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How Does Car Insurance Work?

Those who are getting car insurance for the first time or who haven’t gotten it in a while might be wondering just how does it work? Car insurance is a type of coverage that everyone needs to get if you want to get on the road and drive. In fact, even if you just have a car but you don’t even plan to drive it, you still need to get insurance for the car because anything could happen to it and you want to have some insurance in case it does. So, how does car insurance work? Here are some simple steps to follow. 

Car Insurance is Mandatory

In most states, car insurance is required if you want to drive. If you ever get pulled over the officer will ask you for your license and registration. They may also ask to see proof of insurance. If you don’t have it you could get into big trouble. There are two states, which do not require you to get insurance, but if you choose not to get it, you will still have to pay a fee and prove that you have paid it. The reason for this is that drivers in each state must always prove that they have the ability to pay if they cause an accident. Car insurance is a much easier way to fulfill this requirement than the other methods possible, which include posting a bond or simply being insanely wealthy. 

Before this type of coverage was made mandatory, it would really be a drag if you got into a car accident. There would be no way to get your medical and physical car repair expenses covered. If you did get into an accident you could be financially ruined forever whether you cause it or you were the victim. So, states started to require car insurance to protect their citizens. Typically, the driver who caused the accident must pay. In this case they are protected from financial hardship by their insurance. The person who was the victim of the accident can get compensation in a fast manner from the insurance company to cover medical expenses, car repairs, and in some cases, sadly, funeral expenses.

Types of Car Insurance

You need to understand the differences in the different types of car insurance before you buy it. There are so many things to consider and each type of car insurance will give you a different sort of coverage or benefit. You can get some coverage of each component on any plan you get. Different states have different requirements so make sure you know what your state needs you to have to be legal on the road.

  • Comprehensive coverage is a type of coverage that covers your car no matter what happens. If a tree falls on it, comprehensive will help you to pay for the damages. If it gets stolen or vandalized, comprehensive helps. If it gets swept away in a flood - you got it! Comprehensive will help you. This is the type of coverage that you should get even if you don’t plan on driving your car at all. You can get plans that are for storage and they mainly just include comprehensive. In that case, it’s mostly for in case something falls on your car!
  • Collision Coverage is something you will need in case you get into an accident. This covers you if the accident is not with another car, but with a guardrail or a telephone pole. These inanimate objects cannot have car insurance so they would not be able to help you pay your expenses.
  • Uninsured/Underinsured Motorist Coverage is for those situations that you just can not predict. You would hope that everyone is as law abiding as you are, but unfortunately, that’s not the case. People can’t always afford car insurance or perhaps they have other reasons for not wanting to get it. If you get into an accident with someone who doesn’t have any coverage and it is their fault, they won’t be able to pay. In this case, if you have uninsured/underinsured motorist coverage you won’t be on the hook for everything.
  • Medical Expenses payments help to cover medical bills in an accident no matter who was found at fault. It’s a great idea to have this coverage because even with other types of insurance medical bills are expensive in the US!
  • Bodily Injury coverage helps to pay for any injuries in the event of a car accident that you caused. This is great because if any serious medical problems occur, your victim could rack up quite a bill. You don’t want to be on the hook for a $100,000 hospital stay, now do you?
  • Personal Property coverage helps to pay for car repairs and other property damage. That can also get very pricey. Car repair shops use a lot of expertise and they like to get well compensated for their efforts!

How Car Insurance Companies Determine Your Rate

When you are wondering how does car insurance work? You probably want to know how the car insurance companies determine your rates. Well, that is a quite complicated question but luckily we’re here to give you a fairly simple answer. Just consider all of the following factors that go into the car insurance rate quote process.

  • The number one factor is probably your driving record. If you have DUIs or other negative marks on your record, you may find it hard or even impossible to get car insurance coverage. However, there are special car insurance companies that specialize in getting coverage for even the most difficult-to-cover people.
  • What type of car you have will determine your car insurance rates. If you want to get an expensive car, you can bet that you will have higher car insurance rates because that car will cost more to replace. You must keep that in mind when purchasing your car.
  • Your personal statistics will also make the type of car insurance rate that you get go up or down. The actuaries who make up the insurance rates have seen patterns of genders, ages and marital statuses. They know who is more likely or less likely to get into an accident, and they base the rates accordingly.
  • Even your job will get you a discount or a raise in your car insurance rates! If you have a somewhat smooth job that is normal you could see a dip. Some positions like even get special discounts. However, if you are a racecar driver you could see higher rates because you might be seen as a liability.
  • In some states, your credit history could affect your car insurance rates. That’s because actuaries have found a connection between your credit score and the likelihood that you might get into a car accident or not be able to pay your car insurance rates.
  • If you have recent claims, you could see higher rates. The good news is that if you go claims free for a while - like a few years - you could see your rates go back down. 
  • Finally, how many miles you drive on average is a great indicator of if your car insurance rates will be lower or higher. If you want to have lower rates, you will drive less. However, if you have an hour’s long commute, you may see higher rates.

So now you know a lot of the answers to the question of how does car insurance work? As you can see there are many components to understanding car insurance, but you will learn a lot by getting free quotes here and finding out all the answers to your questions. Car insurance doesn’t have to be a mystery. Just get free quotes here.



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