How to Define Auto Insurance
Auto insurance plans indemnify policyowners by paying claims for damages caused by the insured vehicle, as well as damages done to it. Individuals can buy several types of coverages to protect themselves financially from the risks that are present while driving. Auto insurance policies aren't optional purchases, however, as it's against the law for vehicles to be in operation without coverage in most areas of the United States.
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Facts About Auto Insurance
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Only 48 states have laws mandating drivers carry auto insurance on cars they're operating. According to the Insurance Information Institute (III), only Wisconsin and New Hampshire don't have this requirement. Also, III reports that 14 percent of drivers are on the road uninsured. Those who are required to carry insurance must maintain minimum coverage amounts that are mandated by their states.
Types of Auto Insurance
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There are several types of auto insurance coverage available for purchase. Liability coverage pays for damages suffered by other properties, but it doesn't cover damages caused to insured vehicles. Bodily injury (BI) coverage covers the medical costs or deaths of others that policyowners are responsible for. Two similar coverages, uninsured motorist bodily injury (UMBI) and underinsured motorist injury (UNDUM), pay for damages caused by motorists who don't have insurance or who have coverage that's inadequate. Comprehensive and collision are two other coverages that pay for damages or stolen insured vehicles.
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Features
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There are several features that are added to auto insurance plans that enhance their value to policyowners. Auto insurance policies cover towing and labor expenses for vehicles that are broken down on the side of the road. Insurance plans reimburse policyowners who rent cars while their vehicles are being fixed or if they've been stolen. Gap coverage, which pays the difference between how much a car is worth before it was totaled and the amount still owed by its owner, can also be added to auto insurance policies.
Considerations
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Insurance premiums are based on information submitted by the applicants. Major factors include the applicant's driving record, age, gender, hobbies, geographical area, coverage amount, and car make and model. Deductible amounts affect premium amounts as well. Depending on his risk, an applicant is charged lower or higher premiums than the insured's standard rates, with the possibility of being denied coverage outright.
Warning
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There are two different ways individuals can lose their auto insurance coverage. Insurance companies can decide to not renew auto policies based on factors such as premium nonpayment, number of claims made for at-fault accidents, or poor driving records. Insurers can also decide to cancel auto coverage for these same factors. However, canceling policies are considered red flags that may make it difficult for individuals to purchase new insurance.
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References
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