Car insurance is a contract between you and an insurance company. In exchange for paying a premium, the insurance company agrees to pay for certain costs related to a car accident, such as property damage, bodily injury, and medical expenses. Learn more about the components of an insurance policy.
There are two main types of car insurance: liability and comprehensive.
- Liability insurance is required by law in most states. It covers the costs of property damage and bodily injury to others if you cause an accident.
- Comprehensive insurance is optional, but it can be helpful to protect your car from damage or theft. It covers things like fire, hail, vandalism, and theft.
In addition to liability and comprehensive insurance, there are a number of other types of car insurance that you may want to consider, such as collision insurance, uninsured motorist protection, and rental car reimbursement.
How Car Insurance Rates Are Determined
Insurance companies use a variety of factors to determine your car insurance rates, including:
- Your driving record: Drivers with clean driving records typically pay lower rates than drivers with accidents or traffic violations on their record.
- Your car: The make, model, and value of your car can also affect your rates. Some cars are more expensive to repair or replace than others, so insurance companies charge higher rates for those cars.
- Your age: Younger drivers typically pay higher rates than older drivers. This is because younger drivers are more likely to be involved in accidents.
- Your location: Drivers who live in areas with high rates of accidents or car theft typically pay higher rates than drivers who live in safer areas.
How Do I Use Car Insurance?
To use your car insurance when you have an incident, you need to file a claim. Here’s how to do it:
- Contact your insurance company as soon as possible after the incident. You can usually file a claim online, over the phone, or through your insurance company’s mobile app.
- Provide your insurance company with as much information as possible about the incident, including:
- The date, time, and location of the incident
- The names and contact information of any other people involved in the incident
- The make, model, and license plate number of all vehicles involved in the incident
- A description of the damage to your vehicle
- A copy of the police report, if one was filed
- Your insurance company will assign a claims adjuster to your case. The claims adjuster will investigate the incident and determine how much your insurance company will pay for repairs or replacement.
- Once the claims adjuster has determined the amount of your payout, you can choose to have your car repaired at a shop of your choice or to accept a cash settlement. If you choose to have your car repaired, your insurance company will typically pay the repair shop directly. If you choose to accept a cash settlement, you will receive a check from your insurance company that you can use to pay for repairs yourself.
Why Car Insurance Rates Keep Going Up
There are a number of factors that are contributing to the rising cost of car insurance, including:
- Inflation: The cost of everything has been going up lately, including the cost of car repairs and medical care. This means that insurance companies have to pay more to cover claims, which leads to higher premiums for consumers.
- More expensive cars: Cars are becoming more complex and expensive to repair. This is due to the increasing number of safety features and advanced technology in new cars.
- More distracted driving: Distracted driving is a major cause of car accidents. When more people are distracted on the road, there are more accidents, which leads to higher claims costs for insurance companies.
How to Save Money on Car Insurance
There are a number of things you can do to save money on car insurance, such as:
- Shop around for the best rates. Compare quotes from multiple insurance companies before you buy a policy.
- Maintain a good driving record. Drivers with clean driving records typically pay the lowest rates.
- Bundle your policies. Many insurance companies offer discounts for bundling your car insurance with other policies, such as home insurance or renter’s insurance.
- Choose a car with safety features. Insurance companies often offer discounts for cars with safety features such as anti-lock brakes and airbags.
- Raise your deductible. Your deductible is the amount you have to pay out of pocket before your insurance company starts paying for a claim. Raising your deductible can lower your monthly premium.
Car Insurance Take-Aways
Car insurance is an important expense, but it doesn’t have to be crippling. By understanding how car insurance works and shopping around for the best rates, you can save money on your premium.
Additional Tips for Saving Money on Car Insurance
- Get a discount for your good credit. Many insurance companies offer discounts for drivers with good credit.
- Ask about discounts for low mileage. If you don’t drive very much, you may be eligible for a low mileage discount.
- Take a defensive driving course. Completing a defensive driving course can show your insurance company that you’re a safe driver and may qualify you for a discount.
- Install a telematics device. Telematics devices track your driving habits and can be used to offer discounts for safe driving.
By following these tips, you can save money on your car insurance without sacrificing coverage.
