For the over 276 million cars on the road today, car insurance is legally regulated to afford drivers and passengers financial protection. You must have minimum car insurance before you can legally drive a car in most states. Before you can purchase a new policy of auto insurance, it is important to understand how car insurance works. The Bankrate team is here to help.
What is car insurance?
Car insurance provides financial protection in the event of a loss or 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. Your insurance company may be able to help you cover the costs of these damages if your car is involved in an accident.
Different 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.
What is car insurance?
Purchasing car insurance can be simple when you find top auto insurance companies and compare quotes for your desired coverage. How does car insurance work after you have purchased it? You’ll need to choose the type of coverage you want, as well as policy limits for injuries and damage. You will need to select full coverage. A deductible is the amount that you pay for an accident before your insurance covers you.
How to file a claim
The process of filing claims if you are involved in an accident is the same across all car insurance companies.
- As soon as possible following an accident, contact your insurance company. They will guide you through the next steps.
- All documentation required to file your claim should be collected. This information can be provided by your insurance agent. It usually includes a “proof-of-claim” report and a photocopy of the police report.
- Follow the progress of your claim through your insurance company and make sure you follow up with your claim specialist.
Check with your insurance provider before you file a claim to ensure that you don’t experience unnecessary delays.
What factors go 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. Louisiana is the most expensive for car insurance, at $2,724/year, but Maine has the lowest full coverage rate at $965/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.
What amount of car insurance do I need?
As mentioned above, your state most likely has minimums on the different types of coverage that you need to carry. The following three types of coverage are required for drivers:
BIL per person / BIL per accident / PDL per accident
These ratios are often listed as minimums. It is not uncommon to see 50/100/25. These are the minimum coverage amounts in thousands of dollars. A 50/100/25 auto insurance ratio means that if you are responsible for an accident, $50,000 is paid for bodily injury. $100,000 is the maximum payout per accident. $25,000 is for property damage. The minimum coverage required by state law for drivers is determined by the state.
An agent might recommend that you have more coverage than the minimums. You may require more coverage if you have property that is worth more than the minimum required by the state. An agent in insurance can help you determine the right coverage for you.
How to Save on Car Insurance
It is important to compare prices for auto insurance policies in your local area. Prices vary depending on the insurer and ZIP code. Some of the cheapest car insurance companies offer much more affordable options than their competitors.
There are other ways to reduce your insurance costs than comparison shopping. These include understanding what coverage you need and buying 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. It is worth checking into student discounts. Students may also be eligible for rewards for good grades.
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. A deductible of $1,000 can save you up to 40%.
What are the steps to get car insurance?
You might be asking yourself, “What are the steps to purchase car insurance?”
Before you can purchase a new policy for car insurance, you may need to provide additional information. This will give you a better understanding of your vehicle and yourself. These may include:
- Driver’s license, both for yourself and the people you plan to drive your insured vehicles.
- Vehicle registration
- Social security number
- Information about banking
- 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.
After you have all your information together, you can compare the prices of different insurers online. 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.