What are the main types of auto insurance policy

A group of people come together and assess potential losses. They divide the estimated total between them and all pay an equal share into a common fund. If one of the group suffers a loss, it is recovered from the fund. The reality is that each person’s share is a lot less than the loss likely to be suffered.

A policy is a contract between members of a group and an insurance company. Like any other contract, lawyers define the circumstances in which the loss can be recovered from the common fund. So, with auto insurance, a group of drivers can recover losses caused by traffic accidents. The premium is the share payable by each member of the group. It is usually broken down into instalments by month, quarter or year.

Liability insurance The law is very clear. If you are at fault and cause someone else to be injured or damage their property, you are liable to pay them compensation, i.e. an amount of money to put them back into the position they were in before the accident. Liability insurance protects you against claims made by third parties. If you do not have enough insurance, you will be liable to top up the compensation from your own resources.

Collision cover This covers you against all your own costs and expenses arising from a traffic accident. This includes both the repair of your own vehicle and of any property you might have damaged. So it would include both a collision with another vehicle or where you reverse into the fence around your yard.

Comprehensive cover Excluding collisions, your vehicle can be lost or damaged in a number of different ways. It may be someone steals your car or vandalizes it, the weather may turn violent with flooding, lightening strikes and tornados, or your vehicle may catch fire. Comprehensive cover catches all those “other” situations not covered by collision cover.

Uninsured or underinsured driver Sadly, an increasing number of people drive their vehicles on the road with no insurance and or inadequate amount of insurance in place. In most states, this is a crime but that does not pay your bills. This is a recommended add-on if the risk of an accident is high.

Medical coverage Over the last ten years, nothing has been rising faster than the cost of medical treatment. Even a routine trip to the emergency room for a check-up after an accident is expensive. With a serious injury, you could be looking at carrying major debts or bankruptcy if you do not have some level of medical insurance. This is a standard requirement for liability policies but you might want to add to the basic minimum. If you own your own home or have money in the bank, protect your assets with adequate liability cover. As to your own treatment or the healthcare needs of any passengers, it is worth adding this coverage when you do not have a health insurance plan.