It’s not surprising that many people find auto insurance confusing. The terminology alone can quickly become overwhelming. Add in different state-by-state laws, and it’s easy to see why so many people don’t understand what car insurance entails. Here, we’ve explained the basics of auto insurance.
What Is Auto Insurance?
Auto insurance is designed to protect you against financial loss due to covered events. In general, these events are accidents that occur on the road or off the road and when your vehicle is unattended. Your car insurance policy may also provide coverage for theft, vandalism, and some medical expenses related to a car accident. These are known as “optional” coverages. The amount of protection an insurer extends depends on how much you pay for the policy.
Types of Car Insurance Plans
Liability Insurance
Liability insurance is a form of car insurance that protects you from lawsuits in case you’re responsible for an accident and injuries or damages occur. If you’re at fault for an accident and don’t have liability coverage, your assets are at risk. Most states in the United States have made liability insurance mandatory.
Comprehensive and Collision Insurance
If your car is damaged in an accident, collision insurance will cover the cost to repair it, minus your deductible. Comprehensive insurance, in comparison, covers damage from events other than accidents, like theft or natural disasters. Collision covers damage from accidents with other vehicles or objects.
Personal Injury Protection (pip) or Medical Payments Insurance
PIP covers the cost of medical treatment if you’re injured in an accident, regardless of who was responsible. It also covers lost wages while recovering from injuries sustained in an accident. Medical payments cover medical costs if someone else was injured in an accident but not lost wages during recovery.
How Much Insurance Should You Opt For?
The amount of coverage you need to be able to legally drive your car will differ from state to state, based on minimum coverage requirements. However, state minimum requirements don’t always provide you with enough coverage to protect yourself financially in the event of an accident. Even if your state doesn’t require it, it’s best to opt for as much coverage as you can afford.
