Auto insurance works by covering the costs of damages, injuries, and theft. It also covers lawsuits and legal fees if you are sued due to an accident or injury caused by your vehicle.
State laws require car owners to carry specific minimum amounts of liability insurance. Your auto insurance policy must pay these amounts if you’re found legally responsible for causing a crash that injures others or damages their property.
Why Do You Need Auto Insurance?
You need the best auto insurance because it provides financial protection for you and others involved in a motor vehicle accident. Having the right auto insurance is important and can save you money when you need it most. It also provides security against damage to your vehicle. Auto insurance can also help pay for medical expenses and property damage caused by an uninsured or underinsured driver.
Auto insurance is required by state law. In most cases, auto insurance is mandatory if you drive a car. If you drive without insurance, you may be subject to fines, license and registration suspension, and even jail time, depending on the state in which you live.
In addition to being required by law in most states, auto insurance provides financial protection for both you and other drivers on the road. A few of the common coverage types include:
Bodily injury liability
Bodily injury liability (BIL) pays for injuries to others if you are at fault and can cover medical expenses, lost wages, and other costs. It does not cover you or your passengers. BIL may be required by law in some states and voluntary in other states.
If calculating the cost of a car accident is your idea of fun, this is the coverage for you.
Property damage liability
Property damage liability coverage is designed to pay for the damage you cause to another person’s property. These damages can include other vehicles, homes, businesses, fences, and trees. Additionally, most property damage liability policies covered vandalism and theft as well.
The amount of property damage liability coverage you have selected on your policy will determine how much the insurance company will pay out if you are deemed at fault in an accident. If the damages exceed your coverage limits, you would be responsible for paying out of pocket for the remaining balance. Property damage liability also doesn’t cover any repairs or replacements needed on your own vehicle. That’s where collision and comprehensive insurance come into play.
Property damage liability is often very affordable. You may feel comfortable purchasing more than the minimum requirement set by your state. As with all car insurance policies, it’s a good idea to check with your agent to see what type of coverage they recommend based on a number of specific factors and your particular situation.
- Collision pays for damage to your vehicle that occurs when you collide with another vehicle or object, such as a pillar or a tree.
- Your lender often requires collision if you have a car loan: As part of the loan agreement, your lender will state that it must be listed as a loss payee on your policy. If your vehicle is damaged in an accident and isn’t covered under collision coverage, even though the lending institution requires it, you may be obligated to pay off the entire loan amount out of pocket.
- Even if a collision isn’t required, it’s essential to consider purchasing this type of coverage. For example, when you take out a car loan, the bank owns the car until the loan is paid off. That means that while they don’t technically “own” it until they pay it off, you do. They still want assurance that their investment in you will hold value over time.
Comprehensive coverage caters to your car damage rooting from other factors apart from a collision with another vehicle. It can cover damage caused by theft, flood, hail, fire, and vandalism. Comprehensive policies may also cover damage to your windshield even if it’s not caused by a collision. And some even offer coverage for custom parts and equipment.
Uninsured motorist coverage
Uninsured motorist coverage protects you in case you collide with a driver who doesn’t have insurance. It also covers you from drivers who flee the scene after hitting you, leaving you without insurance information, or a driver with insufficient insurance to cover your costs. These types of accidents are sometimes called “hit and run.”
Don’t get stuck with a bad policy
The biggest mistake people make is to pick the cheapest coverage they can find, only to be stuck with a policy that won’t cover anything. On the other hand, if you roll the dice and pick a policy for more expensive coverage, you may find yourself in a terrible situation later when it becomes time to pay up. For example, imagine being in a wreck and having your car totaled because your policy covered $20,000 less than it should have. Alternatively, suppose you got involved in an accident while driving underinsured and lost your license or worse.
An insurance company’s job is to protect you against these kinds of scenarios by finding ways to get as much money out of you as possible so it can stay in business. So before ever buying a policy, be sure to shop around at several different insurance companies and ask them questions about their policies and their claims history. Then choose the company that has been most successful at getting people out of debt. And don’t forget to ask your agent about discounts.
Finally, note that auto insurance is a compulsory purchase, required by law. Besides, the price you get charged for it can vary wildly. The cost of your auto insurance is determined by many factors, including your age and gender, the type of car you drive, and where you live. But there are also a few things you can do to cut the cost of your cover.
Although insurance cover comes in handy if your car is vandalized or stolen, always ensure you park your car safely overnight in a locked garage or off-street parking. This will reduce the chances of your car getting stolen or vandalized, which will be reflected in the price you’re quoted for your insurance. Many insurers will also offer you a discount if you have additional security features on your car, such as an alarm or immobilizer.