Insurance, by definition, is a contract between you and the insurance company. The contract stipulates that as long as you pay the premium, the insurance company agrees to pay for your covered losses if you experience an accident, theft, or vandalism, or your car is damaged by certain causes. 

The amount you receive in compensation is based on several factors, including your deductible and the limit you choose for your policy.

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Auto insurance helps you to recover from damage, injuries, and expenses related to a collision or other incident. It is not designed for you to come out ahead financially, but it is designed to keep you from suffering major financial hardship due to an accident, whether it’s your fault or not.

Auto insurance is about risk transfer. If you don’t have insurance, the financial risk is on you in the event of an accident. Buying auto insurance mitigates some of that risk. For the cost of your premium, the insurance company will take on much of that risk for you.

When you get behind the wheel, you take a risk. You may attempt to be the best possible driver, but you also have to trust that everyone else on the road is driving well and paying attention too. Auto insurance provides a safety net when drivers make mistakes.

In the event of an accident, you are at risk financially. If the accident is not your fault, and the other driver does not have adequate insurance, you have to pay for all damages to your own car plus pay for any medical bills if you are badly injured.

When you are at fault, you are typically liable for damage to the other person’s vehicle as well as the medical costs of injured victims. Additionally, you must cover the repairs to your own vehicle and the costs of legal fees if you are sued. All of your assets are at risk if you are uninsured or underinsured.

Your vehicle just might be the most expensive possession you have other than your home. However, your auto insurance won't necessarily be costly.

While rates vary from state to state and take into account a variety of factors, car insurance is usually fairly affordable. 

There are a few reasons that your claim can be denied, including:

  • Filing a fraudulent claim exaggerating or fabricating an accident or loss
  • Filing a claim under coverage you don’t have
  • Filing a claim for a loss that is not included in your policy — for example, if you suffer an accident while using your car as a business vehicle
  • Making improvements to your vehicle, such as giving it a fancy paint job, without notifying your company. The company might deny the claim or compensate you based on the original value of the vehicle.
  • If you miss a premium payment, you may have your coverage suspended until you catch up your payments, or if you file a claim while your insurance is suspended it will be denied.

Some states allow companies to deny claims for other reasons, so it is a good idea to understand the fine print in your policy.

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