Auto insurance coverage is a contract made between a driver and the insurance company. The policyholder agrees to pay a set premium each month. In return, the insurance company agrees to provide coverage for damages up to the limit the policyholder has chosen.
A person who does not have auto insurance will be responsible for paying for the damages he or she causes in an at-fault accident personally. In most states, auto insurance coverage is something that drivers are required to have in place to stay legal. The state will set minimum levels of coverage that insurance companies are required to provide to customers, and drivers can choose to buy a policy with a higher level of protection if they wish.
Some types of auto insurance coverage pay for the damage the policyholder causes by compensating the occupants of the other vehicle for their personal injuries. Liability coverage also pays for the cost of repairs to the other driver’s car.
Physical damage coverage is put in place to protect the policyholder’s own vehicle. It pays for repairs following a collision, as well as for damage incurred due to striking an animal, falling objects, fire, severe weather and vandalism. Comprehensive coverage also pays a benefit if the vehicle is stolen.
In a no-fault car insurance state, the vehicle owner must have coverage in place to pay for injuries incurred by the occupants of his or her own vehicle. This type of coverage is called Personal Injury Protection (PIP) coverage.