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How Auto Insurance Protects You

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If you have an accident, auto insurance can help protect you against financial loss. Very simply, it is a contract between you and the insurance company. You agree to pay a premium and the insurance company agrees to pay for your losses, due to an accident, as defined in your policy.

Auto insurance protects you on three fronts:

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

Most states require you to buy some vehicle coverage. If you're financing a car, your lender may also require that you buy car insurance.

The six primary sections of an auto insurance policy
Your auto policy may include these six areas of coverage or a combination of them. Each is priced separately.

  1. Bodily Injury Liability: For injuries the policyholder causes to someone else.
  2. Medical Payments or Personal Injury Protection (PIP): For treatment of injuries to the driver and passengers of the policyholder's car.
  3. Property Damage Liability: For damage the policyholder caused to someone else's property.
  4. Collision: For damage to the policyholder's car from a collision. The collision could be with another car, a fence, a light post, a wall, etc.
  5. Comprehensive: For damage to the policyholder's car that doesn't involve a collision. Coverage includes fire, theft, falling objects, explosion, earthquake, flood, etc.
  6. Uninsured Motorist Coverage: For treatment of the policyholder's injuries as a result of collision with an uninsured driver. Additionally, underinsured motorist coverage can also be included in the policy. Underinsured motorist coverage is for when an at-fault driver has auto liability insurance, but the limit of insurance is insufficient to pay your damages.

In Texas, the minimum liability coverage is now $30,000 per person and $60,000 per accident.

Footnote: This is a brief overview of how automobile insurance works. You should read a policy thoroughly before purchasing any insurance policy.