How Does Car Insurance Work? Here's Everything You need to Know
So car insurance is a given, right? Well, ideally it should be in everyone’s mind, but have you ever wondered how it works behind the policy jargon and witty advertising campaigns? We’ve put together this basic guide so you get the refresher you need before putting your hard earned money on the table, of course after you find the cheapest car insurance rates out there.
Car Insurance 101: Understanding the Basics
Car insurance provides financial protection in the case of a car accident, vandalism, theft or other incidents. As long as you have an active policy, your insurance provider can pay for vehicle repairs and medical expenses when you are in an accident. It can also protect you financially if you are responsible for someone else’s injuries or damages.
Car insurance is required in 49 states, and driving without coverage could result in fines or even jail time. When you got your first car, you probably simultaneously purchased your first auto insurance policy. You may have done so without much thought. Perhaps you purchased the most affordable policy with the coverage your state required and are still wondering “how does car insurance work?” If so, take the time to learn a little more about how car insurance works, including how to file a claim, by reading below.
The Different Types of Car Insurance Out There
Understanding how car insurance works begins with understanding the different types of coverage and which ones your policy has. The different types of coverage protect you in different situations. A few of the most common types of coverage are liability, comprehensive, uninsured driver, and collision. Below is a breakdown of each type.
All car insurance policies have liability coverage. This is coverage that pays the costs of injuries or damage to someone else or another vehicle in an accident where you are at fault. Most states require this by law.
Comprehensive coverage is optional coverage that will protect your car against damage caused while you aren’t driving it. This could include extreme weather, falling objects, and vandalism.
Collision insurance covers damage to your own car when it is involved in an accident, no matter who is at fault. It is optional coverage, but when combined with comprehensive coverage, helps makeup what is referred to as “full coverage car insurance”.
Uninsured, or Underinsured, Motorist Coverage
If you are in an accident with someone who doesn’t have insurance or their insurance doesn’t cover the extent of the damage, an uninsured/underinsured motorist policy will cover the costs of damage to your car. This is optional coverage.
Personal Injury Protection (PIP) Coverage
Personal injury protection pays for medical and rehabilitation expenses for you and your passengers, regardless of who is at fault. It is required in a number of states.
Other Optional Coverage
Some of the most common options include GAP insurance, roadside assistance, and rental reimbursement.
What Does Car Insurance Not Cover?
Some things you won’t be able to use your auto insurance policy for include normal wear & tear, rideshare platforms, and other individuals who drive your car but are not listed on the policy. While shopping around, make sure to ask what additional coverage is available to cover the things your normal policy will not cover.
How Does Auto Insurance Work – Coverage vs. Deductible
When you buy a car insurance policy, you must first designate an amount you wish to be covered for. This is usually $100,000 but can be more or less depending on your needs. While deciding this amount, you will also need to decide on an amount for your deductible.
A deductible is the amount you are responsible for paying before the insurance company will pay for anything. Most insurance companies start you with a $500 deductible. You can request to raise your deductible to $1000 or even more to help lower your monthly premium. This could lower your auto insurance bill significantly but cost you more when you make a claim.
How Much Does Car Insurance Usually Cost?
When shopping for insurance, the insurance companies will ask about your daily life such as how you use the car, where you park it, and other aspects of driving to ascertain the risk you might pose to cover you and your vehicle. These things will all play a part in how much your premium will be. A few other factors that will be considered to determine your insurance cost include:
- Credit history
- Age, gender, and location
- Driving record
- Insurance history
The amount and type of coverage you choose will also help determine the premium you will pay on a month to month, six month, or yearly basis depending on the terms of your policy. For these reasons, it is hard to predict the costs of insurance because they are specific to each driver.
How to File a Car Insurance Claim with Your Insurance Company
To use your car insurance after an accident or damage to your vehicle, you will need to file a claim. Your insurance will cover damages for an accident where you are at-fault. If your car was damaged by another driver, their insurance will cover the costs of damages. When both parties are at fault, you’ll want to file a claim with both parties’ insurance providers. Things can get confusing when trying to actually use your insurance policy, and that is why it is important to understand how to file a claim when the time comes.
Immediately following the accident, there are a few items of information you should collect if possible, including:
- Photographs of any damage to vehicles and the scene of the accident
- Policy numbers for all involved parties
- Names of witnesses and the responding police officer
- License plate numbers and descriptions of the cars
Filing a claim usually begins with a call to the car insurance company, but sometimes you are able to file a claim online. After a car insurance representative collects the initial data about an auto accident, a claim number is assigned and a claim set up. This claim is a record of the actual auto accident that is linked to a specific auto policy. From here, the claim is assigned to a claims adjuster who will investigate the claim through a series of tasks.
Once an adjuster has completed their investigation, the car insurance company will make a payment either directly to you or the repair shop. Keep in mind, depending on your policy, you may have a deductible that you will be responsible to pay before any payments are made by the insurance provider.
How to Get Cheap Car Insurance that Checks Off All the Boxes
Before settling on one insurance company, shop around to ensure you are truly getting cheap car insurance. The best way to shop for auto insurance is to compare policy offerings and discounts from multiple companies, but it is important to make sure you are comparing the same coverage limits and deductibles. Getting quotes from several insurers can be time-consuming, to say the least. That’s why CCI is here to help you get multiple quotes in minutes, so you can easily find the best policy with the right amount of coverage.
Many of us know we have to have car insurance in order to get our license and tags. However, there are some that don’t fully understand what is car insurance or how it will actually protect them. If after reading this piece, you are still wondering how auto insurance works, feel free to reach out to one of our insurance experts. We will gladly answer any questions you have and help find the right insurance policy for you.