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Auto Insurance Basics

Ashley Kane

New to auto insurance? We can help you out with all the basics.

Maybe you just bought your first vehicle or are just shopping around for a new car insurance policy. While insurance can be straightforward; more often than not, it’s the details that are confusing. Here’s the most important information that all drivers should be aware of.

What Is a Car Insurance Policy?

Your policy is essentially a contract between you and your auto insurance carrier. Car insurance is meant to protect you and offer peace of mind when you’re driving around on the roads. It’s required in just about every state through minimum coverage amounts.

Your policy consists of a declaration page that states your coverage details, limits, and deductibles. It will also state your policy period, named insured, rated operators, premium payable, applicable discounts, and more. Be sure to read the fine print on your insurance policy, as it will list the conditions and exclusions of your contract. Your deductible is the amount you pay before your car insurance kicks in for an accident or event, while your premium is the amount you pay for your total car insurance term. You can either pay monthly or upfront, usually for 6 months or a year.

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How Much Coverage Do I Need?

There’s no such thing as full car insurance coverage. Instead, the amount of coverage you have is mostly left up to you. Here are your insurance options:

Just about every state requires drivers to have a minimum level of auto insurance in order to legally drive on the road. The amounts do vary by location but typically a base level is set for bodily injury and property damage. Both of these cover drivers for the expenses that they are legally responsible for, when they are at-fault in a collision. Bodily injury covers the medical expenses, lost wages, and other damages for the driver and passengers in the other car.  Property damage covers the other car’s repairs up to the amount stated in the policy. You may also choose to adjust your amounts of liability coverage, depending on your financial situation and assets.

Collision coverage can be helpful to have as it protects your own car in case of an accident. Your insurer will cover the repair expenses and damages to your vehicle, minus the deductible. Typically, providers will have recommended repair shops but you can also choose your own.

Comprehensive coverage also applies to your own vehicle and covers damages to the car that are not related to a collision. For example, any repairs needed due to weather conditions, falling trees, or theft. 

  • Uninsured/Underinsured Motorist Coverage

Uninsured motorist coverage offers additional protection when you’re driving your vehicle on the road. If you are in an accident with a driver who is not insured, your provider will still cover the damages for your car.

  • Medical Payments/PIP Personal Injury Protection

PIP coverage applies to you in a similar way that health insurance does. It covers medical expenses that result from an accident for you and your passengers.

Before choosing your amounts of coverage, you may also want to consider your assets, other drivers on the policy, health insurance, vehicle age and condition, whether the car is owned or leased, and the amount you’re willing to pay for a deductible to increase or lower your overall premium.

How Much Does Car Insurance Cost?

Unfortunately, there is no standard answer to this question because auto insurance premiums are based on many differing factors. Depending on all of these varying conditions, your rate could range hundreds or even thousands of dollars. The average annual amount spent on car insurance in the U.S. was $900 in 2015.

What Factors Are Used to Determine My Rate?

Location, driving history, credit, age, gender, daily or annual mileage, type of car storage, vehicle age, make, model, and other drivers on policy all determine your car insurance premium. Eligible discounts such as defensive driving courses, good grades, organization memberships, safety features, and anti-theft devices can all help lower your premium.

How Do I “Use” My Insurance?

Drivers can file a claim with their insurance provider after an accident or other incident. Depending on which types of coverage you opted for, your insurer will pay you a settlement. You can make a claim by calling your insurer, filling out a form, or by going online.

Are All Carriers the Same?

No. Auto insurers can differ a lot in price, discounts offered, benefits, and coverage amounts. Some car insurance companies may include extra perks such as roadside assistance, rental insurance, towing coverage, and gap insurance. That said if you do not need those additions, you might be better off at a carrier that offers more discounts that are applicable to you. The best way to determine which insurer is right for you is to compare quotes and coverage details.

There’s a lot of information to know about insuring your vehicle. Check out EverQuote’s terms and definitions for more information, details about discounts, and our common auto insurance questions. Now that you know the important stuff, you’re well on your way to understanding auto insurance. Welcome to the car insurance world. 

Photo credits: Pictures of Money