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What Is Auto Insurance?

Person driving a vehicle

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. Auto insurance provides property, liability, and medical coverage:

  • Physical damage coverage pays for damage to or theft of your car.
  • Liability coverage pays for your legal responsibility to others for bodily injury or property damage.
  • Medical coverage pays for the cost of treating injuries, rehabilitation, and sometimes lost wages and funeral expenses.


Six different kinds of coverage make up an auto insurance policy. Most states require you to buy some, but not all, of these types of coverage. If you're financing a car, your lender may also have requirements. Most auto policies are written on a six-month basis; some carriers offer an annual policy. Your insurance company should notify you by mail when it's time to renew the policy and pay your premium.

Additional tips on auto insurance available here.