For the over 276 million cars on the road today, car insurance is legally regulated to afford drivers and passengers financial protection. Before you can legally operate a vehicle in most states, you must purchase a minimum amount of car insurance. However, before you can buy a new auto insurance policy, you should know how car insurance works. The Bankrate team can help.
What is car insurance?
Car insurance is a type of coverage that protects you financially if you experience a loss or are involved in an accident. From collision coverage to medical expenses, your auto insurance policy can protect you from risking financial devastation should your deductibles and losses be more than you can afford.
The average car insurance claim for bodily injury liability alone can cost $15,785, while property damage averages around $3,841 per claim. With car insurance, your insurance company can help cover these damages following a covered accident so you are not left financially responsible.
Types of car insurance
There are many types of car insurance coverage available to provide well-rounded financial protection for your vehicle:
- Bodily injury liability (BIL)
- Property damage liability (PDL)
- Collision coverage
- Comprehensive coverage
- Medical payments coverage
- Uninsured and underinsured motorist coverage (UM/UIM)
You may also elect to purchase additional types of protection for your auto insurance policy, such as personal injury protection (PIP), gap insurance, new car replacement, roadside assistance coverage and rental car insurance.
How does car insurance work?
Purchasing car insurance can be simple when you find top auto insurance companies and compare quotes for your desired coverage. But after purchasing, how does car insurance work? You will need to select the kind of coverage that you need, including policy limits for damage and injuries. With full coverage, you will also need to choose a deductible, which is the amount you pay after an accident before your insurance coverage steps in to help with your claim.
How to file a claim
If you get in an accident, the process for filing claims is similar across car insurance companies:
- Call your insurance company as soon as possible after the accident. They will direct you on the next steps.
- Gather the documentation needed to file your claim. Your insurance professional can provide you with this information, but it generally includes a “proof of claim” report and a copy of the police report.
- Monitor your claim progress through the insurance company and be sure to follow up with your claim specialist.
Before you file a claim, check with your insurance provider to see what specific steps are necessary for your claim so you do not experience any unnecessary delays or issues.
What goes into insurance rates
Understanding auto insurance rates is key to saving money on your premiums. The average cost of car insurance is $1,674 per year for full coverage, but the cost can vary significantly, depending on the state in which you live. For example, while Louisiana pays the most for car insurance at $2,724 per year, Maine has the cheapest full coverage rate, averaging $965 per year.
Other rate factors that help determine your auto insurance cost include your age, credit score (in states that allow a credit rating to be considered), location, driving record and vehicle type. To be sure that you get the right coverage at the lowest price, consider starting your search by shopping the best car insurance companies and collecting multiple quotes.
How much car insurance do you need?
As mentioned above, your state most likely has minimums on the different types of coverage that you need to carry. There are three types of coverage typically required of drivers, written as liability amounts in the following order:
BIL per person / BIL per accident / PDL per accident
You will commonly see these ratios listed as minimums. For instance, it is common to see 50/100/25. Those are simply the minimum amounts of each coverage in thousands of dollars. So a 50/100/25 ratio for auto insurance means: if you are at fault, up to $50,000 gets paid out for each person’s injury, $100,000 is the maximum total payout per accident, and $25,000 is the maximum payment for property damage. State law designates the minimum amount of coverage that is required for its drivers.
However, an insurance agent may recommend that you carry more than the minimums. For instance, if your property is higher in value than the minimum coverage required by the state, you may need more coverage. An insurance agent can help you navigate how much coverage is right for you.
How to save on car insurance
Comparison shopping for an auto insurance policy in your area of the nation is crucial for finding cheap insurance, because prices vary by insurer and ZIP code. Some of the cheapest car insurance companies offer much more affordable options than their competitors.
Outside of comparison shopping, there are some actions you can take to help slash your insurance costs, such as understanding how much coverage you really need and purchasing accordingly. It also pays to look for car insurance discounts for things like maintaining a good driving record, taking a defensive driving course or putting a limited number of miles on your car annually. Students can also receive rewards for good grades, so it is often worth looking into student discounts.
Requesting higher deductibles can also lower your insurance costs substantially. In fact, you could lower your collision and comprehensive coverage cost by 15-30% by raising your deductible from $200 to $500, according to the Insurance Information Institute. Additionally, setting a deductible that is $1,000 could save you 40% or more.
What do I need to buy car insurance?
If you are looking for how to get car insurance for the first time or have not set up a new policy in a while, you might be wondering, “What do I need to buy car insurance?”
You may need to provide several pieces of information before purchasing a new car insurance policy, all of which provide a better idea of you and your vehicle. These include your:
- Driver’s license (both for you and for people you expect to be driving your insured vehicles)
- Vehicle registration
- Social Security number
- Banking information
- Vehicle identification number (VIN)
It also helps to have a copy of the current declaration page, as this outlines current insurance coverage on any vehicles for which you need a new quote.
Once you have your items together, get a few online car insurance quotes to compare how you can save with one insurer versus another. You may qualify for better discounts with a particular auto insurance company, so it is worth the time to shop around for quotes before you buy.