An auto insurance policy is a contract between you and an insurance company. You pay a premium, and in exchange, the insurance company promises to pay for specific car-related financial losses during the term of the policy. Auto insurance is designed to protect yourself financially. If you or anyone for whom you're responsible seriously injures another person, you can be held liable for the injured person's medical expenses, rehabilitative therapy and long-term nursing care, as well as for his or her lost earnings.
Auto insurance is also often a legal requirement.
State laws typically state that as a driver, you either must have insurance, or be able to provide evidence that you have the financial resources to pay a judgment against you if you cause injury or damage to another person. An insurance policy is the easiest way to document that you can pay damages. Your policy usually covers you, your spouse, and other relatives who live in your household and others who have permission to drive one of your covered vehicles. The Liability coverage in your auto policy pays damages which an insured becomes legally liable to pay because of bodily injury damage to others and property covered by an accident resulting from the ownership, maintenance or use of your car. Most state laws require that you carry a minimum amount of liability insurance.