Like any insurance policy, auto insurance is one of those things that you don’t need, until you really need it. Unfortunately, none of us know when that moment will come; which is why many states require all drivers to have at least liability insurance on their vehicles. Additionally, if you are paying off a loan on that vehicle, the loan giver will require you to have insurance to cover damage to the vehicle.

The purpose of auto insurance is to protect you, and anyone else involved in an accident with you, from loss due to personal injury or property damage. However, not all auto insurance policies are alike. The three basic categories are:

Liability insurance – covers injury and damage to vehicles of others whom you might be in an accident with.
Collision insurance – adds coverage of any damage to your vehicle and passengers in any collision (accident), whether it is with another vehicle or a stationary object
Comprehensive insurance – adds coverage of any damage to your vehicle caused by something other than collisions. This can include vandalism, hurricanes, riots, or a scud missile attack. It also typically includes costs for towing and storage of the vehicle.

Another factor that affects your cost is the deductible on your policy. A deductible is the amount of out-of-pocket expense that you, as the vehicle owner, will have to pay for repairs to your vehicle. In other words, although you are paying for insurance, your insurance company will not pay the entire cost of repairs; you will still have to pay something for your repairs. The lower the “deductible” the higher the insurance cost.

Obviously, the more inclusive a coverage you opt to buy, the more your insurance package will cost you. However, don’t make the mistake of thinking you don’t need auto insurance. The price of leaning its value may be more than you can afford.

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