What Is Auto Insurance?

Auto insurance provides coverage against financial loss in the event of an accident. An auto insurance policy is a contract between the vehicle owner and an insurance company, whereby the owner pays a premium to receive coverage for damages, repairs and other costs stipulated in the contract.

In most states, vehicle owners are required to purchase automobile insurance to mitigate costs associated with car accidents. An auto insurance policy consists of a premium and a deductible. The premium refers to the amount of money the insured driver must pay for a specific policy, while the deductible refers to the out-of-pocket payment required for damages before the policy can start contributing.

The premium associated with auto insurance policies varies depending on the policy holder’s age, driving history, accident history, years of driving experience, location and type of coverage. State laws mandate a minimum level of coverage; however, vehicle owners can choose to purchase additional forms of coverage. The six categories of coverage include bodily injury liability, personal injury protection, collision, comprehensive, property damage liability and uninsured motorist coverage.

Collision coverage is the most standard auto insurance policy and pays for damage to the insured individual’s vehicle in the event it overturns or hurts another car or object. Comprehensive coverage provides protection in the event the vehicle is stolen, vandalized or damaged from weather, fire or any other cause other than a collision.