- Auto insurance works like health insurance, life insurance and almost all other types of insurance. Auto insurance companies provide liability coverage to their insured customers in certain amounts and with certain limitations in return for a set payment over time, called a premium. By covering many different motorists and pooling their premiums together into one large fund, the insurance company is able to make certain that it will have money in the general fund to cover any expenses incurred by one customer.
- Premiums are the amount of money that an insured individual pays her insurance company in return for auto insurance. Premiums can be monthly or yearly in duration, with monthly payments being the industry standard. Premiums can differ significantly depending on criteria such as age, gender, driving record and credit rating.
- The different types of coverage available are myriad. The two broadest categories of auto insurance coverage are comprehensive and collision. Essentially, comprehensive coverage provides insurance liability coverage for all expenses involved with an accident, generally up to a certain set policy limit. Collision coverage, on the other hand, is much more limited and doesn't cover nearly as much. These two terms and the types of auto insurance coverage that are available vary a great deal among insurance companies.
- There are, for all intents and purposes, two major forms of auto insurance in use today: no-fault and standard. No-fault insurance systems, which are rare, provide coverage to each motorist equally without regard to which motorist was at fault for causing the accident. Standard insurance, on the other hand, distributes liability to each party depending on who is deemed to be responsible for causing the auto accident.
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