While some people believe the only goal associated with having auto insurance coverage is to meet state requirements in order to register their vehicles, the reality is that insurance coverage is meant to pay for the repair or replacement of motor vehicles that are damaged or destroyed.
What is Auto Insurance?
Auto insurance, like all insurance, is an arrangement that allows you, the policy holder, to transfer the risk of financial loss to an insurance company, in the form of regular premiums. When an insurable loss, such as a traffic accident, occurs, the insurer will pay only the amount required to return your vehicle to its original condition. For you, the benefit is that a monthly premium is far easier to absorb than the cost of repairs or a whole new vehicle.
Insurance companies, on the other hand, benefit because they generally take in far more money in premiums than they pay out in claims, especially since most vehicles are not declared total losses.
What Else Does Auto Insurance Cover?
While repairs to or replacement of damaged vehicles is an obvious benefit of auto insurance, there are others. Depending on the coverage packages you've chosen, your car insurance may cover damage to your car from other sources, such as hail or fallen tree limbs, or from vandalism. It may cover replacement if your car is stolen and cannot be located, and some policies also include roadside assistance and/or towing packages. Some policies even pay for a rental car while your car is being repaired.
In addition to repairs to your car, auto insurance usually covers repairs to other people's cars if you cause an accident, and pays for medical expenses if you cause an accident where people are injured. Other coverage pays for damages to your car, or medical expenses for you and your passengers, if you're in an accident with another driver who has no insurance.
Some auto insurance coverage also replaces belongings that are in your car when it's stolen (though sometimes homeowners or renters insurance covers this as well), and, if you own dogs or cats, you should know that a few insurance companies will cover the vet bills (up to a certain amount) if your pet is injured or killed in a traffic accident while riding in the car with you.