Auto insurance is an insurance contract that is designed to protect you against financial losses arising out of your ownership of a car. It is actually a composite of the following types of insurance:
-property insurance that is designed to protect you against loss or damage or threat to your car
-medical insurance that would cover costs of treatment for injuries and hospitalization and can in some cases also cover funeral expenses and lost wages and
-liability insurance that covers damage or injury to other people or their property
The exact insurance that you will require will depend on the applicable regulations which vary from state to state. For instance, New Hampshire does not require a liability insurance while, in Virginia, you are required to pay the state a fee of $500 a year if you choose not to purchase liability insurance. Usually, the minimum requirement is third-party insurance to protect other people from the consequences of damage caused by your vehicle. In some states, you are legally required to carry proof of your insurance in the car though common sense dictates that you should always carry it regardless.
Every auto insurance policy also carries what is called a “deductible” or an “excess”. This is the fixed amount that you must contribute to every car repair or maintenance bill. Any amount over and above this is paid by the insurance company directly to the garage. If your car is a “total loss” which means it is not worth salvaging, the insurance company will deduct the excess before settling with you. If the accident was the other driver’s fault, you can reclaim the excess from his insurer. An auto insurance policy excess can either be compulsory or voluntary (some people opt for a higher excess to cut down on insurance premium cost.)