Auto Insurance
Auto insurance (or car insurance, motor insurance) is insurance
consumers can purchase for cars, trucks, and other vehicles. Its primary
use is to provide protection against losses incurred as a result of car
accidents.
By buying auto insurance, depending on the type of coverage
purchased, the consumer may be protected against:
The cost of repairing the vehicle following an accident
The cost of purchasing a new vehicle if it is stolen or damaged beyond
economic repair
Legal liability claims against the driver or owner of the vehicle
following the vehicle causing damage or injury to a third party.
Liability insurance covers only the last point, while comprehensive
insurance covers all three. Even comprehensive insurance, however,
doesn't fully cover the risk associated with buying a new car. Due to
the sharp decline in value immediately following purchase, there is
generally a period in which the remaining car payments exceed the
compensation the insurer will pay for a "totaled" (destroyed, or
written-off) vehicle. So-called GAP insurance was established in the
early 1980's to provide protection to consumers based upon buying and
market trends. The escalating price of cars, extended term auto loans,
and the increasing popularity of leasing gave birth to GAP protection.
GAP waivers provide protection for consumers when a "gap" exists between
the actual value of their vehicle and the amount of money owed to the
bank or leasing company. In some countries including New Zealand and
Australia market structures mean that people are more likely to buy a
nearly new car than a new car so this is less of a problem.
In the United States, liability insurance covers claims against the
policy holder and generally, any other operator of the insured’s
vehicle, provided they do not live at the same address as the policy
holder and are not specifically excluded on the policy. In the case of
those living at the same address, they must specifically be covered on
the policy. Thus it is necessary for example, when a family member comes
of driving age they must be added on to the policy. Liability insurance
generally does not protect the policy holder if they operate any
vehicles other than their own. When you drive a vehicle owned by another
party, you are covered under that party’s policy. Non-owners policies
may be offered that would cover an insured on any vehicle they drive.
This coverage is available only to those who do not own their own
vehicle.
Generally, liability coverage does extend when you rent a car. However,
in most cases only liability applies. Any additional coverage, such as
comprehensive policies, i.e. “full coverage” may not apply. Full
coverage premiums are based on, among other factors, the value of the
insured’s vehicle. This coverage may not apply to rental cars because
the insurance company does not want to assume responsibility for a claim
greater than the value of the insured’s vehicle, assuming that a rental
car may be worth more than the insured’s vehicle. Most rental car
companies offer insurance to cover damage to the rental vehicle. These
policies may be unnecessary for many customers as credit card companies,
such as Visa and Mastercard, now provide supplemental collision damage
coverage to rental cars if the transaction is processed using one of
their cards. These benefits are restrictive in terms of the types of
vehicles covered.[1]
In some regions, the costs associated with not having access to the
vehicle ("Loss of Use") is also covered.
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