Auto insurance is a contract between a vehicle owner and an insurance company in which the vehicle owner is protected against financial loss due to an accident. The vehicle owner must pay a monthly premium to receive coverage, and the insurance policy defines the types of losses that are covered. Auto policies are typically renewed every six months to a year.
There are six different types of coverage, and they are:
• Property damage – This coverage pays for the damage or theft of an insured’s vehicle, and it pays for damages to another person’s property.
• Collision – This pays for losses from an insured’s vehicle hitting another vehicle or an object like a tree.
• Comprehensive – This provides umbrella coverage for a variety of damages that collision doesn’t cover.
• Bodily injury liability – This pays the medical bills of other people who were injured in an accident caused by the insured driver. This also pays for the insured driver’s legal responsibility for bodily injuries and property damage to others.
• Medical – This pays the medical bills of the insured driver and his or her passengers. It also pays for any rehabilitation services, funeral expenses, and it may pay for lost wages.
• Uninsured or underinsured motorist – The insured driver receives reimbursement if the other driver doesn’t have insurance or enough insurance to cover the insured driver’s expenses.
Drivers do not required to carry all six types of coverage, but most states require drivers to have at least bodily injury liability coverage. In states that do not require bodily injury liability coverage, they require drivers to have enough assets to pay claims if they are the cause of an accident. All states have financial responsibility laws, which sets minimum insurance coverage drivers must have if they lack the necessary assets to pay claims. Also, lenders may require drivers to have collision and comprehensive auto insurance coverage to get approved for a loan.