Car Insurance Explained

Do you understand what car/auto insurance is all about? Are you frustrated that you pay for years and don't get anything out of it? You have to understand that insurance is, well, insurance. It's there in case something happens. 

For example, your state might require that you have $50,000 in liability insurance. That way, if you're at fault in an accident, the other persons will have a guaranteed pool of $50,000 from which they can collect damages. You pay premiums to have access to that $50,000. You could get around this, of course, by putting $50,000 into the bank and taking the legal steps required for the state to accept that as insurance. 

Do you have $50K you could leave in an account for years and years? Most of us don't. Even if you do, what happens if you cause an accident that requires $20K in payments to the other party? First, you're out $20K. Then you have to put another $20K back into the account to be self-insured again. 

What insurance companies do is collect relatively small premiums from a large number of people. Your premiums pay for accidents caused by other people. Likewise, their premiums pay for your costs when you are at fault. If you never cause an accident, you may feel like it's money down the drain. It's not. The money was there if you needed it. Also, the premiums kept you from having to accumulate a large sum of money just for the privilege of driving.

There are a few basic types of car insurance. The linked article to the left gives a pretty good overview of these basic types. A little knowledge can go a long way.