Auto 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.

Coverage levels

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.

Public policy

In the United States it is compulsory to purchase auto insurance before driving on public roads. This is to protect third parties against the financial consequences of loss, damage or injury caused by a vehicle. Typically, coverage against loss of or damage to the driver's own vehicle is optional.  Most countries relate insurance to both the car and the driver, however the degree of each varies greatly.

Pricing plans

Except for government-mandated liability insurance, most car insurance plans charge a premium based on several risk factors that are likely to have an impact on the frequency of occurrence or on the expected cost of future claims. The premium usually depends on the car characteristics, the coverage selected (deductible, limit, covered perils), the usage of the car (commute to work or not, annual distance driven), and the profile and driving history of the drivers (age, sex, marital status, traffic violations and accidents).

For mandatory liability insurance risk factors are taken into account (giving varying prices), however some places a fixed rate is charged regardless of the individual circumstances.

Distance risk factors

  ■  Flat rate: Several car insurance plans charge a flat rate regardless of how much
      the car is used.