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Avoiding Loan Sharks

What is Auto Insurance:

Car insurance is a contract between yourself and an insurance company in which you agree to pay premiums (amount paid regularly to the insurer) in exchange for protection against financial losses stemming from an accident or other damage to your vehicle. Having insurance is a risk management method where you as the insured share your risk, such as the risk of having to pay compensation in a car crash, with an insurance company so that it lowers the risk you have to take. Lowering risk is beneficial, as it can mean you don’t have to cover the full cost, only a proportion of it.

Auto Insurance Covers:

  • Vehicle damages, including your car or another driver's vehicle

  • Property damage or bodily injuries caused by an accident

  • Medical bills and/or funeral expenses associated with injuries sustained in an accident

Importance of Having Auto Insurance:

Auto insurance is important because it can provide some financial protection in the case you get into a car accident and damage someone else’s vehicle or injure them. Car insurance can also protect your vehicle from damage caused by an accident or a different covered peril, like falling objects, fire, or theft.

If you don’t have car insurance for you and your vehicle, depending on the state you live in, you could potentially be breaking the law. Driving without insurance could result in fines and driver’s license suspension. The purpose of having auto insurance is so you can reimburse others for damage you cause, and so you won’t get stuck paying out of pocket for the expenses from a car accident or a different kind of collision, like for example if you accidentally drive into a pole.

Insurance Discount:

Many insurance companies offer special ways to lower your car insurance premium. To make sure you’re getting all the discounts you’re entitled to, ask your agent to review your possible savings.

Your credit is a big factor when car insurance companies calculate how much to charge. It can count even more than your driving record in some cases. (This is not true in California, Hawaii, and Massachusetts, where insurers aren’t allowed to consider credit when setting rates.)

Traffic tickets and accidents drive up car insurance premiums. If you get a ticket, you may be offered the opportunity to go to traffic school to get it dismissed or reduce the number of violation points that go on your driving record. If you can keep the violation off your driving record, the time spent in class could save you hundreds of dollars over several years.


Today, driving is considered an essential skill. When you drive on the road, take care to observe your surroundings and obey traffic laws. And don’t forget to get auto insurance if you don’t have any. Have fun driving!

Written by Anna Li

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