{"id":811,"date":"2017-11-29T17:27:35","date_gmt":"2017-11-29T17:27:35","guid":{"rendered":"https:\/\/www.freeway.com\/knowledge-center\/?p=811"},"modified":"2025-01-17T22:53:38","modified_gmt":"2025-01-17T22:53:38","slug":"how-car-insurance-work","status":"publish","type":"post","link":"https:\/\/www.freeway.com\/knowledge-center\/auto\/how-car-insurance-work\/","title":{"rendered":"How Does Car Insurance Work?"},"content":{"rendered":"

You have to have it, but do you really know how car insurance<\/a> works? You probably know that your auto insurance can help pay to repair your car if you\u2019re in an accident. You\u2019re most likely aware that it will pay for the other person\u2019s repairs if you\u2019re the one at fault in an accident. Beyond that, most people are pretty clueless about their automobile insurance, so let\u2019s dig deeper and help you to understand the way your policy works and to make good choices when purchasing a new policy.<\/p>\n

Types of Car Insurance<\/h2>\n

There are several types of insurance offered by car insurance companies, and it\u2019s likely a few of them will be combined to get you the coverage you need. Let\u2019s look at the various types that are available so that you can determine what\u2019s right for you.<\/p>\n

Liability Insurance<\/h3>\n

Arguably the most important coverage to have is liability insurance; in most states, this is a minimum requirement. If you\u2019re in an accident and found to be at fault, your liability insurance will pay for damages to the other driver\u2019s vehicle, as well as covering medical expenses for those injured (except yourself). Every policy will have a per-incident maximum that can be paid, and your state probably has a minimum requirement for the amount of coverage you must have, although you can always choose to get more.<\/p>\n

Collision Insurance<\/h3>\n

Collision insurance is probably required by your loan provider, unless your car is paid for. This is what covers damage to your own vehicle in the event of a collision. It does not cover theft or any damage that is not the result of a collision, like hail or vandalism, nor will it cover any medical expenses.<\/p>\n

Collision coverage will always have a limit, or maximum amount it will pay. Usually this would be the cash value of your car. There is also a deductible<\/a>; in the lingo of car insurance, \u201cdeductible\u201d means the amount you\u2019ll have to pay out-of-pocket before your insurance pays. When you\u2019re choosing an insurance policy, the deductible you choose helps to determine the amount of your car insurance premium (insurance jargon for price). Select a deductible that maintains a low-cost auto<\/a> insurance policy for you and that you can manage to pay in case of a claim.<\/p>\n

Comprehensive Insurance<\/h3>\n

This is another type of insurance that will probably be required by your lender if you\u2019re still paying for your vehicle. Comprehensive insurance pays for damage or loss of your vehicle from things other than<\/em> a collision. If your car gets stolen or vandalized, this is the insurance that will pay for the damage. As with collision coverage, there will always be a deductible<\/strong> and a limit<\/strong>.<\/p>\n

Uninsured Motorist Coverage<\/h3>\n

Even though insurance is required in almost every state, we know that not everyone follows the rules. So what happens if your car is hit by an uninsured driver? This is the purpose of uninsured motorist coverage. <\/strong>It covers your expenses when you\u2019re hit by an uninsured driver or are the victim of a hit-and-run.<\/p>\n

How Rates Are Determined<\/h2>\n

With a better understanding of the types of insurance available, let\u2019s look at the factors that determine your premium. There are a number of things insurance companies consider in order to decide how much you\u2019ll pay, and some may be less obvious than others. One thing that you should be aware of is that all insurance companies are required<\/em> to make a profit on every policy they sell; this helps ensure solvency<\/em><\/a> \u2013 the ability to pay their claims.<\/p>\n

Beyond solvency, the most important determinant of the premium you\u2019ll pay is the level of risk<\/em><\/a>, or how likely you are to file a claim. To determine this, they\u2019ll look at several things, starting with your driving record. The better your record, the less you\u2019ll pay. The car you drive makes a difference too; expensive cars cost more to repair, older cars may not be as safe, and high-performance sports cars can be more dangerous. Your driving record is also important, as it is a good measure of how safe a driver you are. Of course, your past claims history is considered as well.<\/p>\n

There are some less obvious considerations as well:<\/p>\n