What Exactly is Auto Insurance and How Does it Work?

At its most basic, car insurance is a protection against financial loss in the event you are in an accident. There are a variety of policies and additional coverages available in Canada but that is the simplest definition.

When you buy an auto insurance policy you are forming a contract with an insurance company. Your part of the bargain is to pay for your premiums on the dates set out in your policy. The auto insurance provider agrees to pay for your losses should you have any. These losses are defined within your policy and will vary by province, insurance company and policy.

Three Types of Coverage

1) Protection For Your Property

There are typically three types of coverage provided by car insurance. The first is property coverage, which will pay for damages to your vehicle. It also covers you if your vehicle is stolen.

2) Legal Protection

The second type of coverage is liability coverage. It pays for your legal responsibility to other people and will cover property damage or injury to others that you may be responsible for.

3) Medical Coverage

When you purchase medical coverage it will pay for rehabilitation and injury treatment. With some add-on policies you will receive lost wages and even funeral expenses. Most mandatory policies will not cover you for funerals and lost wages but that will depend on your insurance provider.

For some other definitions of auto insurance visit the following websites: Wikipedia, Investopedia and Entrepreneur.com.

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