How Auto Insurance Works

In exchange for paying a premium, the insurance company agrees to pay your losses as outlined in your policy. Coverages include:

• Property – damage to or theft of your car
• Liability – legal responsibility to others for bodily injury or property damage
• Medical – costs of treating injuries, rehabilitation, and sometimes, lost wages and funeral expenses

Policies are priced individually to let you customize coverage amounts to suit your exact needs and budget. Policy terms are usually six- or 12-month timeframes and are renewable. An insurer will notify a customer when it’s time to renew the policy and pay another premium.

Regardless of whether they mandate having a minimum amount of auto insurance, nearly every state requires car owners to carry bodily injury liability, which covers costs associated with injuries or death that you or another driver causes while driving your car. They may also require property damage liability, which reimburses others for damage that you or another driver operating your car causes to another vehicle or other property.

A number of states go a step further, mandating car owners carry medical payments or personal injury protection (PIP), which reimburses medical expenses for injuries sustained by you or your passengers. It will also cover lost wages and other related expenses.