when you’re at fault. While collision coverage will not reimburse you for mechanical failure or normal wear-and-tear on your car, it will cover damage from potholes or from rolling your car.
- Comprehensive: provides coverage against theft and damage caused by an incident other than a collision, such as fire, flood, vandalism, hail, falling rocks or trees and other hazards—even getting hit by an asteroid!
- Glass Coverage provides coverage from windshield damage, which is common. Some auto policies include no-deductible glass coverage, which also includes side windows, rear windows and glass sunroofs. Or you can buy supplemental glass coverage.