Your auto insurance protects you against financial loss if you are involved in an auto accident. The policy serves as a contract between you and the insurance company. In this arrangement, you agree to pay the premium and the insurance company agrees to pay your losses as defined in your policy. Most auto polices are for six months to a year.
Auto insurance policies provide three types of coverage:
- Property Coverage pays for the damage or replacement of your car in the event of an accident or theft.
- Liability Coverage pays for your legal liability to others for bodily injury or property damage in the event of an accident.
- Medical Coverage pays for the cost of treating injuries, rehabilitation and often lost wages and funeral expenses.
While auto insurance policies can comprise up to six different types of coverage, most states require you to buy some, but not all, of these. Additionally, if you are financing a car, a lender may also have another set of insurance requirements.