What You Need to Know About Car Insurance

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What You Need to Know About Car Insurance

car insurance

Getting a car is a rite of passage, but it also comes with a lot of responsibilities. For example, the car isn’t the only thing you need to buy (or lease); you also need to invest in insurance. There’s no doubt that you’ve heard about car insurance and have a basic understanding of what it is. However, if you’ve never purchased it before, you may have some questions.

What You Need to Know About Car Insurance

Before you purchase coverage, having a firm understanding of auto insurance is important so you can ensure that you purchase the right policies. Not to mention, you will want to make sure that you have the right amount of coverage. Read on to find out some crucial elements you need to know about car insurance coverage.

What is auto insurance?

First, what exactly is car insurance? Put simply, it’s a contract between you and an insurance company. With this contract, you will agree to pay a specific amount of money, known as a premium. In exchange for the insurance premium, your car insurance company will provide you with financial protection in the event that you’re in an accident.

The insurance company may bill you for your coverage once a month, once a quarter, twice a year (biannually), or once a year (annually). In the event that a situation arises where you would need the financial protection of your policy, your insurance company will help to pay for the expense. However, this is as long as your premium covers whatever incident took place. It’s important to note that you will likely need to pay a deductible. This is a specific amount of money out of your own pocket if you file a claim. A deductible must be met before your insurance will kick in and cover the rest.

Types of car insurance coverage

There are several different types of auto insurance coverage. Most states require a certain amount of coverage, while others may be optional. Did you finance your vehicle (you have a car loan or you’re leasing)? If so, your lender may require you to carry some type of coverage.

Let’s take a look at some of the most common types of auto insurance coverage.

Liability

Most US states require motorists to carry auto liability insurance. In the event that you are involved in an at-fault accident, this policy will cover third-party personal injuries and property damages. For instance, if you rear-end a car, and the accident damages the other vehicle and injures the other motorist, your liability insurance would cover the costs. This includes the cost of repairs their car requires and the medical care that the individual may need.

Collision

Collision coverage pays for damages to your vehicle if you get in an accident. This includes accidents in which only your vehicle is involved; a rollover or a run-in with a pole. Although this coverage isn’t legally required, if you have a car loan or a lease, your lender may require it.

Comprehensive

This coverage will help to pay for damages to your vehicle in incidents that aren’t related to collisions. This includes storm-related damages, theft, vandalism, a fallen tree, a run-in with an animal, or a run-in with a sign or pole if you were trying to avoid running into an animal. This type of coverage isn’t legally required, but again, if you have a loan or are leasing your car, your lender may require it.

Uninsured/underinsured motorist

In the event that you’ve been involved in an accident that another motorist is responsible for and they don’t have insurance or they don’t have enough insurance, this policy will help to pay for the damages. It can also help to pay for the costs related to hit-and-run accidents.

Additional Reading: Does your vehicle have the right protection? Best practices for buying auto insurance

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