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Auto insurance is insurance against financial loss if you are in a car accident.

Auto insurance is a contract between you and the insurance company in which you agree to pay a monthly premium and the insurance company agrees to pay a specified amount for any losses defined in your policy. Losses that exceed your policy’s limit are your liabilities, so it is important that you have adequate coverage.

Everyone who drives needs car insurance. In fact, most states require it by law. When you buy car insurance, you are buying what is called a policy. Your policy is based on a variety of factors including what kind of car you drive as well as what kind of insurance you want. Auto insurance policies are actually a package of different types of insurance coverages.

The first step in understanding an auto insurance policy is to learn the various types of coverage insurance companies offer. Some of this coverage may be required by your state and some of the coverage may be optional.


Types of Coverages

Liability
This coverage pays for accidental bodily injury and property damages to others. Injury damages include medical expenses, pain and suffering and lost wages. Property damage includes damaged property and automobiles. This coverage also pays defense and court costs. State laws determine how much liability coverage you must purchase, but you can always get more coverage than your state requires.
 
Collision
This coverage pays for damages to your vehicle caused by collision with another vehicle or object.
 
Comprehensive
This coverage pays for loss or damage to the insured vehicle that doesn't occur in an auto accident. The types of damages comprehensive insurance covers include loss caused by fire, wind, hail, flood, vandalism or theft.
 
Medical Coverage
Pays medical expenses regardless of fault when the expenses are caused by an auto accident.
 
Uninsured Motorist
Pays your car's damages when an auto accident is caused by a driver who doesn't have liability insurance.
 
Underinsured Motorist
Pays your car's damages when an auto accident is caused by someone who has insufficient liability insurance.
 
Rental Reimbursement
This type of coverage will pay for a rental car if your car is damaged due to an auto accident. Often this coverage has a daily allowance for a rental car.