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Introduction to Auto Insurance

Introduction to Auto Insurance

Auto insurance covers the potential injuries and damages that could occur when you drive a car. This brochure will help you to compare policies and make informed choices when purchasing auto insurance. This brochure can help you to understand your auto policy. It is crucial that you fully understand your policy. Your motor vehicle could be an automobile, truck, van or motorcycle.

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California Law

In the event of injuries to others or property damage, you must prove financial responsibility for your vehicle. Auto liability insurance is the most common way to show financial responsibility. California law says that all drivers and owners of motor vehicles must be capable of establishing financial responsibility. They should also carry evidence of this financial responsibility with them.

You could face a fine if you don’t have auto liability insurance. Your license may also be suspended and your car may be impounded.

Your auto policy

Your auto insurance policy is a contract between yourself and your insurance company. It states:

  • Reduce your costs
  • Your coverages – The different items your policy covers
  • Your exclusions – The things that your policy doesn’t cover

Compare Policies

There are many options for auto policies. Openly discuss your insurance requirements with your broker, agent, or insurance company. While they can assist you, it is up to you to decide which insurance is right for you. Always get multiple quotes. A quote is an estimate for your premium cost. Compare quotes before you buy a policy.

Get to Know Your Policy

Before you use your auto policy, it is essential to understand the details. It is important to read it. The Declarations page provides a summary of your policy.

  • If you don’t understand something in your policy, call your broker or agent.
  • If you are selling or buying a car, or if there are new drivers in the household, tell your broker or agent.
  • Before allowing others to drive your car, make sure you read your policy. Your policy might exclude certain drivers. This means that your policy does not cover drivers who are involved in accidents while driving.

Contact the California Department of Insurance.

We are the state agency responsible for regulating the insurance industry. We protect the rights and interests of consumers. For more information on CDI, see page 28. For more information about CDI, please visit page 28.


Auto insurance costs


The premium is the amount that you pay to an insurance company to purchase your auto policy. The premium covers the policy’s term. The term can be for 6 months or one year.

Many insurance companies will allow you to pay your premium in installments. Ask about any additional fees.


Certain types of coverage come with deductibles. The deductible is the amount that you have to pay before an insurance company will cover a claim.

If you select a higher deductible, you will usually pay a lower premium.

Example: Let’s suppose that Comprehensive insurance has a $500 deductible. You must pay $500 if a storm damages your car by causing $1,500 in damage. Your Comprehensive coverage covers the remainder, which is $1.000

There are limits

Each type of coverage has its limits. Limit is the maximum amount that an insurance company will pay to cover a single claim or accident. The insurance company will not cover any additional costs beyond the limits.

Example: Let’s suppose that your auto liability policy has a $50,000/$100,000. limit on bodily injuries for one accident. Your insurance policy will not pay more that $50,000 for a single person. For one accident, it will not pay more that $100,000.

What fees do I have to pay my broker or agent?

Insurance companies pay agents, not you. A broker will charge a fee if you are working with them. Refer to page 20.

Are all insurance companies the same?

No. Prices can vary even within the same region. You should compare the costs and coverage of several companies when you are shopping for auto insurance. See pages 14-15.

I can’t afford my premiums. What should I do?

California offers a low-cost automobile insurance program for drivers who have income eligibility. Refer to pages 22-23.

California Law and Liability Coverage

When you are responsible for an accident or other damage, liability coverage pays. You must comply with the state Vehicle Code’s financial responsibility laws if you own or drive a vehicle. This is easiest to do by purchasing auto liability coverage.

You and your family are not covered by liability coverage for injuries you cause or those of others. Medical payments coverage can be purchased for you and your family.

Minimum Liability Insurance

The minimum coverage for an auto policy is set by law at the following limits. This coverage is mandatory.

Maximum Bodily Injury Liability Limits

  • $15,000 for any death or injury to one person. Your coverage covers up to $15,000.
  • For the death or injury to more than one person, the coverage covers up to $30,000 The coverage covers up to $30,000. The coverage does not cover more. The money is shared by the injured.
  • This coverage covers injuries you cause to another person.

Maximum Property Damage Liability Limits

  • $5,000 for property damage.
  • This covers damage to another car or objects and structures your car has struck.

You should purchase liability coverage.

It is illegal to drive without insurance. To register your vehicle, you will need liability coverage. California Department of Motor Vehicles (DMV), is informed by your insurance company if you purchase auto insurance and if you cease paying your premium.

What happens if I don’t have liability coverage?

You will be issued a ticket if you fail to show proof of insurance. Your license could be suspended if you don’t have insurance. You may also be subject to vehicle impounded. Driving is a privilege and not a right.

How can I prove I have liability insurance?

To prove your insurance, your insurance company will send you an insurance card. It will list the vehicles covered and the policy owner’s name. It includes the policy number as well as the dates that the policy began and ended. Keep this card in your car.

What happens if an accident causes me to be liable for more than my limit of liability?

Additional costs can be brought against you. You could lose your savings or even your home.

Do I have to get higher limits that the law requires?

You might want to have higher liability limits than what the law requires. The law generally states that the more assets you have the greater your risk of being sued. Talk to your broker, financial advisor, insurance company or agent about your situation.

Is there another way to demonstrate financial responsibility than buying insurance?

Yes. There are many ways to demonstrate financial responsibility. Visit the DMV website www.dmv.ca.gov for more information.

Additional types of coverage

These are also common types of coverage. Some of these coverages may not be necessary.

Uninsured Motorist Insurance (UMC)/Under-insured Motorist Coverage(UIM)

This coverage covers you in the event of an accident with someone who doesn’t have liability insurance or is underinsured.

This coverage must be offered by your insurance company. You must sign a waiver form if you decide not to purchase it. This form states that you were offered coverage but declined it.

  • Uninsured motorist bodily Injury (UMBI), which pays for your injuries and those of others in your vehicle if there is an accident with an at-fault driver. These limits are the same limits as your liability coverage.
  • Underinsured motorist (UIM: This covers only limited bodily injury costs if you are involved in an accident with someone who doesn’t have enough insurance.
  • Uninsured motorist damage (UMPD), which covers the cost of your vehicle’s damage if you are in an accident with an uninsured person who is at fault. The maximum limit is $3,000. The limit is only applicable if the driver is uninsured. It may not be necessary if you have collision insurance.

Medical Payments Insurance

If you or your passengers are hurt, this coverage covers medical expenses. No matter the fault, this coverage can cover immediate medical care.

  • For each person hurt, the minimum limit that you can purchase is $1,000 Higher limits are possible.

Protection for Physical Damage

  • Collision is the coverage for damage to your vehicle caused by contact with another vehicle, object, or deer.
  • Comprehensive covers any damage to your vehicle that is not caused by a collision. Comprehensive can also cover damage caused by fire, theft, vandalism or flood. It does not include mechanical breakdown, normal wear, tear, maintenance.

Comprehensive and collision coverage offer compensation based upon the car’s market value. These coverages may not be available if your car’s value is low.

Additional types of coverage (Endorsements, Riders)

  • Insurance can be purchased for additional equipment such as custom wheels, navigation systems and stereos that are permanently attached.
  • Insurance can be purchased for road service and towing.
  • Rent-a-car insurance can be purchased to cover the cost of rental reimbursement if your vehicle is damaged in an accident.

You can get a car loan

You will need to insure your vehicle if you take out a loan. The loan company might buy your insurance and charge you. You will usually pay less if your Collision and Comprehensive coverage is purchased by you.

If your vehicle is damaged or its market value exceeds what you owe, auto insurance will not pay off your loan. For this purpose, auto dealers and lenders might offer Guaranteed Auto Protection (GAP).

Summary of Coverage

Liability Insurance covers accidents that are not your fault.

  • Bodily injury liability covers bodily injuries you cause to another person.
  • Property damage liability covers property damage that you cause to another person.

California law requires that you have this coverage. See pages 6-7.

Uninsured/Underinsured Motorist Coverage is for accidents when the other driver is at fault and does not have insurance or does not have enough insurance.

  • Bodily injury coverage covers medical expenses for you or your passengers.
  • Property damage coverage covers the cost of any repairs that are not covered under collision coverage. It is up to $3500. This coverage may not be necessary if you have collision insurance.

This coverage must be provided to you, but you have the option of not purchasing it.

Insurance for Medical Payments covers limited medical expenses for those who are injured in an accident that you cause, regardless of fault.

This coverage may be available to you

Personal Damage Coverage covers the costs of repairs or replacements to your vehicle, less your deductible.

  • Collision is the coverage for damage to your vehicle caused by an accident with another car, or a tangible object such as a deer.
  • Comprehensive protects your vehicle from damage other than a collision.

Lenders and leasing companies require this coverage.

Other Types of Coverage

  • Towing and road service.
  • When your car is damaged in an accident, rental reimbursement covers the cost of renting a car.

These coverage’s can be purchased. These coverage’s are not required.

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