Car insurance is a contractual agreement that provides financial protection for drivers in case of an accident, vehicle damage, personal injury or theft. Without car insurance, drivers would be at risk of financial ruin every time they get behind the wheel, as severe collisions can cost hundreds of thousands of dollars in damages. Plus, the top three reasons people go bankrupt are medical bills, job loss, and uninsured catastrophes — all of which can result from a car accident. With car insurance, however, every driver can spend less time worrying about paying for costly damage on their own.
Key Things to Know About How Car Insurance Works
- Car insurance pays for damage that a driver causes, and may also cover their vehicle repairs and medical bills.
- Each driver buys a policy from a car insurance company, which promises set levels of coverage in various situations.
- The most common types of car insurance coverage are liability, collision, comprehensive, personal injury protection and uninsured motorist.
- You can use car insurance by filing a claim after you’ve been in an accident. After you pay a deductible, your policy with cover the rest.
- Car insurance is required in 48 states, but specific coverage requirements and costs vary between states and drivers.
Types of Car Insurance
Bodily injury liability insurance covers any medical bills that other people might have after a collision where you’re at fault. It is required in most states.
Property liability insurance covers damage that you cause to other people’s property with your car. It is required in most states.
Medical payments coverage helps pay for your medical bills after an accident. It is required in some states.
Personal injury protection insurance helps with your medical bills and certain other costs after an accident, regardless of who is at fault. It is required in some states.
Collision insurance can help repair your vehicle after an accident with another car. Collision coverage combined with comprehensive insurance is often called “full coverage.” It is optional.
Comprehensive insurance covers non-accident related damage such as vandalism and fallen tree branches landing on your vehicle. It is optional.
Gap insurance helps drivers pay off the rest of their car loan if their vehicle is totaled or stolen. It is optional.
Roadside assistance coverage reimburses you for services like towing and flat-tire replacement. It is optional.
Rental reimbursement covers the cost of a rental car while your damaged car is being repaired after a collision. It is optional.
How to Use Car Insurance
To use car insurance, you’ll have to file a claim after you’ve been in an accident. But what the process looks like depends heavily on who was at fault. After an accident, the police collect evidence and details about what happened. If another driver caused the accident, their insurance pays for your repairs. If you caused the accident, your insurance pays for repairs to the other driver’s car – and for yours, if you have certain types of coverage.
Even in “no fault” states, police and insurance companies will determine who caused an accident in order to see whose car insurance should pay for property damage. No-fault rules only apply to bodily injury liability. That means each driver’s insurance covers their own injuries (as well as passengers’ injuries), no matter who was at fault, in those states.
Regardless of whether you live in a no-fault or fault state, your next step is to file a claim with your insurance company online or over the phone. If necessary, you should also schedule a vehicle damage inspection. An inspection helps your company determine who is at fault for the accident and how much repairs should cost.
You can take your car to the body shop of your choice for repairs. Your insurance company will either reimburse you or pay the body shop directly. You’ll be responsible for paying your deductible, however, which is the amount paid out of pocket before your insurance company covers any expenses. Depending on your insurance coverage, you can get paid up to the cash value of your car (minus your deductible) if your car is totaled. Payouts for other types of coverage vary based on the specifics of the policy, but the claims process works the same way.
Is Car Insurance Required?
Car insurance is required in 48 of the 50 states, and anyone who owns and drives a car needs to prove that they have a financial safety net in case of a costly accident. Over 30 states allow you to make a cash deposit in place of buying car insurance – but your deposit has to be $25,000- $160,000. Unsurprisingly, most drivers choose to buy car insurance to meet the financial responsibility requirements instead.
Drivers can choose to carry the state minimum or buy additional insurance. A state might require drivers to buy more than the minimum insurance if they cause a bad accident or violate a serious traffic law – by driving while intoxicated, for example.
Penalties for violating the financial responsibility law vary from state to state, but if you’re caught driving without insurance, you can face fines, lose your license, get your car impounded, or even go to jail. And of course, without an insurance company to pick up your bills, you are personally liable for any car repair or medical costs that result from an accident involving your car. You can even be sued by people you injure or by the owner of any car or property you damage.
As a result, people who don’t own a car but drive one should also have an insurance policy. Car insurance companies offer non-owner policies that cover someone driving a vehicle that they don’t own, like a roommate’s car or an employer’s taxi. With a non-owner policy, you just get coverage for yourself and any damage you might cause, not any damage the car might sustain. This type of coverage is cheaper than a car-and-driver policy, since the car’s owner should already have coverage for the vehicle you’re using.
Who Sells Car Insurance?
There are over 80 different car insurance companies operating across the U.S. They offer insurance policies for cars, trucks, motorcycles, and RVs. Often, they sell policies for things like boats and houses, too. Policies last for six months or 1 year, in most cases. You can pay up front, on a monthly basis, or in several installments over the course of your policy, depending on the insurance company.
Top 10 Car Insurance Companies
- State Farm
- Liberty Mutual
- American Family
Car insurance companies make money by charging you now for their promise of future bill coverage if you’re in an accident. But they hope you never need to cash in on that promise.
However, car insurance is a good gamble for you, too. When you buy a policy, you’re betting a few hundred dollars to help safeguard your finances from the possibility that you might face tens of thousands of dollars in medical bills or car repair payments. And since car accidents and car damage are extremely common, there is a good chance that you’ll need to use your insurance.
Either way, you’re better off losing a few hundred dollars and guaranteeing yourself the financial assistance you’ll need in a serious accident. There are plenty of reputable car insurance companies to choose from, so you’re sure to find reasonably priced coverage in your state.
How to Get Car Insurance Quotes
To get car insurance quotes, gather your personal information, such as your driver’s license number, Social Security number, and your car’s VIN. This information helps companies learn about your driving history and any potential risks and benefits associated with your car, like safety ratings. They use your data as a factor in your quote.
Next, decide what kind of coverage you want or need. For example, do you need collision coverage for a new car, or is your vehicle too old to be worth spending thousands of dollars to repair? The more coverage you buy, the more you’ll pay for insurance. But as a general rule, it’s a good idea to buy as much coverage as you can afford – each category represents protection from potentially large bills.
Finally, you can use WalletHub’s comparison tool to check for quotes from multiple insurers at once, making the process as quick and painless as possible.
Final Thoughts & Next Steps
Don’t drive until you have a car insurance policy that meets your state’s requirements! You don’t want to be caught violating state laws or get stuck paying tens of thousands of dollars after a car accident.
For next steps and more information, here are some additional resources to help you learn about car insurance and buy a policy: