Auto insurance protects you against financial loss if you have an accident. It is a contract between you and the insurance company. You agree to pay the premium and the insurance company agrees to pay your losses as defined in your policy.
Auto insurance provides property, liability, and medical coverage.
An auto insurance policy is comprised of six different kinds of coverage. Most states require you to buy some, but not all, of these policies.
1. Bodily Injury Liability
This coverage applies to injuries that you, the designated driver or policyholder, cause to someone else. You and family members listed on the policy are also covered when driving someone else's car with their permission.
2. Medical Payments or Personal Injury Protection (PIP)
This coverage pays for the treatment of injuries to the driver and passengers of the policyholder's car. PIP can cover medical payments, lost wages, and may also cover funeral costs.
3. Property Damage Liability
This coverage pays for damage you may cause to someone else's property. Usually, this means damage to someone else's car, but it also includes damage to lamp posts, telephone poles, fences, buildings, or other structures you may hit.
This coverage pays for damage to your car resulting from a collision with another car, object, or as a result of flipping over. It also covers damage caused by potholes. Even if you are at fault for the accident, your collision coverage will reimburse you for the costs of repairing your car, minus the deductible.
This coverage reimburses you for loss due to theft or damage caused by something other than a collision with another car or object, such as fire, falling objects, earthquake, flood, vandalism, or contact with animals such as birds or deer.
6. Uninsured and Underinsured Motorist Coverage
This coverage will reimburse you, a member of your family, or a designated driver if one of you is hit by an uninsured or hit-and-run driver.
Auto insurance regulations vary from state to state. Depending on where you live, you may be required to purchase different types and levels of coverage.
With regards to auto insurance laws, states tend to be either a Tort State or a No-Fault State. In a fault-based tort system, insurance companies pay according to each party's degree of fault. The details and regulations for a tort system vary from state to state.
Under no-fault automobile insurance laws, the good driver does not have to prove that the collision was somebody else's fault before getting his money. His insurance company picks up medical bills, rehabilitation costs, and lost wages, up to the amount he purchased.
Insurance rates are higher for young and new drivers because the chance for involvement in a collision is statistically higher.
Also, a bad driving record showing a lot of collisions, convictions, etc. results in a higher rate.
Note: most insurance companies will give discounts for getting at least a "B" average in school and for taking recognized driving courses.