An auto insurance policy is a legally binding contract between an auto insurance company and the person who buys the policy. The buyer is called the "insured" or the "policyholder." In exchange for payment of a specified sum of money, called the "premium," the auto insurance company agrees to compensate the policy holder for certain types of loss or damage resulting from an automobile accident. When a loss occurs that meets all of the requirements described by the terms of an auto insurance policy, the loss is said to be "covered" by that insurance policy.
Can an auto insurance company provide several different types of insurance policy?
Different auto insurance policy types may be purchased depending on the needs and wants of the insured. Auto insurance policy coverage may include bodily injury liability, property damage liability, and medical payments. An insurance policy may also cover the physical damage sustained by a collision. All states require auto insurance policy coverage of bodily injury liability and property damage liability.
How much coverage will a typical auto insurance policy provide?
Minimum required coverage amounts are determined by each individual state and must include bodily injury liability for one person per accident, bodily injury liability for all injuries per accident, and property damage liability per accident. For example, in the state of Michigan, all drivers must carry an insurance policy with a minimum coverage of 20/40/10, which is equal to $20,000 bodily injury liability for one person, $40,000 bodily injury liability for all injuries in one accident, and $10,000 property damage liability.
Bodily injury liability (BI) coverage specifies that the auto insurance company will pay for another person’s medical and rehabilitation expenses and any damages for which they may sue. Property damage liability protects the policyholder against liability for damage to property belonging to others, including the loss of the use of the property. In most states, the insured must buy an auto insurance policy that offers at least $5,000 worth of property damage coverage. Many standard auto insurance policy contracts include a higher limit, often $25,000.