If you’ve already bought a new car or are still shopping around, then you may have not started searching for car insurance. Or you already have car insurance but aren’t sure how it works.
You do not want to be stuck on the side of the road at the scene of a collision without any knowledge as to who pays for what and what exactly is covered.
To help you learn more about how your car insurance works, we’ve provided a breakdown of what car insurance is, how it works, the different types (and there’s many), and the costs!
By the end, you’ll have a more informed stance on how you can stay insured and financially covered with your vehicle.
What is Car Insurance?
The main role of auto insurance is to provide the car owner with protection in case of an accident.
While there are many types, they all usually provide coverage for damage to one’s vehicle. Car insurance is a contract between the car’s owner (you) and an insurance company.
Most insurance companies provide multiple types of car insurance policies, all of which ensure some sort of financial compensation.
How Does it Work?
The way car insurance works are through a partnership or agreement between you and the car insurance company.
Once you settle on the best type of insurance for you, you start making payments called premiums. If there is an accident or your vehicle was vandalized or stolen, your insurance company will pay for repairs or fixes, depending on how much you’re covered.
Some insurance policies also cover injuries caused to other people who are not drivers. Then you have the car insurance policies that cover damaged property and damage to your own car through both vehicle collision and object collision.
You will end up filing a claim with your insurance provider, or even simply making a call to your agent. Your claim will be processed (the time it takes varies) and then you may be reimbursed for the losses due to any damage.
What Does It Cover?
Auto insurance typically covers three things: liability, property damage or theft, and medical expenses relating to the property.
- Liability: It is mostly required to obtain this, as it provides coverage for any liabilities the car owner has if involved in an accident. There are two types: property liability and bodily liability.
- Property: If there is any damage done to someone else’s property caused by your vehicle, your car insurance policy will provide coverage for the financial fees of repair.
- Medical: If anyone, including you, is injured during an accident, your car insurance company will pay the medical expenses.
How Much Does It Cost?
The cost of car insurance varies greatly on where you live, what type of car you are driving, your claims history, accident history (for risk assessment), and sometimes even your gender.
To help you understand what you’ll need to look out for and what to expect when shopping for a policy, we dove deeper into factors determining the costs.
Driving Record
For insurance companies to assess the risk of any claims you might make in the future, they’ll look at your driving record.
If you’ve been in multiple accidents and have major traffic violations, then you are high-risk, which may cause companies to charge you higher insurance rates.
Those that have a spotless record with only a few minor tickets here and there will probably have lower insurance rates.
Location
Where you live may determine how high or low your insurance rates will be. Costs vary from state to state. If you live in areas with higher populations or densely packed cities, then the rates will increase.
Drivers who live in lower-populated areas will probably not see a major increase or high-cost insurance policies. The fewer people, the lesser the odds of getting in an accident or getting your car stolen are.
Type of Vehicle
Vehicles with lower values will not cost as much to fix, repair, or replace. So, if a driver has a car that is older, more used, then the insurance rate may not be as high as someone who has a brand-new Cadillac Escalade.
Insurance companies will not want to pay a ton of money to replace a newer car, so their rates for insuring it will be much higher, that way they aren’t losing a ton of money.
Repair Costs
Insurers will likely do some research into the costs of repairing your car and factor that into the insurance rates. A newer make and model may have higher repair costs. Or vehicles that require specialized parts can often produce higher costs to repair or replace.
Deductibles
While nobody likes paying deductibles, insurance companies require policyholders to pay these on certain occasions. If you aren’t familiar with this term, deductibles are the amount of money you are required to pay out-of-pocket to fix or repair damage to your vehicle.
However, much you pay as the deductible, your insurance company will pay the rest. Deductibles also vary in cost, depending on how expensive your premium is. The higher the premium, the lower your deductible, and vice versa.
What Are the Types of Car Insurance?
Other than the standard insurance that covers all parties except the car owner, there are other policies that protect and cover the actual car owners.
Bodily Liability
If you are in an accident and are found to be at fault, then you will likely be held liable for any damage done to another vehicle or any bodily injuries.
This type of policy is normally required for any car owner. It provides coverage for any costs associated with injuries or deaths of a person caused by the driver.
Property Liability
If someone is driving down a road and hits any property that is not theirs, then a property liability insurance plan will kick in. This policy reimburses others for any damage caused by you or another person driving your car to a property.
Collision Insurance
The name is exactly what it sounds like. Collision insurance provides coverage for any damage done to your car as a result of a collision. For the damage to be covered, you will need to be the one at fault and it must be a collision with another vehicle or another object (i.e., fences, trees, rails).
Comprehensive Insurance
For any damage not caused by collisions, comprehensive insurance will provide the necessary coverage. Theft or damage due to other causes that aren’t collisions is typically covered by this policy.
Your car will be covered if it is damaged by anything other than another vehicle. This includes damage done by animals, hail, theft, rioting, vandalism, and more. However, it does not cover collision with fixed objects such as buildings.
Glass Coverage
Sometimes, windshields get cracks in them or shatter entirely. This policy can solve that problem by providing you with coverage from any damage to the windshield, front and rear windows, and sunroofs.
Personal Injury Protection (PIP)
This policy is also sometimes required in the majority of states and goes by another name: “no-fault coverage”. It required the insurance company you have to cover medical expenses for you and passengers at the time of an accident, no matter whose fault it was.
Let’s Recap
Car insurance works to provide car owners with coverage for damaged property or persons, damage to the owner’s vehicle, liability, and theft.
There are many types, with some being required by state laws and some being recommended.
If you’re shopping for a policy and are wondering about the costs, remember to take into consideration these factors: your driving record, location, type of vehicle, repair costs, and deductibles.