Auto insurance is a required necessary evil, or at least that is the way many people see it. But there are definite benefits to having it and it is certainly important if you plan on getting behind the wheel of a car or other motor vehicle. Be aware that each state has their own set guidelines and standards. Many states are pretty similar, but there are a few states who do auto insurance completely different. You will need to check out your state Department of Insurance and find out what they require. Or you can go to a local agent in your state, they will be able to tell you how it works, especially if you are a first-time policyholder, or if you have moved to a new state.
What Auto Insurance Is
Auto Insurance Is Required
- Under most circumstances, if you own a vehicle and it is titled or registered in your name, you must have some insurance.
- For the most part the only requirements if you don’t have a car loan are the liability, uninsured motorists, and sometimes medical.
Auto Insurance Is Varied
- Depending on your state, there are specific guidelines that are mandated by your state’s Department of Insurance.
- In addition, there are coverages that you can add or include with your policy so it provides more coverage and options.
- Of course, that could also increase the cost, but you don’t want to make a decision on a policy until you have discussed all options and costs.
Auto Insurance Is Protection
- A formal definition might be something like, “A promise of compensation for specific potential future losses in exchange for a periodic payment” (from investorwords.com).
- You basically promise to pay your part of the contract (premium), and the insurance company promises to pay out for a loss within the terms of your policy or contract.
What Auto Insurance Is Not
Auto Insurance Is Not Complete
- Some people assume that when they ask for “full coverage” they are getting everything all-inclusive and no matter what they call for, they will get the insurance company to pay for it. This is not true.
- There are limitations on every policy.
- Even if you have said yes to every single coverage an option, while you will be covered for a lot, there are still exclusions, exceptions, and limitations.
- An example of a limitation would be if you hit someone and they sue you for $100,000 and win, if you only have $25,000 on your policy, you are still on the hook for the additional $75,000.
- Another example is if your car breaks down and the engine blows up, your auto insurance policy is not going to cover any repairs, unless your auto insurance company provides a coverage for mechanical breakdown. Even if they do, there will be limitations on that as well.
Auto Insurance Is Not A Savings Account
- The money you pay into your premium is not “yours” to access whenever you want it or need it.
- This goes to the insurance company and in exchange they promise to compensate you for loss within the insurance policy terms.
Auto Insurance Is Not Guaranteed
- If you do not pay your premiums within the allotted time frame, your policy could cancel, leaving you uninsured.
- Also, an insurance company retains the right to cancel your policy or non-renew your policy based on your driving history or claims, or other factors.
- They do have to notify you in writing, so be sure you are reading your mail. Especially if you know you have had a few tickets and/or claims.
Now that you know what auto insurance is and isn’t, you can make better decisions about your insurance so that you can customize it to meet your needs. If you thought you were covered for everything, but you have no idea what your policy entails, now would be a good time to drag it out, pull it up online, call, or go to your local agent to get the details and find out what other options you may be entitled to add or find out if there are options you want to delete that you do not need.