Auto insurance policies cover financial risks and liability related to operating an automobile. Common financial risks covered by auto insurance include vehicle damage due to accidents and financial liability arising from legal action, both of which can be prohibitively costly to the average consumer. Insurance carriers develop specific policies for individuals, organizations and professional drivers, each covering a different set of risks and offering distinct policy terms. Individual coverage is the most common type of auto policy in existence, but large organizations can require insurance for entire fleets, for which insurance carriers develop specialty policies.
Insurance companies accept applications from a wide range of potential clients, then use the underwriting process to determine which applicants meet their specific risk criteria. After an agreement is signed between an insurer and an insured client, the client begins to make regular payments, according to the payment schedule in the policy. In return, the insurance company agrees to cover their clients' financial liability in specific situations. Different types of policies exist, including liability-only coverage and full coverage. In a liability-only policy, the carrier only agrees to pay financial damages for which a client is responsible to another driver. In a full-coverage policy, insurers will cover a much wider range of financial risks, including damage caused to rental vehicles.
The benefits of carrying automobile insurance are numerous. In the United States, auto coverage is legally required in most states. In these states, carrying insurance can help drivers to stay out of legal trouble, including potential drivers' license suspensions. Even where it is not legally required, carrying insurance can help drivers to avoid potential financial liability or loss that could render them unable to continue driving. Insurance payouts can allow drivers to repair vehicles quickly after an accident, for example, and some policies will even provide a rental car while damaged vehicles are under repair.