In most states, you need an auto insurance policy before you can drive. This protects your vehicle in case of damage and you from personal liability.
However, some drivers do not fully understand what car insurance is and how it works. This makes it easier to have insufficient insurance or excessive insurance, which means paying a lot for an insurance policy.
Why do you need car insurance?
A car insurance policy features a variety of coverage options to protect you and your car after a collision. In most jurisdictions, if you are involved in an accident and do not have an up-to-date insurance policy, you will not receive any financial compensation for damage or injury. You can also be summoned to court or have your driver’s license suspended.
What kind of car insurance do I need?
The type and extent of insurance you need varies from state to state. Most states require you to have a liability policy. This covers you against third-party costs, such as medical and vehicle repair costs, incurred to cause an accident.
A liability policy only pays up to the limit indicated in your policy. You are responsible for any additional expenses. The limit is typically listed in a three-number format, such as “100/300/50”. This refers to the amount your insurer will pay and is divided as follows:
- $100,000 for each injured person
- $300,000 for total injuries, by accident
- $50,000 for total property damage by accident
Liability insurance does not cover the costs of repairing your car, nor does it cover the costs of treating your injuries or your passengers.
What other types of car insurance are available?
In addition to the liability benefit, there are several other types of car insurance that you can add to a policy:
Comprehensive insurance: Covers you against damage caused by natural disasters, vandalism, theft and other factors beyond your control.
Medical coverage: pays your hospital bills and those of your passengers in the event of an accident.
Personal injury protection: This is an extension of medical coverage. It goes beyond paying your medical bills and compensates you for additional problems such as loss of income due to an accident.
Collision Cover: This protects you from any damage to your car after an accident. If you are financing a car, most lenders require you to have this type of insurance.
Car insurance is a legal necessity, but you also need it to protect your vehicle.
