Auto insurance is basically something that protects you from going broke if you have an accident.

Even a first-time fender bender can cost you thousands of dollars if you hit an expensive car – auto insurance protects you from having to pay out big bucks.

Auto insurance is a contract between you and the insurance company.

How it Works:

You pay a specific amount (called a premium) and in exchange, if you have an accident, the insurance company pays for your losses (up the policy amount) according to how they’re spelled out in that contract.

What Does Auto Insurance Cover?

Driving a car comes with all sorts of risks. Auto insurance provides coverage for all of them – but only certain types of coverage are required by law. All states require at least the following types of coverage:

• Bodily Injury Liability coverage: This coverage provides protection if you are found legally responsible for the injury or death of another person resulting from a car accident.
• Property Damage Liability coverage. This coverage protects you if you are found legally responsible for the damage to someone else's property resulting from a car accident.

Have to Have it? Why?

In all but two states in the U.S., the law requires that you carry auto insurance. The type and amount of car insurance you are legally required to have varies from state to state.

The reason you’re required to have auto insurance is to protect you and those sharing the road with you from being injured or suffering property damage at the hands of someone who can’t afford to pay for it. If you are caught driving without auto insurance in some areas, you could be fined, have your licensed revoked and may even be arrested.