How Does Car Insurance Work? 2022 Guide

Auto insurance provides financial protection for drivers in the event of an accident, vehicle damage, personal injury or theft. Without auto insurance, drivers would risk financial ruin every time they get behind the wheel, as serious collisions can cost hundreds of thousands of dollars in property damage and bodily injury.

Various types of auto insurance coverage work a little differently, depending on the driver at fault, the type of damage caused, and the state in which the accident occurs.

Reading: How does insurance pay for car accident

how the different types of car insurance work

bodily injury liability insurance

Bodily injury liability insurance covers medical bills that other people may have after a collision in which you are at fault. required in most states.

property damage liability insurance

Liability insurance covers damage you cause to other people’s property with your car. required in most states.

medical payment coverage (medpay)

Medical payments coverage helps pay your medical bills after an accident. it is required in some states.

personal injury protection (pip) insurance

Personal injury protection insurance helps you with your medical bills and other costs after an accident, regardless of who is at fault. it is required in some states.

collision insurance

Collision insurance can help repair your vehicle after an accident with another car. Collision coverage combined with comprehensive insurance is often referred to as “comprehensive coverage.” is optional.

all risk insurance

Comprehensive insurance covers non-accident related damages such as vandalism and fallen tree limbs falling on your vehicle. is optional.

differential insurance

gap insurance helps drivers pay off the rest of their auto loan if their vehicle is destroyed or stolen. is optional.

roadside assistance

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Roadside assistance coverage reimburses you for services such as towing and replacement of flat tires. is optional.

rent reimbursement

Rental reimbursement covers the cost of a rental car while your damaged car is repaired after a collision. is optional.

how car insurance works when you’re at fault

When you are at fault in an accident, the other driver will file a claim with your liability insurance for medical bills and vehicle repairs. If you also need your medical costs and property damage covered, you’ll need to file a claim with your own collision insurance, personal injury protection, or medpay.

Before your collision insurance covers repairs to your vehicle, you’ll likely need to pay a deductible. Deductibles are the amount of money you must pay before your insurer covers the rest of a claim. personal injury protection, uninsured motorist, and comprehensive insurance generally also have a deductible.

Learn more about how auto insurance works when you’re at fault.

how car insurance works when you’re not at fault

When you’re not at fault in an accident in most states, at-fault driver’s liability insurance covers your medical bills and vehicle repairs.

No-fault states are the exception, requiring you to use your own auto insurance (personal injury protection) to pay your medical bills after an accident. however, the at-fault driver’s insurance will continue to pay for repairs to your vehicle.

If the at-fault driver doesn’t have any insurance, or if your liability insurance isn’t enough to cover your costs, you can file a claim with your own uninsured motorist insurance.

Learn more about how auto insurance works when you’re not at fault.

how car insurance works when fault is unclear

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When you file a claim, either with your own insurance company or someone else’s, the insurance company will send an adjuster to investigate the incident and make an official determination of fault. this process can sometimes take a while, so if you need to have repairs to your vehicle covered before the fault can be determined, you can still file the claim with your own collision insurance. If it is later determined that you were not at fault, your insurance company will try to recover those costs, including your deductible, from the other driver’s insurer through a process called subrogation.

If both drivers share fault in an accident, the insurance company that pays the claims is determined by state negligence laws. In Virginia, for example, drivers found even slightly at fault cannot receive any compensation for their expenses from the other driver. California, however, allows drivers to collect damages based on their percentage of shared fault.

Learn more about how fault is determined in a car accident.

how much car insurance do you need?

auto insurance is required in 48 of the 50 states, except new hampshire and virginia. Anyone who owns and drives a car must show coverage to avoid costly penalties. If you are caught driving without insurance, you can face fines, lose your license, or even go to jail. Many states allow you to put down a cash deposit instead of buying car insurance, but it usually has to be between $25,000 and $160,000.

Most states only require drivers to carry liability insurance, while others require additional coverage, such as personal injury protection and uninsured motorist coverage. You just have to meet the state minimum requirements, but it’s recommended that you purchase as much coverage as you can comfortably afford, as minimum coverage limits generally don’t provide enough protection against serious accidents.

Learn more about how much car insurance you need.

how to get car insurance quotes

step one: collect your information

To get auto insurance quotes, collect 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 the potential risks and benefits associated with your car, such as safety ratings. they use your data as a factor in their quote.

Step Two: Determine What Types of Coverage You Want

The more coverage you buy, the more you 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 against potentially large bills.

step three: choose which companies you want to get quotes from

There are more than 80 auto insurance companies operating in the United States. According to wallethub research, the top 5 auto insurance companies are:

1. geico
2. progressive
3. usaa
4. esurance
5. travelers
6. the hartford
7. mercury
8. aaa
9. state farm
10. mutual freedom

step four: compare quotes

You can use the wallethub comparison tool to look up quotes from multiple insurers at once, making the process as quick and easy as possible. We recommend that you compare quotes from at least three insurance companies to ensure you get the best deal possible.

video: how does car insurance work?

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