Maybe you've never bought car insurance and want to understand how car insurance works. Or maybe you're looking into switching auto insurers and want to learn more about car insurance before making a decision.

Why do you need auto insurance?

Most states have laws requiring that you have auto insurance to pay for damage and injuries you cause. If you get into an accident, whether it's your fault or not, you may face steep fines for driving without car insurance.

If you cause an accident and have no auto insurance, you may be faced with bills for:

  • The other driver's injuries
  • Damage to the other car
  • Damage to property such as fences or telephone poles
  • Your car's damage
  • Your own medical bills
  • Legal fees, if the other driver sues you

What does car insurance cover?

Liability insurance is required in most states. Liability coverage pays for the damage you've caused in a car accident. This includes:

  • Bodily injury
    • Others people's medical bills, lost income, funeral costs and rehabilitation
  • Property damage
    • Repairs or replacement of others' vehicles
    • Repairs of damaged items such as street signs and mailboxes

Liability car insurance amounts are often written as a sequence of three numbers. These numbers refer to the maximums your insurer will pay for injuries per person, injuries per accident and property damage per accident.

For example, 25/50/10 means:

  • $25,000 bodily injury liability per person
  • $50,000 bodily injury liability per accident
  • $10,000 property damage liability per accident

Other types of car insurance include:

  • Collision insurance pays for your vehicle's damage after accidents like hitting another car or an object.
  • Comprehensive insurance pays for car theft and damage to your vehicle due to natural disasters, fire, explosions, vandalism, floods and animal-related accidents.
  • Personal injury protection (PIP) covers your injuries and your passengers' injuries regardless of who is at fault.
  • Uninsured motorist coverage covers your injuries and your passengers' injuries if you're in an accident caused by a driver with no insurance or not enough. In some cases it can also pay for your property damage from an uninsured motorist.

Car insurance requirements

Auto insurance is required in most states. Each state sets a minimum car insurance amount that drivers must purchase.

More: Do you have to have car insurance?

How does a car insurance deductible work?

An auto insurance deductible is the amount of money that will be deducted from your insurance claim check. Comprehensive and collision insurance have deductibles if you make a claim. For example, if you have collision insurance with a deductible of $500 and get into an accident that causes $1,500 in property damage, your insurer will pay the remaining $1,000.

The lower your car insurance deductible, the higher your premium will be. That may sound attractive, but it also means you'll get a smaller insurance check if you make a comprehensive or collision claim.

Liability insurance does not have a deductible.

What affects car insurance rates?

Factor How it affects your rates
Deductible choice Higher premiums = lower deductibles.

Lower deductibles = higher premiums.

Location Drivers living in urban areas often pay higher rates due to the frequency of accidents, car theft and car damage.

Accidents and theft = higher rates.

Credit Better credit = lower insurance premiums. (Except in California, Hawaii and Massachusetts, where auto insurers can't use credit in setting prices.)
Driving history More crashes and moving violations = higher rates.
Vehicle model Cars with better insurance claims histories = lower rates.
Age Young drivers, particularly males under 25 years old, have higher accident rates = resulting in higher car insurance prices.
Marital status Married drivers tend to make fewer claims than single drivers. Getting married may lower your rates.

How to get car insurance

First, determine what types of car insurance you want. Maybe you want a bare-bones liability policy, or maybe you're interested in full coverage auto insurance.

More: State rankings for car insurance prices

You'll need to choose your deductible amount. Would you rather have higher premiums and lower deductibles or vice versa?

Next, compare rates from multiple companies if you want to find cheap car insurance. Shopping around is the best way to save money.

You can typically pay for your auto insurance annually or monthly.

Once you have auto insurance, make sure you have your insurance card with you whenever you drive in case you're pulled over or are in an accident. Some states allow you to show an insurance card from your phone if you're pulled over.