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Motor vehicle insurance (also known as automobile insurance or auto insurance) is a form of insurance coverage purchased by owners and operators of motor vehicles to protect them from financial loss and legal liability brought about by motor vehicle accidents. A motor vehicle insurance policy is a legal contract between an insurer and the insured where in exchange for the payment of premiums, the insured (the customer) receives certain financial guarantees in the event of an accident.

Motor vehicle insurance is for drivers and operators of cars, trucks and other road vehicles. It provides protection against physical damage of vehicles occurring in a crash as well as protection against bodily harm to drivers and passengers in these vehicles. In the U.S., each state enforces its own motor vehicle laws as well as laws pertaining to motor vehicle liability coverage. The specific terms of any automobile insurance policy reflect the laws and regulations of the state. Auto insurance works by providing an incentive to large insurance institutions to assume the responsibility of large financial risks in exchange for as steady stream of premium payments. When a driver is involved in an accident, he or she can file a claim with their insurance company to obtain reimbursement for losses suffered in an auto accident.

The great variety in types, models and prices of automobiles is matched in the kinds of insurance products available to drivers. Basic policies designed to satisfy minimum state liability requirements abound. In addition, drivers can purchase extra protection against collision and property damage for their own or other vehicles. Comprehensive insurance covers damage from forces other than an accident. This includes such things as fire, flood, vandalism and theft. In certain jurisdictions drivers must prove in court an accident in not their fault before being reimbursed for damages. To get around this a form of "no-fault insurance” was created. Personal Injury Protection or "PIP" is a type of insurance that pays off -- up to policy limits -- regardless of who is at fault.

The primary benefits of carrying automobile insurance stem from the freedom from worry it provides. Freedom from worry over the financial risks and personal devastation brought about by a major accident. Other benefits include the assured continuity of one's mode of transportation and the easy payment plans that come with many auto policies.


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