Auto insurance protects you against financial loss if you have an accident. It is a contract between you and the insurance company. You agree to pay the premium and the insurance company agrees to pay your losses as defined in your policy.
Most states require you to buy some, but not all, of the coverages below. If you're financing a car, your lender may also have requirements. Most auto policies are for six months to a year, and your insurance company should notify you when it's time to renew.
The six parts of an auto policy
- Bodily injury liability
- For injuries the policyholder causes to someone else.
- Property damage liability
- For damage the policyholder causes to someone else's property.
- Medical payments or personal injury protection (PIP)
- For treatment of injuries to the driver and passengers of the policyholder's car. At its broadest, PIP can cover medical payments, lost wages and the cost of replacing services normally performed by someone injured in an auto accident.
- Collision
- For damage to the policyholder's car from a collision with another car, a light post, a fire hydrant or another object.
- Comprehensive
- For damage to the policyholder's car that doesn't involve a collision. Covered risks typically include fire, theft, falling objects, explosion, hail, earthquake, flood, riot and civil commotion.
- Uninsured and underinsured motorist
- For the policyholder's injuries after a collision with an uninsured driver. Underinsured motorist coverage applies when the at-fault driver has liability insurance, but not enough to pay for your damages.
