What is Auto Insurance?

What is Auto Insurance?

When you are in driver's education, you hear it all the time, "You have to have auto insurance!" But what is auto insurance and what does it do for you? This is a question that most adults don't know unless they've worked for an automobile insurance company.

When you pay your auto insurance company, you are buying a security blanket for your car. If you are in an accident your insurance company pays for your car (or a car that you collide with) to be repaired, as long as what happens to your car is covered by your policy. Why is this important? If you don't have $60,000 in the bank, and your car slips on a patch of ice and rams into a $60,000 car, someone has to pay for that car to be repaired. You can't. You need your auto insurance company to take care of getting that car repaired or replaced.

Each state has required minimums for automobile insurance coverage, and companies have recommended car insurance coverage levels that are usually higher than the state minimum. When you check quotes for automobile insurance coverage, you will notice the auto insurance coverage type required by the state is less expensive than the automobile insurance coverage costs recommended by the insurance company. When you look at higher minimum liability coverages, it is going to be a little more expensive.

But if your state minimum is $20,000 in coverage for Property Damage Liability, and that's all the coverage you have, that is the amount your insurance company is going to pay. That leaves you with a $40,000 dollar bill on your hands to replace that Hummer you hit with your car. That is why your insurance company will usually recommend higher coverages than the state requires.

Knowing what you're paying for makes paying for it less painful.