What is auto insurance?

When purchasing or leasing a vehicle, safeguarding that investment is crucial. Obtaining auto insurance provides peace of mind in the event of an accident, theft, vandalism, or damage caused by natural disasters. Rather than covering expenses directly for auto-related incidents, individuals pay annual premiums to an auto insurance provider, which subsequently covers a significant portion or all of the costs related to an accident or other forms of vehicle damage.

Auto insurance is a contract between you and the insurance company that protects you against financial loss in the event of an accident or theft. In exchange for your paying a premium, the insurance company agrees to pay your losses as outlined in your policy.

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Is auto insurance coverage mandatory?

Collision and comprehensive only cover the market value of your car, not what you paid for it—and new cars depreciate quickly. If your car is totaled or stolen, there may be a “gap” between what you owe on the vehicle and your insurance coverage. To cover this, you may want to look into purchasing gap insurance to pay the difference. Note that for leased vehicles, gap coverage is usually rolled into your lease payments.

Auto insurance requirements vary from state to state. If you're financing a car, your lender may also have its own requirements. Nearly every state requires car owners to carry.

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