A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Written by Laura Berry
Former Insurance Agent Laura Berry

Melanie Musson is the fourth generation in her family to work in the insurance industry. She grew up with insurance talk as part of her everyday conversation and has studied to gain an in-depth knowledge of state-specific insurance laws and dynamics as well as a broad understanding of how insurance fits into every person’s life, from budgets to coverage levels. Through her years working in th...

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Reviewed by Melanie Musson
Published Insurance Expert Melanie Musson

UPDATED: Apr 1, 2021

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In order to own and operate a vehicle, all drivers need auto insurance. Specific requirements vary from one state to the next, but all areas require drivers to maintain basic liability coverage. This insurance covers damages and injuries that a driver causes with their vehicle. In addition, drivers can choose to purchase full coverage insurance, which pays for damage to the insured vehicle itself.

An insurance policy is a contract between the driver and the insurance company. The insured pays regular premiums; in exchange, the company agrees to pay for damages and injuries caused by a car accident. What the insurance will pay for is determined by the coverage included on the policy.

How does Car Insurance Work?

Liability insurance includes bodily injury and property damage coverage. This is sold with limits. For example, a policy may have property damage liability limits of $100,000. This means that the insurance company will only pay up to the first $100,000 worth of damage a driver causes in an accident; anything exceeding that amount is the insured’s responsibility to pay out of pocket.

Full coverage insurance includes first-party coverages like collision and comprehensive. These will pay for the repair or replacement of the insured auto. This coverage is limited by the value of the vehicle, and the insured must pay a deductible toward the repair of his or her vehicle. For example, if a policy has collision coverage with a $500 deductible, the insured must pay the first $500 of their repairs after an accident; everything over that, up to the total value of the vehicle, is covered by insurance.

In addition to these basic coverages, insurance policies may provide coverage for a driver’s injuries, reimbursement for a rental car, protection against uninsured motorists and roadside assistance. The more coverage a person carries, the better protected they will be against accidents, but the cost of the policy will increase with each additional coverage.

What is Covered Under Insurance?

Different coverages will apply to different situations. The specific details of a coverage will be listed in the policy declarations page, and you can clarify any specific incident with your agent. As a rule, the applicable coverage will be decided by what caused the damage:

  • Liability Coverage pays for damage and injuries sustained by another person if the insured driver is at fault for the accident. Liability is determined by a licensed adjuster after the claim has been filed.
  • Collision Coverage pays for damage that an insured vehicle receives as a result of a collision with a vehicle, person or fixed property. This includes incidents involving parked cars.
  • Comprehensive Coverage pays for damage caused by vandalism, acts of nature, animals and other non-collision damage.
  • Uninsured Motorist Coverage pays for damage caused by a driver who does not have insurance; in some states, this includes hit-and-run accidents.
  • Personal Injury Protection or medical payments coverage pays for injuries that an insured driver sustains while involved in an auto accident. It also pays for injuries sustained when a person is hit as a pedestrian or injured while riding in another person’s vehicle.
  • Rental Reimbursement Coverage pays for the cost of renting a car while the insured auto is being repaired.

Not all drivers will require all coverage. By picking and choosing the coverage that suits your needs, you can personalize the auto policy and ensure that you never pay for more insurance than you need.

How much does Car Insurance cost?

The cost of auto insurance varies depending on numerous factors, such as a driver’s age, gender, credit score and driving history. Policies also vary in price from one state to the next and between different insurance companies. As a rule, the more coverage a person purchases, the higher the cost of insurance. People with a higher risk of being involved in an accident, such as those with a history of collisions or traffic violations, will pay more for insurance than safe drivers.

In order to make themselves more competitive, insurance companies offer numerous discounts to qualifying customers. Some examples include safe driver discounts, multi-policy discounts, good student discounts and deductible reduction programs. Whenever you purchase insurance, be sure to ask what programs the insurer provides so that you can obtain the best possible price on insurance.

How to Find a Car Insurance Policy?

The best way to find a new insurance company is to obtain a free quote online. By comparison shopping between multiple insurers, you can ensure that you’re getting the best price for your needs. When submitting a quote request, be sure that you provide accurate information about your vehicle, where you live and who will be driving your vehicles; this helps ensure that the quotes you receive will be accurate.

After you’ve chosen a provider, you can work with the agent or customer service department to obtain a policy that will suit your needs. By asking questions and personalizing your coverage, you can be sure you know exactly what will be paid in the event of an accident and how much you’ll be required to pay each month to keep the policy active.