How Does Car Insurance Work and What Is It?
Chloe Della Costa is a freelance copy editor and writer with a degree from Bard College. She specializes in copy editing and fact-checking content related to personal finance, insurance, and business.
Understanding how car insurance works protects you on the road and helps you avoid paying potentially huge bills. This includes knowing the types of coverages offered, the claim process and car insurance requirements.
What is car insurance?
Car insurance provides drivers with financial protection if they’re involved in a car accident. It can also protect your car from theft and vandalism. Vehicle damage and injuries can result in massive bills that you may need to pay if you don’t have the proper car insurance.
Car insurance costs often vary between companies and policyholders. Your age, location, driving history and vehicle are some factors that affect your car insurance rate.
You can buy car insurance through an insurance company’s website, an agent or an independent insurance comparison site.
Car insurance coverages
Car insurance includes several different types of coverage. Most states require you to have at least a minimum amount of liability coverage. If you want more than that, you can buy a full-coverage car insurance policy, which also includes comprehensive and collision coverage.
Liability coverage
Liability coverage protects you if you’re liable for injuries or property damage tied to a car accident. This coverage is mandatory in most states.
Collision coverage
Collision coverage protects against damage to your own vehicle caused by a collision. Collision coverage is not required by law, but a lender may require it if you have a loan on your vehicle.
Comprehensive coverage
Comprehensive coverage protects you if your car is damaged from anything other than a collision, which includes natural disasters, vandalism and vehicle theft. Like collision coverage, comprehensive coverage is not required by law, but it may be required by a lending company if you have a loan on your vehicle.
Uninsured and underinsured motorist coverage
This coverage protects you if you’re hit by a driver who doesn’t have any car insurance or doesn’t have enough coverage. Some states require you to have this coverage.
Medical payments coverage
This coverage can help pay for medical bills for you and your passengers after an accident. It covers you no matter who caused the accident. It is not offered in every state, but it is required in some states.
Personal injury protection (PIP)
If you’re in a car accident, PIP coverage will help pay for medical bills and lost wages if your injury prevents you from working. This coverage can apply to passengers in your car. PIP is not offered in every state. However, it is required in some states.
How do I file a car insurance claim?
With most insurers, you can choose the body shop if repairs are needed. Your insurance company can pay you or the body shop directly. You can also negotiate the settlement amount if you believe the offer is too low.
Why do you need car insurance?
Car insurance can protect you and others on the road in many ways. Most states also require a minimum amount of car insurance for you to drive legally.
Accidents still happen even if you’re a safe driver. Car insurance can pay for your repairs or the value of your car if it’s totaled, which can save you thousands of dollars. You’ll also be protected if you’re responsible for damage and injuries from an accident you caused.
The average cost of a full-coverage policy is $1,984 a year, while a minimum-coverage policy costs $777 per year, on average. According to the Insurance Information Institute, the average liability claim for just the vehicle was around $5,000, while the average liability claim for injuries was around $24,000, in 2022. In this case, after you paid your annual premium and deductible, you would still save a lot of money.
Methodology
Car insurance rates were obtained from Quadrant Information Services for the largest insurance companies in every U.S. state and the District of Columbia. Unless otherwise mentioned, prices reflect insurance for a 30-year-old male driver with good credit and a clean driving record. Minimum-liability rates include personal injury protection and/or uninsured motorist coverage where required by state law.
Rates are provided for comparative purposes only. Your rates may vary.