Car accident costs can add up quickly and dramatically. With current supply chain issues and the rising cost of goods, even minor repairs can be costly. But this is especially the case when someone is injured, or a vehicle is severely damaged. Paying for an accident out of pocket can lead to a significant financial failure or even financial bankruptcy. Fortunately, car insurance exists to protect us from this nightmare scenario. So what exactly is car insurance, and how does it work? Understanding car insurance helps you decide what insurance to buy for your car.
What is auto insurance?
A car insurance policy is an agreement between you and an insurance company. It provides you with financial protection in the event of a car accident. If you are responsible for another party’s injury or damage to their property, your car insurance will take effect. A policy covers different coverages and protects you to the limit you and your insurance company agree on. Depending on your policy, car insurance may cover damage to your car, medical bills for you and your passengers, or accidental loss with an unattended driver. insurance.
How does auto insurance work?
When you buy a car insurance policy, you choose coverage limits and deductibles. You can purchase the minimum state-required car insurance coverage, but beware, it’s rarely enough to cover the cost of most accidents.
Your car insurance premium is the amount you agree to pay upfront for coverage. You usually have the option of paying a monthly premium or paying the full amount upfront. The deductible is the amount you have to pay out of pocket before the insurance covers your claim. For example, if you have a $500 deductible and your auto repair costs $3000, you’ll pay $500 and your insurance will pay the remaining $2500. Higher deductible policies typically charge lower premiums. So basically, your deductible pays for a lower premium. To strike the right balance between deductibles and premiums, you must think carefully about your budget, including access to cash if you need to cover the deductible.
What happens when you get into a car accident?
Regardless of what type of insurance you have, you will need to determine who is at fault in the accident. Your opinion will not be enough to make this decision, so when you are sure that no one was injured, call the police to file a report, and exchange information with the other party or stakeholders. and even took a few photos of the scene.
If you are at fault in an accident, the other driver will claim your liability insurance to cover medical and vehicle repair costs for the accident. You can also claim the cost of damage to your car if you have additional coverage such as collision or comprehensive coverage. Either way, whether you are at fault or not, you should call your insurance company and report the accident.
If you are not at fault in an accident, the other driver’s insurance will pay for your medical expenses and car repairs. The exception to this rule is no-fault states, where your insurance pays your medical bills, although the at-fault driver’s insurance will pay for auto repairs. your. There are currently 12 states with no-fault insurance laws, and you should double-check the list when purchasing your policy.
When the error is not clear, you file a claim with your own insurance company or the insurance company of the other party. The insurance company will then send a crash adjuster to determine the fault. If you have collision insurance, you can ask your insurance company to cover the costs while they decide who is at fault. Suppose you are then determined to be error-free. In that case, your insurer will attempt to recover the costs (including your deductible) from the other party’s insurer through subrogation.
Insurance companies will pay you, the other driver involved, or your mechanic directly. If you are renting or leasing your car, they can send the claim payment to your creditor or lessor.
How do insurance companies price insurance?
Several factors affect how much your carrier will charge you for coverage. A car insurance company looks at your details to calculate the amount of risk posed. They try to assess your likelihood of filing a claim. Remember that the insurance company does not know how safe or careful you or you can drive; they estimate you as a potential hazard based on accident statistics and other factors. Here are the factors that will affect your car insurance rate:
- Driver Profile: People with accidents and traffic violations will pay more for car insurance, although you’ll be happy to know car insurance companies only look at your three to five-year driving history. via.
- Amount of deductible and insurance: A lower coverage amount with a higher deductible means you’ll pay less for car insurance. However, if you eventually need to file a claim, you may have to pay for more serious accidents yourself. As mentioned above, minimizing your insurance premiums with a higher deductible requires you to have a clear understanding of the cash access you will have if an accident occurs.
- Insurance history: Letting coverage lapse or filing multiple claims, even if you’re not at fault, will result in higher rates.
- Age and sex: Drivers under the age of 25 tend to pay more for insurance. This is because they are considered less experienced drivers who take more risks to be insured. In some places, gender also affects premiums. Some states – most recently California and Michigan – do not allow car insurance companies to take gender into account when setting prices.
- Location: City drivers pay more for car insurance because densely populated areas mean you’re more likely to get into an accident. Areas with high repair costs can also increase insurance rates.
- Credit history: Drivers with poor credit may have to pay higher premiums, although some states prohibit insurance companies from rating you based on your credit history. These states include California, Hawaii, and others; You can find the full list online.
What does car insurance cover?
Car insurance can cover a wide range of incidents on and off the road. These are the common coverages in car insurance policies:
- Legal responsibility: Most states require liability insurance. It covers you if you are in a car accident and it is determined you are legally at fault for injury and property damage to others. This type of insurance covers the expenses of others but does not cover any damage to you or your vehicle.
- collide: Collision insurance covers damage to your vehicle when it collides with other vehicles or objects. Including lampposts, fences, and other things you could hit, no matter what the fault. Rented or financed vehicles often require comprehensive collision coverage.
- Overview: Comprehensive coverage covers non-collision breakdown damage. Such as weather events, vandalism, accidents with animals, or civil disturbances. Drivers with auto loans or rental cars often require comprehensive coverage.
- Uninsured and uninsured drivers: Uninsured motorist insurance covers damage to you or your vehicle if you are in an accident with an uninsured driver. According to a 2021 report from the Insurance Research Council, about one in eight drivers do not purchase auto insurance. When a driver at fault has insufficient insurance to cover the costs of an accident, underinsured motorist coverage begins.
- Personal Injury Protection: Personal Injury Insurance (PIP) helps cover direct and indirect medical expenses for you and your passengers following a covered accident. Eligible expenses may include medical bills, lost income, childcare, or funeral expenses.
- Medical payment: While PIP insurance covers other expenses and medical expenses, medical billing insurance only pays medical expenses related to the covered accident for you and your passengers, no matter who is at fault.
In addition, your entire circumstances may result in you receiving other types of insurance that can provide you with more protection and more peace of mind. Consider purchasing an umbrella policy, gap insurance, roadside assistance, rental reimbursement, or non-owners insurance. For help determining what works best for you and your budget, connect with the Guided Solutions team.
What does car insurance NOT cover?
A car insurance policy covers damage to your vehicle due to unexpected and unexpected events. It will not cover gradual wear and tear that occurs over time. It also doesn’t cover standard maintenance, such as faulty wipers, worn tires, electrical problems, or mechanical breakdowns. However, machinery breakdown insurance may cover some of these incidents if offered by your insurance company.
Do you need car insurance?
Every state requires car insurance except New Hampshire and Virginia. If you don’t have minimum insurance, this could lead to fines, license suspension, or even jail time. Even if you live in a state that doesn’t require car insurance, you don’t want to be stuck paying for your accident expenses from your wallet. So, in general, the answer to “do you need car insurance?” is yes. You can buy the most reasonable solution based on your circumstances, but yes.
