Being a car owner is a big responsibility, and there are many risks you can encounter when out on the roads. Car insurance can help you when accidents or other problems arise, and this guide will provide an in-depth answer to the question of how does car insurance work.
What Is Car Insurance?
Before we look at answers to questions like “How much is car insurance?” and “Do I need insurance before I buy a car?”, it’s important to first understand what car insurance actually is.
In simple terms, car or auto insurance exists to cover damage to your vehicle, providing you with financial protection if you get involved in accidents or incidents that leave your car in need of repairs or replacement parts.
It can come in various forms, with car insurance coverage varying depending on the plan you purchase, and prices can also vary quite a lot too.
What Are the Types of Car Insurance?
In order to understand how does car insurance work, it’s essential to know the differences between these types:
- LiabilityLiability car insurance is a legal obligation in 49 states across America and serves to protect you if you’re at fault for an auto accident. When this happens, the liability coverage will pay for repairs of damage to other vehicles or structures, as well as medical bills for any injuries that other people might have suffered.
- CollisionCollision coverage is designed to protect you in case your vehicle collides with another vehicle or object, such as a building, tree, or fence. This type of car insurance can cover the costs of repairs to your vehicle.
- ComprehensiveAs the name implies, comprehensive car insurance is one of the broadest possible plans you can opt for, offering coverage against a wide range of possible scenarios and situations, including issues that are totally out of your control like criminal damage or falling trees.
Who Is Covered by Auto Insurance?
The specifics of each plan can vary. Usually, only the holder is covered by their auto insurance, so if someone else drives your car and gets in an accident, they won’t be covered. However, most providers give you the option to add other drivers to the plan for an additional fee.
Is It Mandatory to Have Auto Insurance Coverage?
Auto insurance is legally required in all states except New Hampshire. Even in NH, you need to be able to show you can cover costs if an accident happens, so most people there also have insurance.
If you’re wondering “Do I need insurance before I buy a car?” then the answer is no, as you can technically purchase a car without insurance, but you’ll need insurance to actually drive it anywhere.
You may also wonder “Do I need insurance on a car that doesn’t run”? and the answer is yes in most states.
If you want to share your vehicle with other drivers, like a son, daughter, or spouse, you’ll need to make sure to add them to your policy. This is offered as an optional extra on many auto insurance plans.
How Much is Car Insurance?
You’ll need to pay either a monthly or annual premium for your car insurance, but there aren’t any ‘set prices’ in this field, as the costs can vary enormously, depending on a lot of different factors.
How Prices Are Determined
As stated above, a lot of different factors can go into the calculation of your car insurance costs:
- Age – Older and more experienced drivers won’t need to pay as much on their auto insurance as teens.
- History – If you have more years of driving history without any accidents, you’ll get a discount on your insurance premium.
- Location – Location also plays a part, as issues like car accidents, criminal damage, and weather conditions can be more serious in certain parts of the country.
- Car – Older and smaller cars tend to be cheaper to insure.
- Usage – If you use the car often and drive many thousands of miles per year, you’ll have to pay more.
- Payment Method – You can actually get a discount on your insurance with some providers if you pay in a certain way.
More Expansive Cars Don’t Always Cost More to Insure
It’s important to note that lots of factors can play their part in calculating the cost of car insurance. Your car’s make and model are just one of those factors, and it’s not always true that expensive cars lead to higher insurance costs. If you’ve got good driving history and live in a safe area, you can get very affordable insurance.
Car Insurance Coverage
All drivers behind the wheel need to know what to do next after an accident. To fully understand how does car insurance work, here’s a list of some of the coverage options available with most modern plans:
- Liability – Auto insurance can payout if you are liable for an accident, covering repairs, medical bills, and so on for the injured parties.
- Legal Fees – If you get sued due to an accident, auto insurance can help to cover the costs of the suit.
- Collisions – Car insurance can protect you if you collide with other cars or objects.
- Medical Bills – Auto insurance can also cover the costs of medical bills you may have to pay if you get injured in an accident, even if it’s your fault.
- Property Damage – Some insurance plans can also cover property damage that may occur in accidents.
- Rental – If you need to make use of a rental car while your main vehicle is being repaired, the costs can be reimbursed by some insurance providers.
- Roadside Assistance – If you have to pay to get your car towed or repaired on the roadside, this may also be covered.