A car insurance policy is essentially an agreement between you, the policyholder, and an insurance company. You agree to pay a monthly or annual premium, and the car insurance provider agrees to protect you financially from any covered (as in the agreement) losses.

Your car insurance protects you from the financial liability of damage you cause to another person’s car, or an injury you cause to other people with your car. It can also protect you from damage to your own car, including damage from collisions, theft, vandalism, and bad weather.

When you purchase car insurance, you have to set coverage limits or choose a deductible amount for every coverage in your policy. To do this, you’ll need to consider both the types of coverage you need, and how much of that coverage you’ll require.

You’ll need your car insurance if you cause an accident or if your car is damaged or stolen. You put your car insurance to work by filling in a claim, which is how you redeem your coverage. If the incident is covered, your insurance company will pay for the cost of the damage you caused, or the damage to your car, depending on the situation.

The insurer may pay you directly, or a payment may be made to the other party, to the entity servicing the car, or to the medical providers treating the other party’s injuries. 

Next week we deal with why car insurance is important.