What Is an Auto Insurance Policy?

An auto insurance policy is a contract between you and an auto insurance company. In exchange for your premium payments, the insurance company takes on the risks of insuring you and your vehicle. The details of the contract are clearly noted and pricing varies by geographic region, age and gender based on actuarial data.

Function

Many people would not be able to afford the cost of repairing or replacing a vehicle on their own. An auto insurance policy takes care of that burden by transferring that cost to an insurance company. The auto insurance company uses data based on several factors to ascertain a premium amount that you pay. This payment is outlined in the contract as well as the limits of liability for you and the company.

Parts of an Insurance Contract

There are a couple of significant parts to an auto insurance policy. There are usually deductibles, or out-of-pocket costs, for collision damage, which is what you pay when you car is damaged. There are also deductibles for damages not incurred in an accident, known as comprehensive coverage, as well as limits on bodily injury protection, personal injury protection and property damage liability.

Benefits

There are several benefits to having an auto insurance policy. The most obvious of these is that it is mandatory to have insurance and illegal to drive without some basic auto insurance. The other benefit is that if you have good coverage with low deductibles, you will pay only a small fraction of the costs associated with car repair if you are in an accident.

Features

There are several features that are available with insurance policies that really add value to the policy. There are riders to policies that can help you with paying for a rental car if you have an accident and your vehicle is in the repair shop for an extended period of time. Another rider available is coverage for towing and labor, which will take care of the cost associated with a flat tire or breakdown.

Length of Contract

Depending on the company you use, the length of the contract can be six months or even a year. Most companies have online payment availability and will send you a renewal notice by email or postal mail. Payment of premium on a renewal date will usually extend your contract for another period.