What is Automobile Insurance?

Cite this article as: Jason Mance Gordon, "What is Automobile Insurance?," in The Business Professor, updated January 24, 2015, last accessed March 30, 2020, https://thebusinessprofessor.com/knowledge-base/what-is-automobile-insurance/.
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What is Automobile Insurance?
This video explains what is automobile insurance.

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What are the common types of Automobile Insurance coverage?

Individuals may purchase insurance coverage for nearly any foreseeable risk. The following are common types of insurance policies:

•    Automobile Insurance – Vehicle insurance covers damages suffered by either the individual or automobile pursuant to any number of risks. Common risks covered in vehicle insurance policies include the following:

⁃    Liability Coverage – This type of policy covers, up to the policy amount, the costs and damages suffered by third parties as a result of operating the insured vehicle.

⁃    Note: This type of vehicle insurance coverage is mandatory in every state.

⁃    Collision Coverage – This is a form of property insurance that will pay the value of the damages suffered to a vehicle in a crash, up to a stated amount or up to the total value of the vehicle.

⁃    Note: This type of insurance is generally required by a lender when purchase of a vehicle is financed?

⁃    Comprehensive Coverage – This type of insurance coverage insures the vehicle against forms of damage other than collision, such as vandalism, theft, hazardous weather, etc.

⁃    Uninsured (& Underinsured) Motorist Coverage – This type of insurance coverage provides  indemnification for injuries suffered by the driver and passengers of the covered automobile when another party without insurance causes personal injury in a crash.

⁃    Note: It also covers situations where a third party causing the damage or harm is unidentifiable. This type of coverage is mandated in many states.

⁃    Other Coverage – Other insurance coverage in a vehicle policy may include towing and rental car expenses, additional medical payment coverage, and accidental death coverage.

⁃    Discussion: Why do you think there are so many special types of coverage applicable to ownership and operation of a vehicle? How does the cost-benefit vary with each type of vehicle insurance?

⁃    Practice Question: Donald is purchasing a new car. He is financing the car through his bank. What types of insurance will Donald likely have to purchase?

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