How Does Auto Insurance Work?

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Auto insurance works by a person paying the insurance company an annual fee to take on the risk of a driver getting into an accident. Find out how auto insurance defends the insured from having to pay expensive repair or medical bills with information from a licensed insurance salesperson in this free video on insurance.

Part of the Video Series: Insurance Facts
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Video Transcript

How does auto insurance work? Auto insurance really works like any other insurance policy where you pay the insurance company a fee annually and they take on your risk so they take on your risk that you might crash your vehicle, that a tree might fall on your vehicle, that you might hit someone else and cause damage to them and they take on a certain amount of risk so maybe it is $50,000 in any one car accident and maybe it is that your vehicle can be replaced for $20,000, they take on that risk so you pay them in exchange for them taking on the risk of either having to defend you in an accident and pay for someone else's medical bills or damage to someone else's property and also you pay them so that they pay for your property if you have an accident or fix your property. So really you pay a small fee and give up the right to fix your own property and also give up the responsibility of having to pay for someone else, you let the insurance company do it. Again it is limited though, they don't take on the absolute risk, they only take it on for a certain agreed amount maybe it is $50,000 per accident as I used in the example before.


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