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What is Car Insurance?

Here is a guide through the world of car insurance.
By: James Conley
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What is Car Insurance?

Car insurance provides financial assistance and coverage to anybody with any sort of vehicle - cars, motorcycles, trucks, etc. that encounters any number of problems. If your vehicle is damaged or stolen, if you injure someone else with your car by accident or if you need medical help yourself as a result of issues with the car, the insurance company can cover some or all of your resulting expenses. Insurance policies are not free, as they require you to pay a regularly-scheduled premium to fund the coverage, but they are a useful, and oftentimes essential, part of owning a vehicle.

Structure of an Insurance Policy?

An insurance policy primarily covers property damage and personal damage experienced by you or another person involved in an accident. If you are the person at fault in the event of a crash, your insurance company will undertake the burden of paying both party’s expenses. Oftentimes, your insurance policy will also cover your expenses if someone else is at fault and their insurance policy is not enough to cover every last dollar. 

Furthermore, insurance policies cover you and your family, not just vehicles. If you are driving someone else’s car and you get into an accident, you can still be covered to pay the damages and legal liabilities on that car. This can ultimately make the act of driving less risky for your personal financial situation.


Your premiums are the semi-annual or annual payments that you make towards your policy, which is based on your history as a driver. If you have been in 3 accidents over the past decade, you are going to have to pay more in order to be covered so that it makes it worth their while. You can think about this like an annual fee for a credit card, except the amount is within your control and can be influenced by good behavior. 

In the event of an accident, you will also have to pay a deductible on the expenses. The size of the deductible is not only determined by the fine print of the policy, but also based on your premium payments. If you pay only a little in premiums, you will likely have to pay more of a deductible in the event of an accident. Finally, each plan has a limit to the amount that the company will pay. If all of the damage amounts to $50,000, but your limit is $25,000, then the remaining balance of $25,000 is your responsibility. 

Thus, even though the purpose of car insurance is to support you financially, it does not evaporate any payments at all. It is important to consider these potentially surprising expenses that may come down the road when you make a budget and save, to avoid an accident that is catastrophic to both your car and your finances.


Many aspects of car insurance are actually required by states, if you are to legally own a car. All states require you to have both bodily injury liability and property damage liability so that those expenses are covered and do not bankrupt you, and a lot of other places require some smaller liabilities to be covered. These may seem intrusive, but ultimately they help society avoid exorbitant costs from the road.

When understood and used well, car insurance can be very helpful to ensure your financial situation. Of course, it is often required, but seeking the right information is key to help your car.

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