A car insurance policy is a contract of insurance that describes the terms, coverage, premiums and deductibles. An individual pays an amount known as a premium, in return for the coverage offered. Car insurance policies are broadly divided into two types namely, third-party liability and first-party liability insurance. The policyholder is known as the first party who has signed a contract with the insurer for coverage. The insurer is called as the second party whereas the third party is the other person involved in the accident or whose property the policyholder has damaged.

A third-party liability insurance policy reimburses all the losses attributed to a third-party. First-party insurance covers losses caused to the policyholder or passengers riding along with him. An individual must at least have third-party liability coverage. There are two types of third party liability policies. They are bodily injury liability, which pays for medical expenses and property damage liability, which covers all property damages caused by the policyholder. These policies are essential to a policyholder if he gets sued for an accident.

First party liability coverage basically aims at covering repairs and damages caused to the policyholder and passengers riding with him. It is extremely beneficial when the policyholder is not at fault but the other driver does not have the resources to pay for the damages. Collision coverage, comprehensive coverage, uninsured/under-insured motorist and MedPay are few of the various types of first party coverage. Collision coverage guarantees repairs and replacement if needed, in the event of an accident regardless of whose fault it was. Comprehensive coverage guarantees to reimburse for repairs or replacement due to damage caused to the policyholders car by factors like fire, theft, floods and hurricanes. Uninsured/under-insured Motorist coverage policy pays the policyholder and his passengers for losses incurred in the event that the driver at fault is either not found or he does not have the resources to pay for the losses. MedPay policies cover medical and funeral expenses caused to the policyholder or his passengers.

If a non-policy holder uses the car frequently, it is advisable to include him on the policy. Experts advise customers to research and survey before selecting a policy for their vehicle. Ideally, an individual must obtain quotes from various companies before finalizing the policy.