How Does Car Insurance Work?

Car insurance is a necessary evil. We don’t always want it, and we certainly do not want to spend money on it. Unfortunately, we all need auto insurance. It’s required by law in the United States and it’s generally a smart thing to have. Continue reading below to learn why we need auto insurance, how it protects you after an accident, and how to purchase it.

how does car insurance work

Why We Need Auto Insurance

Auto insurance is required in all 50 states. Although it is illegal to be driving without insurance, many people don’t understand why. They don’t understand what car insurance does and how it works.

How Does Car Insurance Work

Auto insurance is required by law, but why do we need it? And how does it work?

The reason auto insurance is required for all drivers is that damages from car accidents need to be covered. Losses that incur from these accidents can be extremely serious. The government understands this and therefore makes auto insurance mandatory in order to minimize the risk to the public.

Think of auto insurance like this – its main purpose is to restore a person’s pre-accident status. If you are driving down the road and hit a curb, destroying your bumper, your auto insurance should repair the bumper and make your car look brand new. If you are driving down the highway, hit some black ice, and flip over, destroying your vehicle, your auto insurance will simply replace your vehicle.

Auto insurance companies are able to “restore a person’s pre-accident status” as long as that person has adequate coverage on his auto insurance policy. Often times, coverage that protects you in the event of any type of accident or situation is known as “full coverage” insurance. Full coverage insurance, ironically, doesn’t actually exist as a type of coverage. It is just a term that describes being sufficiently insured in case the unthinkable occurs.

The type of insurance coverages than consumers can pick and choose from include (click for more information):

  • Liability – Protecting other people in case you are at fault in an accident.
  • Collision – Protecting your vehicle in the event of an accident.
  • Comprehensive – Protecting your vehicle from things other than accidents (natural disasters, fires, etc.)
  • Medical – Paying for personal injuries sustained in an accident.

Of course, like everything else in life, auto insurance does have its restrictions. There are limitations to any auto insurance policy. These include coverage amounts, deductibles, and exclusions. In order to properly protect yourself, make sure you have enough coverage and deductibles you can afford.

How Does Car Insurance Work After An Accident

After Accident Car Insurance

So you have insurance, but what happens if you get into an accident?

Now that you understand what auto insurance is and what it does, let’s take a look at what would happen in a real-life situation. Let’s say you are driving down the road and get into an accident. Unfortunately, in life, we all make mistakes. This is why we have insurance.

After getting into an accident, you need to start the claims process. This usually begins with a call to your insurance company. After the insurance company gathers information about the accident, a claim is established (usually given a record or a number). After this, the claim is assigned to a claims adjuster who will process your claim.

The claims adjuster will review accident details, take a look at your coverage, determine who was at fault and then make payouts. These claims adjusters will work with you, the police, and witnesses at the scene of the accident to come to their conclusions. Once he has passed judgment as to the proper settlement in the insurance case, he will make a payout based on your deductibles, coverage amounts, and policy limits.

Insurance companies will only pay for damages to things that were damaged in the accident. For example, if your bumper fell off and was destroyed, but the rest of the car is fine – they will simply replace your bumper. They will not give you a brand new car.

The way these repairs work is that the insurance company will pay for any damage minus your deductible  For example, if your deductible is $500 and the insurance company rules the damage to your vehicle to be worth $1500, then the insurance company will issue a check for $1000. Once the insurance company cuts a check for the damages, the claim is closed.

How To Get Auto Insurance

Hopefully, you now have a better understanding of why you need auto insurance and how auto insurance works. Now that you realize the importance of auto insurance, it is time to start shopping. An easy way to begin this process is to compare auto insurance quotes online. There are many websites out there (including this one) that offer free insurance quote searches. Another way to get quotes is the old fashion way – call up your local insurance agent and see what he has to say. I, myself, prefer to use the internet. Whatever you choose to do, do it quickly! Auto insurance is too important for any driver to be without.

Auto Insurance Quotes – An 8 Step Process

getting auto insurance in 8 simple steps

Getting an auto insurance quote has never been simpler!

  1. At the top of the page, you will see a place to enter your zip code. This is all you need to do to get started. So go ahead and type in your zip code. (Five digits is all that you need.  For example, if you live in Soho, Manhattan, New York City, simply enter “10013”)
  2. Next, you will be asked to specify the details of the vehicle you wish to insure, as well as the safety features that the car includes. It is important to be truthful from here on out. Neglecting to do so will result in problems down the road when you need to file a claim.
  3. The next page will ask you to specify the use of the car and how often you will be driving. On this page, you will also be asked about where you store your vehicle, your braking system, and any additional safety features.
  4. You will then have to determine which kind and how much insurance you want. After doing so you can repeat the process for other cars or if you are only insuring one car, you will move onto the next step.
  5. Now you are going to be asked about the driver of the car. In most cases, this will be you. Included in this step you will be asked some non-intrusive personal questions (about age, marital status, income, etc). If you would like to add more than 1 driver to your policy you can do so now.
  6. The next step is for you to enter any violations or accidents you have been involved with. It is very important that you are truthful here. Chances are your future insurer will check into this anyway.  So, if you try to lie, you will quickly be exposed.
  7. You will then be asked to provide information about your current auto insurance company and the kind of coverage you have (if any). You will be asked to specify what kind of coverage you want, as well as any additional coverage packages you may be interested in.
  8. The final step is to enter your information such as your address, phone number, and email address. After you have done so you will be contacted by a large selection of auto insurance companies that would be interested in insuring you.  All of these insurance companies that you will be connected with are very reputable.

That is all there is to it. It may seem like a lot, but in reality, it is only a brief, three-page questionnaire. Once you get started with your zip code, you will fly through each additional step. It is all really simple and straight-forward. Happy insurance shopping and enjoy your savings!

Additional Resources – How Does Car Insurance Work?

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