When you buy or lease a car, it’s important to protect that investment. Getting auto insurance can offer reassurance in case you’re involved in an accident or the vehicle is stolen, vandalized or damaged by a natural disaster. Instead of paying out-of-pocket for auto accidents, people pay annual premiums to an auto insurance company; the company then pays all or most of the costs associated with an auto accident or other vehicle damage.
- Car insurance is designed to protect you against financial losses if you’re involved in an accident or the vehicle is damaged in some way.
- Most states require you to have minimum amounts of liability insurance coverage; some also require you to have other coverage types, such as uninsured motorist coverage.
- Premiums are what you pay monthly, biannually or yearly to maintain a car insurance policy while deductibles are amounts you pay when you file a claim.
- It’s important to shop around for the best car insurance rates to find the right coverage for your vehicle at the right price.
What Is Car Insurance?
Car insurance is effectively a contract between yourself and an insurance company in which you agree to pay premiums in exchange for protection against financial losses stemming from an accident or other damage to the vehicle1. Auto insurance can offer coverage for:
- Vehicle damages, including your car or another driver’s vehicle
- Property damage or bodily injuries caused by an accident
- Medical bills and/or funeral expenses associated with injuries sustained in an accident
The exact details of what’s covered depend on the minimum coverage requirements for your state and any additional coverage options you choose to include. Every state except New Hampshire requires drivers to have a minimum amount of bodily injury liability coverage and property damage liability coverage
Auto Insurance Costs
There are two primary costs associated with purchasing car insurance: premiums and deductibles.
Auto insurance premiums vary depending on age, gender, years of driving experience, accident and moving violation history, and other factors. Again, most states mandate a minimum amount of auto insurance. That minimum varies by state, but many people purchase additional insurance to protect themselves further.
Additionally, if you’re financing a car, the lender may stipulate that you carry certain types of car insurance. For instance, you may need gap insurance if you’re purchasing an expensive vehicle that will likely depreciate very quickly once you drive it off the lot. Gap insurance can help to pay off the difference between the vehicle’s value and what you still owe on it if you’re involved in an accident.
Who is covered by my auto insurance—and under what circumstances?
Your auto policy will cover you and other family members on your policy, whether driving your car or someone else’s car (with their permission). Your policy also provides coverage if someone who is not on your policy is driving your car with your consent.
Your personal auto policy only covers personal driving, whether you’re commuting to work, running errands or taking a trip. It will not provide coverage if you use your car for commercial purposes—for instance, if you deliver pizzas.
Personal auto insurance will also not provide coverage if you use your car to provide transportation to others through a ride-sharing service such as Uber or Lyft. Some auto insurers, however, are now offering supplemental insurance products (at additional cost) that extend coverage for vehicle owners providing ride-sharing services.