Auto Insurance

What Is Auto Insurance?

Auto insurance is a contract between you and an insurer that protects you against financial loss in the event of an accident or theft. In exchange for a premium, the company agrees to pay your losses as outlined in the policy. Auto insurance is required by law in nearly every state, though minimum coverage requirements vary.

Types of Auto Insurance Coverage

A standard auto policy is made up of several coverage types that work together. Liability coverage pays for bodily injury and property damage you cause to others. Collision coverage pays to repair your vehicle after an accident regardless of fault. Comprehensive coverage handles non-collision events like theft, vandalism, hail, and animal strikes. Uninsured/underinsured motorist coverage protects you when the at-fault driver lacks adequate insurance.

How Premiums Are Calculated

Insurers evaluate dozens of factors to set your rate: driving record, age, gender, credit score, vehicle make and model, annual mileage, location, and coverage selections. Drivers with clean records, good credit, and safety features on their vehicles tend to receive the lowest premiums. Discounts are commonly available for bundling policies, completing defensive driving courses, and being a long-term customer.

Understanding Deductibles

Your deductible is the amount you pay out of pocket before insurance kicks in. Choosing a higher deductible—say $1,000 instead of $500—lowers your premium but means more expense if you file a claim. A good rule of thumb is to set your deductible at an amount you could comfortably afford in an emergency.

State Requirements and Beyond

Most states mandate liability coverage at minimum, but state minimums are often too low to fully protect your assets. Financial advisors generally recommend carrying at least 100/300/100 liability limits and adding an umbrella policy for additional protection, especially if you have significant savings or property.