How Auto Insurance Works
Car insurance makes sure you’re covered when the unexpected arises, and having a good policy can save you money in the long run. But do you really know how auto insurance works? With so many car insurance companies and coverage options, it’s important to make sure you understand each part of an insurance quote before you sign on the dotted line. It might seem complicated at first, but it’s not as intimidating as you might think. Once you learn what each type of coverage means, you’ll be prepared to negotiate the best price.
What Is Car Insurance?
Like other types of insurance, car insurance is a safety net. It’s a contract between you and the insurance company that provides financial protection if your car is in an accident or stolen. Driving and car ownership come with inherent risks, including accidents, property damage or loss, and bodily injuries. Insurers close off these risks by selling policies that partially or fully cover the associated costs if you ever find yourself affected by such a situation.
Whether you’re looking for comprehensive coverage, gap coverage, or commercial insurance, understanding your auto insurance needs can protect your investment. After you take a look at the guide we’ve put together, you’ll be able to identify each type of insurance coverage and know how to shop around for it.
What Does Auto Insurance Cover?
Since there are several types of car insurance coverage, we’ve outlined the most common options:
- Liability coverage: Liability insurance covers any property damages or bodily injuries you may cause.
- Comprehensive coverage: If your car is damaged through means other than collision — fire, weather, vandalism, or hitting a deer — comprehensive insurance covers your losses.
- Collision coverage: Collision coverage is for crashes that involve objects like trees and curbs.
- Uninsured motorist coverage: Accidents involving an uninsured or under-insured party are covered through uninsured motorist coverage. This type of auto insurance covers injuries to both you and your passengers and vehicle damages.
- Medical payments coverage: No matter the cause of an accident, medical payments coverage allows you and your passengers to have medical bills covered by your car insurance.
- Gap coverage: Cars depreciate quickly, and there’s often a difference between the value of your car and the amount you owe on your car loan. In the event that your car is damaged beyond repair or stolen, gap coverage pays your auto loan in full.
Pros and Cons of Liability-Only Car Insurance
Liability insurance covers damages or injuries you cause during an accident. Full-coverage insurance, on the other hand, encompasses personal liability as well as the other types of coverages listed above. If you’re interested in gap insurance, though, that’s often an optional add-on.
How To Get Cheap Car Insurance
From your age to your credit score, there are many factors that affect the price of your car insurance. But there are a few measures you can take to get the best possible deal. If you follow these tips, you’ll be sure to get the best coverage for the lowest rates.
1. Regularly shop around.
Most auto insurance companies claim to have the lowest rates, but you’ll never know what discounts and rates are available until you shop around. It never hurts to check with smaller companies or competitors before you renew your current policy.
2. Bundle your policies.
Do you have life insurance or homeowners insurance? Do you own more than one vehicle? If you do, you might be eligible to bundle your policies. Policy bundling is a great way to save money while leaving you with only one payment.
3. Don’t leave discounts on the table.
From safe driver discounts to multi-vehicle credits, car insurance companies offer a lot of ways to reduce the cost of your premium. Don’t leave them on the table by not knowing they’re available — always ask your insurance agent about eligible discounts.
4. Consider usage-based insurance.
Usage-based insurance, or UBI, monitors your driving habits. The better your driving, the lower your rates will be. Another option is pay-per-mile insurance that adjusts your rates according to the distance you drive. So, low mileage drivers may be able to save on auto insurance.
5. Get the right car.
From safety ratings to mileage to the value of your vehicle, many factors go into calculating the cost of your insurance premium. Making sure that you’re driving the right car can help you get the cheapest car insurance quote. So, the next time you’re in the market for a new vehicle, keep this in mind.
Important Auto Insurance Terms to Know
|Premium||The amount you pay for insurance coverage|
|Claim||A request you make for reimbursement after an accident|
|Deductible||The out-of-pocket amount you pay when you make a claim|
In exchange for auto insurance coverage, you’ll pay a fee called a premium. It pays for retaining an insurance company. Your premium can be paid in full or spread out over a number of months, and it makes sure you’re protected.
If you file a claim with your insurance company, you’re asking them to reimburse you for any damages or injuries that are covered under your policy. After you file a claim, an accessor will estimate the damages. Then, you’ll be expected to pay the agreed deductible.
When you sign up for a policy with any car insurance company, you agree to pay part of any damages you might claim. The portion for which you’re liable is called the deductible. It will vary depending on your coverage.
What Other Types of Vehicles Can You Insure?
In addition to cars, you can get insurance coverage for many different types of vehicles, including:
- Motorcycles: Motorcycle insurance is relatively inexpensive and can be purchased alone or added to your auto policy. Protect everything from a motor bike to a custom chopper.
- Boats: Boat insurance offers the same protection for your watercraft as automobile insurance. Make sure your speedboat, sailboat, or any other type of boat is insured.
- Trucks: Truck insurance is a type of vehicle insurance that’s typically a little more expensive than car insurance.
- Classic cars: If you have a classic car, then you know it’s a collector’s item worth protecting. Classic car insurance comes with restrictions about the age and usage of the vehicle.
- Motorhomes: From pop-up campers to large RVs, motorhome insurance protects you and your recreational vehicle.
- Trailers: Trailers can be insured under your auto policy, but the best coverage is found with a separate utility trailer policy.
- Semi-trucks: Commercial truck insurance must be carried on all operating semi-trucks.
- Rental cars: Rental car insurance coverage can be purchased at the rental counter. However, many auto policies may already have you covered.
Frequently Asked Questions
How much car insurance coverage do you need?
The amount of coverage you need depends on the value of your vehicle and your state and local laws. Taking the time to compare top car insurance companies will make sure you get the cheapest car insurance rates and the best coverage.
Do rideshare drivers need special car insurance?
Most rideshare companies require that drivers carry private insurance, but many standard policies don’t cover damages involving the commercial use of a car. So, it’s advisable to purchase a separate rideshare policy.
Do you need special car insurance to make deliveries?
Unless you’re driving a vehicle provided to you by a company specifically for delivering goods, you’re required to carry a commercial insurance policy to make deliveries.
Do you need car insurance with a learner’s permit?
New and learning drivers need coverage just as much as experienced drivers. There are stiff penalties for not carrying insurance on those who have a learner’s permit.
What is SR-22 car insurance?
SR-22 car insurance is basically the same as any other coverage, but it has an added Certificate of Financial Responsibility. SR-22 insurance is frequently required by those who have repeated and severe driving infractions.
Too Long, Didn’t Read?
Before you start to compare car insurance companies, it’s important to know about the level of coverage you need and the different types of auto insurance available. Whether you’re seeking liability coverage on an old car or full coverage for your first-time driver, the only way to get the best deal is to shop around. You never know what sort of discounts you might find.