Definition of Car Insurance? Complete Guide
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No matter where you live, basic personal auto insurance is required by most states. Car insurance provides protection in the event that you are involved in an accident. However, is that enough? Are there other options? Learn all about what auto insurance is, how it works, and the types of coverage available to you with Benzinga's guide below.
Definition of Car Insurance
If you have other forms of insurance, you may be familiar with how insurance works. If not, let Benzinga explain. Like most other insurance policies, auto insurance is a contract between you and the insurance company. In return for your monthly premium or payment, the car insurance company offers protection to you and your vehicle according to the terms and conditions set out in your policy.
Main Types of Car Insurance Coverage
In general, car insurance offers 3 different types of protection. This complies with the minimum requirements of each state. The following are some of the protection options that may be available to you:
Property protection: If you are the victim of theft or damage to your car, this option will provide some protection.
Medical: This cover provides extended financial coverage to you or others involved in an accident.
Liability coverage: This includes any legal liability you may have for bodily injury or property damage to another person.
Types of Auto Insurance coverage
If you haven't noticed, insurance is regulated at the state level, with most states requiring a minimum level of protection (learn more in our guide to the minimum auto insurance requirements in each state). You will notice that many types of auto insurance offer similar or overlapping coverage. What type of coverage you need depends on several factors, including your state's auto insurance laws, your driver profile, the type of car you use, and others.
Here, we will discuss the common types of car insurance, including the three main types of protection mentioned above.
What is legal liability auto insurance?
Nearly every auto insurance policy includes liability protection. Drivers should have it in their insurance plan in nearly every state. Liability insurance helps pay for property costs and medical injuries
Drivers should have it in their insurance plan in nearly every state. Liability insurance helps pay for property costs and other drivers' medical injuries if you are responsible for the accident. Your insurance will cover property damage and injury up to a specified limit.
Drivers are required to purchase a minimum liability amount. The minimum amount will depend on where you live, your financial situation and the value of your car.
In liability insurance, there are 2 types of coverage offered: physical injury liability and property damage liability. Physical injury liability pays for the injury costs you legally incur in an accident. Property damage liability pays for damage to the property of another person or company.
You are legally required to have a minimum amount of liability. However, those minimums vary by state. If you buy additional liability insurance, your premiums may increase. It is also determined by the state in which you live.
The advantage of liability insurance is not only the protection it provides, but also how you can choose the limits that will be covered by your insurance company as long as those limits are at least equal to your state's minimum coverage limits. The liability insurance policy will display 3 numbers. For example, if you have a policy with a 100/300/100 liability limit, you will be covered for $100,000 in injuries per person, $300,000 in total injuries per accident, and $100,000 in property damages per accident.
Affordable liability insurance varies depending on the insurance company and your preferences. For example, you may find that State Farm Insurance's quote of $356 for a 6-month policy is cheaper than Geico's price of $409 for the same term. It is important to do research and compare quotes to get the most out of your money.
What is collision insurance?
Collision insurance only insures your car for repair costs. None of the other drivers involved in the crash that
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