What is Car Insurance? A Simple Definition of Car Insurance

Car insurance compensate the owner of the car for losses pertaining to damage to the vehicle, people and property involved in an accident, by offering financial help. You are required to pay a monthly or yearly fee to the insurance company. An owner’s driving history, age, and location are considered when calculating the price of the vehicle.

The enforcement of the law pertaining to liability for injuries and damage to property of people involved in the accident differs from state to state. Car insurance covers the insured party, insured party's car, people injured by your vehicle and their cars.

After deciding what kind of car insurance you want to purchase, you also need to determine what has to be insured. The following car insurance coverage breakdown can help you understand what a particular type of coverage insures.

Bodily Injury Liability:

It covers injuries suffered by other people or death of person/persons because of you. If the other party/parties file a lawsuit against you, it also arranges for legal defense. If the accident you were involved in is serious, you will need enough money to cover the cost of the lawsuit. Bodily injury liability coverage does not cover any damage to your vehicle, but injuries to other people. The maximum amount payable to persons injured is covered by dual-coverage limits.

Property Damage Liability:

It is also known as PD. Property damage liability covers you if your car damages someone's house, fence or any other property damages as result of an accident. It is prudent to check the terms and conditions in the car insurance policy, as the coverage details may vary from policy to policy. The coverage limits governs the amount to be paid for each accident.

If you keep the coverage limit low, and if the damages are more than your limits, you will have to pay the amount the difference from your own finances. If you are unable to pay the amount the difference, the affect party may take you to court and your property, savings and other assets could be at risk.

Collision Coverage:

It is also known as COLL. Collision coverage pays for damages the car when it is hit by another car or another object. It is advised to keep a large, but affordable deductible as it helps to keep the car insurance premiums low. This type of coverage is not suitable for old cars since it depends on value of your car in cash. You will need this coverage if your car is leased or financed, or if you own a new vehicle.

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