Jessica Sautter is a Content Writer for CarInsuranceCompanies.com with a Bachelor’s Degree from Eastern Michigan University in Elementary Education with a Major in Reading and a Minor in Mathematics.

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Chris Harrigan has an economic degree from Limestone College and an MBA from Clemson University. He previously managed auto insurance claims for Enterprise Rent-A-Car. Currently, he is using his business and insurance expertise to provide insurance data analysis and visualizations to enhance the user experience.

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Reviewed by Chris Harrigan
Former Auto Insurance Claims Manager

UPDATED: Sep 14, 2020

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Key takeaways...

  • Even though liability insurance is the minimum requirement, many other types of car insurance exist to fully cover you in any situation
  • Most car insurance claims are small enough not to merit any huge amount of investigation
  • But either way, make sure you have car insurance since it is required — you risk not only yourself but other people’s safety as well
  • And keep in mind that several factors — based on risk —  affect your car insurance rates

All drivers are required to have some form of car insurance, but how exactly does car insurance work? Most of us pay auto insurance premiums every month without ever filing a claim. But when can you file a claim and how does car insurance provide coverage?

In simple terms, car insurance is a form of exchanging money for financial protection based on risk.

A car insurance company calculates the risk profile of a driver, compares it to a vast pool of data, and promises to provide insurance coverage in exchange for a fixed amount (the policy premium).

Car insurance companies essentially make extremely educated bets on making money through charging policyholders more than the number of claims they have to pay.

Since car insurance is required by all states, understanding auto insurance coverage is critical for both learning ways to save money on car insurance and knowing how you are eligible for compensation in the case of an accident.

If you’d like to save on car insurance but also get better coverage, enter your ZIP code above and compare at least three to four policies today!

Table of Contents

How Car Insurance Protects You

https://www.youtube.com/watch?v=-Zr63hTicTU&t=48s

When car insurance coverage is in place, you have financial protection for accidents resulting in damages insured under the policy. Most states only require liability insurance, providing some coverage for bodily injury to others.

Although, many types of car insurance coverage exist which not only provide protection to others but also your own injuries and/or property loss from an accident.

All states have their own minimum car insurance requirements. However, these limits are mostly poor at best, so most consumers have extended coverage such as:

  • Comprehensive
  • Collision
  • Uninsured Motorist
  • Rental Car

Regardless of the type of coverage you have, car insurance was created to provide a layer of financial security for any item eligible insured item within the policy.

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How are car insurance claims handled?

Whenever a policyholder incurs an insured loss, they can file a claim with the respective car insurance company. The auto insurance provider will then start an investigation into the claim and determine whether or not the claim was covered under the policy.

Most claims are small enough and typically don’t require any kind of huge investigation. Although, don’t be surprised if a car insurance company sends out a claims investigator even for a $500 claim.

Once the claim is approved as an insured event, the car insurance company will then pay (less any deductible) for the damages.

Sometimes the payment made is directly to you. Although if repairs, medical expenses, or third party work has been done, the car insurance company will always pay the third party the insured amount of coverage to ensure such work is compensated.

No Car Insurance Is Illegal and Irresponsible

Car insurance is mandatory, and operating a vehicle without car insurance is illegal with stiff penalties including heavy fines, possible drivers license suspension, and even jail time in some states.

Not only do you expose yourself to great personal liability financially, but you also expose other drivers and passengers to great risk.

Without car insurance, you can be subject to lawsuits, negligence charges, and more in the event of an accident.

How are car insurance rates calculated?

Car insurance premiums are based on risk. Every car insurance company has an internal risk scoring model and a team of actuaries who continually evolve this risk model based on mountains of data.

Some of the most important elements used in calculating your car insurance premiums include:

  • Your Driving Record
  • Make/Model of the Car
  • Where You Live
  • Your Credit Score

The exact formula is unknown but can comprise of well over 100 single factors, so understand the safer a risk profile you can provide the lower your car insurance rates should be.

Car insurance comparison is the biggest tool used by consumers to save money on car insurance so embrace the internet and try FREE quote tools.

Enter your ZIP code below and start comparison shopping today for better and more affordable car insurance!

References:

  1. https://www.thebalance.com/comprehensive-insurance-coverage-2645753
  2. https://www.thebalance.com/comprehensive-vs-collision-coverage-527402
  3. https://wallethub.com/edu/uninsured-motorist-coverage/9647/
  4. https://www.thesimpledollar.com/rental-car-insurance/
  5. http://www.rmiia.org/auto/steering_through_your_auto_policy/Filing_an_Auto_Claim.asp
  6. https://www.moneycrashers.com/factors-affect-car-insurance-rates/