What is car insurance? Similarly, your liability insurance won’t cover injuries you sustain in an accident you caused. Auto insurance is protection. The auto liability coverage definition may sound simple enough, but here’s a real life example: you’re at a four-way stop a few blocks from your house. Most car insurance companies offer additional coverage that you can add to your policy, too. What is Auto Insurance? their home or business) if you cause an accident. As a responsible driver you will no doubt be aware that having insurance for your vehicle is mandatory, but, due to the terminology used by insurers, you may not have a complete understanding as to what exactly it is and why you need it. Read our article to learn more about auto insurance and if you need it. When you enter into a contract with an insurance company, they agree to protect you from financial losses resulting from an accident, in exchange for your payment of a premium. It is a contract that you have with an insurance company in which you agree to pay a premium, and in the event of an accident, the company agrees to pay for your covered damages, as outlined in your specific insurance auto policy. Car Insurance is a legal requirement. This is an optional type of auto insurance, so it will add to your premium, and usually has a deductible. Simply put, auto insurance is a safety net. If your car is totaled in an accident or stolen, most car insurance policies will pay you the actual cash value of the car, which could be less than what you still owe on the loan. But it means paying less out of pocket when you cause an accident and need repairs to your own car. Car insurance protects you against financial loss in case of an accident or theft. Car insurance is a type of coverage that protects you financially if you're in an accident. 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