Question

What is the main purpose of having auto insurance?  

Auto insurance’s main purpose is to act as indemnity for own and/or third-party damages during an at-fault or no-fault accident.  

As the car population is at an all-time high, the probability of heading into a collision, causing damage to oneself, third parties, and property, is not zero. Such ill events may lead to the extra burden of financial liability. These liabilities associated with your car can be more expensive than you can imagine and bear. Here comes the purpose of auto insurance. With the premium paid in installments or upfront every year, your insurance provider takes up this risk and makes compensation on your behalf.  

What does an auto insurance policy cover?  

You can purchase a typical auto insurance policy in part or in whole as custom coverage. The coverage defines the extent to which your auto insurance policy covers the loss. All insurers provide the option to adjust the coverage based on your requirements.  

Let’s look at the important coverages in auto insurance: 

Importance of Liability Coverage 

Liability insurance is the most important of all coverage. Most states have laws that make liability insurance mandatory for all vehicles on the road. The law aims to hold the respective auto owners and drivers responsible for the damages caused and compensate for the financial loss to the property or bodily injury to the third party in an accident.

Importance of Personal Injury Protection  

Personal Injury Protection in auto insurance is the coverage of medical expenses and sometimes loss of wages for you and your passengers in your car during the accident. You can choose the medical payment as an add-on. Personal Injury Protection is the second most important coverage in an auto insurance policy. The coverage is mandatory in 12 states. Delaware, Florida, Hawaii, Kansas, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Oregon, and Utah.  

Comprehensive Coverage 

The comprehensive insurance takes care of the losses to your car due to incidents like theft, vandalism, and natural calamities such as floods, storms, etc.  The coverage is not mandatory, yet it is best to have comprehensive coverage in place for new and high-value cars.

Collision Coverage 

You need collision coverage to cover the repair cost of your car in an at-fault accident. This can be utilized for reimbursement or repair costs from major crashes to simple dents inflicted on your vehicle.  

Other Coverages  

Apart from the coverage mentioned in this article, several coverages are available in auto insurance. Except for the liability and Personal Injury Protection (in 12 states), all other coverages are optional. If you can bear the cost of repairs during any of the above situations, such coverage is not necessary. 

Compare the insurance rates and coverage limits you are eligible for with the actual repair cost. This helps you decide whether the proposed coverage is worth the cost, as the coverage limits and rates for older cars might not be in a good ratio with the actual repair cost.