How Does Auto Insurance Work?

If you own a vehicle, you probably already have car insurance. But with words such as premiums and deductibles, car insurance can get a bit confusing. It is helpful to at least understand the basics of car insurance so you can decide if you have the right coverage or not. There are currently 47 states that require car owners to have car insurance.

• There are various types of coverage that insurance companies offer.  The major coverage types are liability, collision and comprehensive. Liability coverage pays for injury and property damage to the other parties involved in an accident. State laws determine the amount of liability coverage you must carry on your policy. Collision coverage pays for damages to your vehicle. Comprehensive coverage pays for things such as fire, wind, hail, flood, vandalism or theft.


• Car insurance premiums are the amount of money that you pay to your insurance company and in return they offer you car insurance. Premiums are either paid monthly or yearly. Premiums can vary greatly depending on things such as age, gender, driving record and credit rating.


• All car insurance policies have a deductible. The deductible is the portion of your policy that you are responsible for paying. Deductibles will vary by state but the most common are $100, $250, $500 or $1000. An example of a deductible is if you are in a car accident and the total damages caused are $2500 and your deductible is $500, you will have to pay the $500 and your insurance will cover the remaining $2000.


• When an automobile accident occurs, the first thing that you will usually do is call your insurance company and speak with an agent. The agent will collect information about the accident and then start a claim, assigning you a claim number. The claim is a record of the actual car accident that is connected to your specific car insurance policy. After this process, the claim is assigned to a claims adjuster who will then process the claim.