Car Insurance 101

by Dawn Klintworth

You know you need car insurance , but do you understand how it protects you and your finances? Get the answer to important car insurance questions so you can get the protection you need. 

What is car insurance?

Simply put, car insurance is a contract between a car owner and an insurance company. The contract, or policy, outlines the auto insurance coverage, including the details of what's covered, how much is covered (policy limits), and how much the car owner (policy owner) will pay in premiums.

That premium pays to protect you if you have an accident or your car is damaged or stolen. Keep in mind that car insurance does not pay for mechanical repairs or maintenance. The details are outlined in your insurance policy.

What does car insurance cover? 

Most standard car insurance policies include five main types of car insurance coverage. You can then add options and adjust coverage limit levels to meet your needs. 

Types of car insurance coverage

Collision coverage

Collision coverage provides protection for when your car collides with another car or something else. If you’re in an accident or hit something like a mailbox or fence, your collision coverage would cover the cost to repair or replace your vehicle, up to the value of your car and minus the deductible.

Comprehensive coverage

Comprehensive coverage protects your vehicle from damage that is not caused by a collision. If your car is stolen, vandalized, damaged by hail or if something falls on it, like a tree, your comprehensive coverage will cover the cost of repair or replacement, up to the value of your car and minus the deductible.

Uninsured and Underinsured Motorist coverage 

While states require car owners to have liability insurance protection, not everyone follows the law. If you’re in an accident caused by someone with no, or not enough, insurance, your Uninsured and Underinsured Motorist coverage will protect you and cover the cost of repairs subject to the limits of your policy.

Medical payments or Personal Injury Protection

Medical payments or Personal Injury Protection coverage pays for costs resulting from injuries to the driver and passengers in the insured’s car. These costs include medical costs but can also extend to loss of wages or cost of services needed following the accident. Coverage is provided up to the limits set in your policy.

Liability coverage

Liability coverage pays for damages and injuries to others in an accident that you cause up to the limits set in your policy. This will include the cost to repair or replace the other vehicle or property, like telephone poles, buildings, landscape or fences, when you cause an accident. It would also cover medical costs for those injured in the accident. 

In a serious accident, you could be sued for large amounts of money. While your auto liability insurance would cover some legal costs and damages, you may need more liability insurance and want to discuss umbrella insurance  with your insurance agent.

What’s not covered by car insurance?

While car insurance is an important part of your protection plan, it won’t cover all the costs you may have as a car owner. 

Car insurance does not cover

When something goes wrong with our car, we hope it won’t be a big hit to our budget. Even if you have an emergency fund for unexpected expenses, you check to see if you can file an auto insurance claim or get the repairs covered by the vehicle warranty. Before you start that auto claim, review this list to see what’s not covered by your insurance.

General car maintenance

If you need a tune-up or have a flat tire, those repair costs will not be covered by your car insurance. They’re considered general maintenance and are not part of your auto insurance protection.

Mechanical breakdowns

While having a fuel pump go out or a belt break can be costly, such mechanical breakdowns are not covered by your car insurance. Some car warranties may protect you from having to pay out of pocket for repairs, but you should not file an auto insurance claim for mechanical repairs. 

The property you keep in your car

While your auto insurance will not cover personal property that is stolen from your car, your home insurance may. This would also be the case if you were in an accident and your personal property inside your car was damaged. 

For example, if you had electronics in your car that were damaged in an accident, your home insurance coverage may cover the expense, subject to deductibles. 

Additional auto insurance coverage 

When something goes wrong with your car, you hope you had the right conversations with your insurance agent and added all the coverage you need. You want to file an auto insurance claim and avoid having to pay for the repairs out-of-pocket. When you buy car insurance, you have options, known as endorsements, that you can add to your standard auto insurance policy. And in some cases, you may need to buy other types of insurance to get the protection you need. 

Roadside assistance coverage

When your car breaks down or you run out of gas, you may need a tow truck. Standard auto insurance won’t cover that cost, but by adding roadside assistance protection, you can contact a towing company or have a service bring you gas and get reimbursed for those costs. Coverage is subject to the limits set in your policy

Windshield repair or replacement

While your auto insurance covers your windshield, if your deductible is higher than the cost to repair or replace the windshield, you may not want to make an auto claim. However, you can add coverage specifically for glass repair or replacement to cover that situation, in some cases, waiving the deductible. 

Rental car expenses

If you have an accident and your car is not drivable, you may need to rent a car while yours is being repaired. You can add rental car coverage to your auto insurance policy for an added cost. 

Rideshare use 

With the rise of ride sharing, insurance companies have had to adjust to the increased risk when people turn their car into a source of income. If you use your car to offer a rideshare service, you will likely need to secure a commercial or business insurance policy  to cover the insurance of the vehicle when you are using it for ridesharing. 

Some states require insurance companies to offer options for this situation. If you are using your personal vehicle as a rideshare car, discuss your options with your insurance agent. 

How does car insurance work?

When you buy car insurance from a company, you’ll provide information about your car, your driving history and previous insurance. You're required by law to carry basic auto insurance, but those requirements vary by state. 

After you meet your state minimums, you can decide what protection is right for you.  You can work with your insurance agent or your insurance company to review your coverage options. Those coverages – required and selected -- will make up your policy, a document that outlines what your insurance company agrees to protect.

How do car insurance claims work?

If you get into an accident or your car is damaged or stolen, you file an auto insurance claim with your insurance company. That’s how you ask for payment to help you repair or replace something that’s protected under your policy. If the claim is covered, your insurance company will pay for the damage or loss, after you pay your deductible.  

What is a car insurance deductible?

Your deductible is the amount of money you pay on your own before your insurance starts paying on an auto insurance claim. 

How does my deductible impact my car insurance rates?

If you choose a low deductible, you’d have to pay less when you have a claim and are taking on less risk, so what you pay for insurance (premium) will be higher. On the other hand, setting a higher deductible means you’d have to pay more if you have a claim. When you take on that higher risk, your regular auto insurance cost will be lower. You’ll need to decide what is best for your financial situation. 

How do I know what my deductible is?

You can see your deductible on your online account or policy documents and statements. You can also contact your insurance agent to get that information. 

You set your deductible when you initially buy your auto insurance policy. You can also discuss your deductible amount with your insurance agent during your regular insurance review and make any changes that you feel are necessary. Note: if you lower your deductible after a claim, the change will not be effective on claims that occurred before you made the change. 

Do I need car insurance?

All states require car insurance, but the level and types of insurance vary by state. Most state requirements relate to liability insurance that protects others and their property if you cause an accident. But some states require uninsured motorist coverage to protect you from drivers who don’t carry liability insurance. Your insurance agent will be able to guide you through your state’s requirements.

How much car insurance do I need?

By law, you must carry your state minimum auto insurance coverage. Beyond that, you can decide what types and levels of protection you need for your personal financial situation. What would you do if you were in a car accident that you caused or if your car was vandalized? Would you be able to pay to repair or replace your car? Talk with your insurance agent to review your options and the cost of car insurance protection. Then you can make the choices that are right for you and your budget.

How much does car insurance cost?

What you pay for car insurance will vary based on many factors and decisions you make. Some factors are about you and your car, while others are based on decisions you make about the types and levels of car insurance protection. 

You and your car impact insurance costs

What car you drive

Some cars are more expensive than others to insure. Convertibles cost more to insure than sedans. And typically, more expensive cars and cars that are more often stolen have higher car insurance rates.

When you are shopping for a new car, contact your insurance agent to find out how much it will cost to insure the cars you are considering. Car insurance is part of the total cost of owning a car. 

Where you live 

Highly trafficked areas can have higher insurance rates than less-populated areas with fewer cars. Vehicle crime statistics in an area could also affect car insurance rates. 

Your driving history 

If you have a clean driving record with no tickets or claims, you would be considered a good risk and would likely have lower insurance rates. In addition, many insurance companies offer auto insurance discounts for good drivers and for avoiding claims. 

Your driving experience can also affect your rates. Statistics show teen or inexperienced drivers are more likely to have an accident that results in a claim, so auto insurance rates are typically higher for newly licensed drivers. According to the Centers for Disease Control (CDC), crash rates per mile driven are about 1.5 times as high for 16-year-old drivers as they are for 18-year-olds with just a few years of driving experience. That’s why car insurance for teenagers will have higher rates.

There are ways for teens to save money on car insurance, including getting good grades and completing driver safety programs. Some insurance companies offer discounts or reduced rates for using apps or devices that monitor driving habits, called telematics.  

What levels of car insurance coverage you select

Types of coverage

Having basic state-mandated coverage will cost less, but that will not protect your car. Adding collision and comprehensive coverages will add to the cost of auto insurance, while providing more protection if you have a car insurance claim.

Limits you select for coverage

In addition to choosing coverage types, you’ll also select coverage limits for liability and medical coverage. You should work with your insurance agent to set limits that work for you. Generally, higher limits provide more protection and cost more.

Deductible you select

The lower your deductible, the higher your insurance premium. If you select a higher deductible, you’ll have to pay more if you have a claim but will pay a lower premium. 

Keep car insurance up to date

Meet with your insurance agent regularly to review your car insurance and to make sure you’re getting all available auto insurance discounts. Most insurers offer discounts for having more than one type of insurance with one company. Learn about our Multi-Policy Discount.

You want to be sure you have the protection you need if you have a car insurance claim, while assuring you’re not paying too much for the coverage. 

Updated 5-31-23