Car insurance is a contract between you and an insurance company that protects you against financial loss in the event of an accident, theft, or other damage to your vehicle. In exchange for your regular payment of a premium, the insurance company agrees to pay for your covered losses as outlined in your policy.
In most places, having at least a minimum level of car insurance is a legal requirement to drive a vehicle on public roads.
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How Car Insurance Works
When you buy a policy, you are essentially buying a collection of different types of coverage. The specific types and amounts of coverage can vary, but here are the most common components:
Premium: The amount of money you pay regularly (monthly, semi-annually, or annually) to keep your insurance policy active.
Deductible: The amount of money you must pay out-of-pocket for a covered claim before your insurance company starts paying. For example, if you have a $500 deductible and your car has $2,000 in covered damage, you pay the first $500, and the insurer pays the remaining $1,500.
Coverage Limits: The maximum amount the insurance company will pay for a covered loss. If the costs of an accident exceed your policy's limits, you are responsible for the remaining amount.
Common Types of Car Insurance Coverage
Different types of insurance policies and coverages exist to protect you and your vehicle in various scenarios:
Liability Coverage: This is the most common and often legally required type of insurance. It covers the costs of damages or injuries you cause to others in an at-fault accident.
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Bodily Injury Liability: Pays for medical bills, lost wages, and pain and suffering for the other driver and their passengers.
Property Damage Liability: Pays for damage you cause to another person's car or other property (like a fence or building).
