Car insurance basics

Learn why car insurance can help protect you financially.

Buying car insurance can protect you from major expenses that you couldn’t manage otherwise, like repairing a car that’s damaged in an accident, or paying hospital bills. It is also mandatory in many states.

Read these basic insurance terms and concepts. You may want to consult with insurance professionals, consider their advice, and then comparison shop before you buy.

Information about car insurance

Instructions: Click each concept to learn more.

Basic insurance terminology

When you buy insurance, you receive an insurance policy, a document that spells out exactly what is and isn’t covered. The covered items are called your benefits. The amount you pay for insurance is called the premium. When you have costs and submit bills to your insurance company, this is known as filing a claim. Your deductible is the amount you must pay toward repairs or expenses before the insurance company pays.

Who pays what

When you file a claim, typically your insurance company will pay only a portion of your costs, according to what is outlined in the insurance policy. The amount of a claim that you must pay before the insurance company will pay is called the deductible.

How deductible impacts premium

Typically, the higher the deductible amount, the less expensive the insurance premium. So it’s a good strategy to get a policy with the highest deductible that you’d be able to comfortably manage if you had to. This will minimize the cost of your policy.

Your credit score

Your credit score could impact how much insurance companies charge you in premiums. Learn more about your credit score in the topic All About Credit.

Auto coverage types

Car insurance can include different types of insurance on one policy. For example: collision insures you against damage to your vehicle caused in an accident; comprehensive protects you against other forms of damage to your car, such as fire, theft, flood, and vandalism; liability pays for injuries and property damage you cause to other people’s property with your car if you’re at fault; medical payments covers medical care for you and your passengers if injured in an accident in your car.

How much coverage?

Ask insurance professionals to determine how much coverage you need. In terms of your vehicle itself, the amount depends on how much money you could spare to repair or replace it. The higher the value of your car, the more coverage you should consider. For other forms of insurance, you should have enough to protect your assets in case you get sued.

Please read this important legal information:

The information contained herein is being provided as-is and without representation or warranty. The enclosed information is not intended as legal, tax or financial planning advice. Any discussion of tax or accounting matters herein (including any attachments) should not and may not be relied on by any recipient or reader. The recipient/reader should consult his/her tax adviser, legal consultant and/or accountant for a statement of tax and accounting rules applicable to his/her particular situation and for all other tax and accounting advice.

Note: Some types of auto insurance may be required to register a car in your state; others might be optional.

Read more about car insurance.

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