What is insurance?

What is insurance?
Get past all the complicated language and this is a simple contract. You pay a premium and if one of the risks causes you loss, you can claim compensation. Because the insurers cannot inspect every vehicle before they insure it, this is a contract based on good faith. If it later turns out you modified the vehicle or were less than honest about your driving record, the insurer can cancel the policy and leave you with any cover.

Liability insurance
The key part of the law of tort is called negligence. If you are at fault and injure a third party, you are liable to pay compensation. The amount will depend on how much damage you did. If this was just a bending of a fender, the amount will be small. But if you had the bad luck to hit a top-of-the-range Beamer driven by a banker, the claim will come in for medical treatment, pain and suffering, loss of earnings, and anything else his expensive attorney can think of.

Mandatory insurance
In all but three states, the law requires you to carry a minimum amount of liability insurance. In most of these states, the amount is low so, in most accidents, you are underinsured. The law allows any victim to claim for anything not covered by your insurance. If you have no assets and a poor job, it is uneconomic to sue you. But if you have assets worth protecting, you should consider buying more than the basic minimum insurance cover.

Collision insurance
As the name suggests, this covers your own losses if you hit another vehicle or a tree that happens to step out in front of you. It’s all very well insuring against the claims other people may make against you. There’s still the need to repair your own vehicle. So unless you own your own vehicle and intend to sell it for scrap if it’s too badly damaged, buy collision insurance. If you rent or have a car loan, it will be required anyway.

This covers all your other losses should your vehicle be stolen or damaged by the weather. Again, this cover is expected if you rent or have a car loan.

Personal injury protection
It’s always a good idea to be able to cover your own medical expenses if you are injured. In states where there’s no-fault insurance, carrying PIP is usually mandatory alongside the liability coverage.

Gap coverage
If your vehicle is totaled, there can be a gap between what the insurer will pay out as the fair market value and what you owe on an auto loan. If that’s the case, think about this coverage.

The rest
There are a bunch of other terms for towing your vehicle should it breakdown or be caught in an accident, hiring a replacement vehicle while yours is off the road, and so on.

When you are getting your car insurance quotes through this site, think carefully about your needs. Car insurance is expensive so ensure you get only as much cover as you realistically need.

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