When you buy or rent a car, it’s important to protect your investment. Car insurance can provide cover if you are involved in an accident or if your vehicle is stolen, vandalised or damaged by a natural disaster. Instead of paying for car accidents themselves, people pay annual premiums to a car insurance company, which then pays all or most of the costs associated with a car accident or other damage to the vehicle.
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The purpose of car insurance is to protect you from financial losses if you are involved in an accident or if your vehicle is damaged in any way.
Most states require you to have at least liability insurance; some states also require other types of coverage, such as uninsured motorist coverage.
Premiums are the amounts you pay monthly, semi-annually or annually to maintain your car insurance, while deductibles are the amounts you pay when you make a claim.
It is of fundamental importance to shop around for the best car insurance rates so that you can find the right coverage for your vehicle at the right price.
What is car insurance?
Car insurance is essentially a contract between you and an insurance company, where you agree to pay premiums in return for protection against financial losses caused by an accident or other damage to your vehicle:
Damage to your vehicle, including your own or another driver’s vehicle.
Damage to property or personal injury caused by an accident.
Medical expenses and/or funeral expenses resulting from injuries sustained in the accident.
The exact details of what is covered will depend on your state’s minimum coverage requirements and any additional coverage options you wish to include. With the exception of New Hampshire, all other states require drivers to carry at least bodily injury and property damage liability insurance.
Car insurance costs
There are two primary costs associated with obtaining auto insurance: premiums and deductibles.
Car insurance premiums vary according to age, gender, years of driving experience, accident and traffic violation history and other factors. Most states again require a minimum amount of car insurance. This minimum varies from state to state, but many people buy additional insurance to protect themselves better.
If you are financing a car, the lender may also require you to have a certain type of car insurance. For example, you may need damage insurance if you are buying an expensive vehicle that is likely to lose value very quickly after you drive it off the lot. Slack insurance can help pay the difference between the value of the vehicle and the outstanding debt on it if you get into an accident.
A poor driving record or a desire for comprehensive insurance coverage will result in higher premiums. However, you can lower your premiums by agreeing to take on more risk, which means raising your excess.
The excess is the amount you have to pay when you make a claim before the insurance company will pay you anything for your damages. For example, your policy’s deductible might be $500 or $1,000. Agreeing to a higher deductible may result in a lower premium, but you need to be reasonably sure that you will be able to cover the higher amount if you have to make a claim.
How car insurance works
In return for paying a premium, the insurance company agrees to pay claims as specified in the policy. Insurance is priced individually so that you can tailor the amount of cover to your needs and budget. The insurance period is usually six or 12 months and is renewable. The insurance company will notify the customer when it is time to renew the policy and pay a new premium.
Regardless of whether they require a minimum amount of car insurance, almost all states require car owners to carry bodily injury liability to cover the cost of injuries or death caused by you or another driver while driving your car.. They may also require property damage liability to compensate others for damage you or another driver causing to another vehicle or other property.