Auto insurance is important because of its capacity to protect you financially in the event of an accident. It’s also legally required in most states for anyone with a car or other motor vehicle.
There are three basic types of auto insurance: liability, comprehensive and collision.
Liability insurance covers the damage you do to others in an accident that’s your fault. This may seem obvious, but the coverage is essential: If you’re sued after injuring someone in a car accident, you’ll need this kind of insurance to protect your assets. Most states require at least $10,000 of liability coverage.
Comprehensive insurance covers damage to your vehicle that’s not the result of an accident with another car or object, such as theft or hail damage. This can be helpful if your car is vandalized while you’re out of town on vacation, but it will cost you more than liability insurance does.
Collision insurance covers damage to your vehicle that’s the result of an accident with another car, object or natural event. This is the least-expensive type of insurance, but it generally is only available with a deductible, and the higher the deductible, the lower your premium.
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Other types of coverage are available as well, including medical payments insurance, which covers medical costs for you and your passengers, no matter who is at fault in an accident. You can also purchase extra insurance, called “ridesharing” or “no-fault” coverage, that pays the policyholder’s bills after an accident when occupants of both vehicles are injured.
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