Vehicle insurance (also known as auto insurance, car insurance, or motor insurance) is insurance purchased for cars, trucks, and other road vehicles. Its primary use is to provide protection against physical damage resulting from traffic collisions and against liability that could also arise therefrom.
Public policy: In many jurisdictions it is compulsory to have vehicle insurance before using or keeping a motor vehicle on public roads. Most jurisdictions relate insurance to both the car and the driver, however the degree of each varies greatly.
Basis of premium charges: Depending on the jurisdiction, the insurance premium can be either mandated by the government or determined by the insurance company in accordance to a framework of regulations set by the government. Often, the insurer will have more freedom to set the price on physical damage coverages than on mandatory liability coverages.
When the premium is not mandated by the government, it is usually derived from the calculations of an actuary based on statistical data. The premium can vary depending on many factors that are believed to have an impact on the expected cost of future claims. Those factors can include the car characteristics, the coverage selected (deductible, limit, covered perils), the profile of the driver (age, gender, driving history) and the usage of the car (commute to work or not, predicted annual distance driven).
Reasonable estimation: Another important factor in determining car insurance premiums involves the annual mileage put on the vehicle, and for what reason. Driving to and from work every day at a specified distance, especially in urban areas where common traffic routes are known, presents different risks than how a retiree who does not work any longer may use their vehicle. Common practice has been that this information was provided solely by the insured person, but some insurance providers have started to collect regular odometer readings to verify the risk.
from: www.wikipedia.org
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