Auto insurance is legally required in most states. It also covers unexpected losses and helps avoid out-of-pocket expenses. Getting the most out of your car insurance is easy when you understand how car insurance works, what coverage is and isn’t available, and what to expect.
Do I Need Car Insurance?
You don’t need auto insurance to hold a driver’s license in most states, but the car, truck, RV, or motorcycle you’re driving must be insured. The insurance covers the vehicle and, usually, whoever is authorized to drive the vehicle. Driving without required car insurance can have severe legal and financial consequences, such as license loss, jail, accident damages, or car impoundment. Your car insurance costs will be higher as a result. More than six million police-reported car crashes are reported annually in the U.S., including personal injury and property damage. Safe driving can help avoid accidents, but you’re never in full control of on-the-road circumstances. Accidents are sometimes unavoidable, as are damages or injuries.
How Does Car Insurance Work?
First, you’ll get an estimate (or quote) for the insurance price (the premium), with several different options based on the maximum protection amounts (coverage). Coverage is based on your state requirements. For example, in some states, the insurance company is required to offer you uninsured motorist coverage. You select the protection (coverage) you want and pay the premium of your insurance contract (policy) in monthly, semi-annual, or annual payments. If you have an accident or want to make a compensation claim, you exchange insurance information with the other driver and contact the police to come to the scene or ask them how to file a report. With the right coverage, the insurance company takes care of negotiating and paying costs. In some cases, you’ll be responsible for a small amount, known as the deductible—the amount you’ve agreed in advance to pay if you make a claim. In states with “no-fault” insurance laws, each party’s own insurance company covers injury claims, no matter who is “at fault” in the accident. States initiated no-fault laws to reduce lawsuits seeking compensation. No-fault insurance states have different minimum insurance types and amount requirements.
What Does Car Insurance Cover?
At a minimum, car insurance policies cover your liability (or responsibility for an accident) for bodily injury to others and property damage you cause. Some insurance coverage is mandatory, while other types are optional. Here are some common types of coverage: To determine how much to charge you, insurance companies could use some or all of these factors:
Your age, sex/gender, address, marital status, and insurability or credit score All the car’s drivers and their driving histories Accidents, tickets, or violations Car use (commuting, travel, business) Car type (make, model, and year) Value of the car and any car modifications Anti-theft devices The total coverage amount Your deductible Occupation, level of education, homeownership status Annual mile driven
Car Insurance Discounts
Each car insurance company offers discounts. One car insurance may provide a lower rate based on how you use your car, while another may not. Quotes from different insurance companies will give you the best price for your unique situation. Examples of car insurance discounts:
Payment discounts (including paying the premium in full, paperless statements, autopay)Plan renewal or loyalty discountsGood-student discountsDefensive-driver course or safe drive discounts Discounts for bundling more than one car, or multiple policies (home, renters)Discounts for keeping your car in storageDiscounts for anti-theft devicesNew car discountsApp-based or usage-based insurance discountsMilitary, union, or other job-related discounts
If your situation changes during the year and you’re now eligible for a potential discount, call your agent to see if they can apply it; for example, now you’re a good student with straight As—and you weren’t before.
How to Get Car Insurance
First, you’ll get a quote (or estimate) by providing an insurance company, independent agent, or broker with the necessary information about your car, including the make, model, and year, and your personal information. You can usually get several auto insurance quotes in a few minutes, and in most cases, get a policy issued right away or on the same day. Most insurance company websites can provide an online quote. The insurance price is locked in for a set time period (term). When the policy renews, the price may change again if there have been changes. If you choose to change insurance companies partially through the period for a lower rate elsewhere, you may receive a refund and face penalties.
