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Katie OrmsbyAuto Insurance Expert

Katie enjoys helping readers make sense of Auto Insurance options. She's previously written business and shopping features for The Seattle Times and Seattle Met magazine. She has a degree in journalism and political science from the University of Washington.

How Auto Insurance Works

Auto 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 Auto Insurance?

Like other types of insurance, auto 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 auto insurance coverage, we’ve outlined the most common options:

Pros and Cons of Liability-Only Auto Insurance

Inexpensive premiums
Out-of-pocket auto replacement
Covers at-fault property and bodily damages
No personal medical coverage if you’re at fault
A good option for older vehicles
No rental car coverage

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 Auto Insurance

From your age to your credit score, there are many factors that affect the price of your auto 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

PremiumThe amount you pay for insurance coverage
ClaimA request you make for reimbursement after an accident
DeductibleThe out-of-pocket amount you pay when you make a claim

Premiums Explained

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.

Claims Explained

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.

Deductibles Explained

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:

Frequently Asked Questions

How much auto 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 auto 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 auto 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 auto 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 auto insurance?

SR-22 auto 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 auto 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.