CarInsurance.com Insights
- Car insurance protects you financially and covers several types of losses associated with auto accidents.
- Determining how much insurance you need can be tricky, but you generally want enough insurance to protect all your assets.
- You can apply for coverage and often have a policy in place the same day.
Car insurance doesn’t have to be complicated. At its core, it’s a contract that protects you financially in the event of an accident or if your vehicle is damaged. But with so many coverage options and terms to navigate, understanding how car insurance works can be overwhelming.
This guide breaks it all down, from what car insurance covers to how premiums are calculated, so you can make informed decisions that fit your needs and budget. Whether you’re buying your first policy or need a refresher, we’re here to help simplify every step.
What is car insurance?
Car insurance covers you if you are involved in an auto accident that results in damages. It is must-have coverage for anyone who plans to climb behind the wheel and drive.
“Insurance is a tool that protects individuals from catastrophic financial loss,” says Sarah Jacobs, vice president of personal lines product development at Nationwide Insurance.
How does car insurance work?
Car insurance protects your finances in the event of an auto accident, potentially saving you tens of thousands of dollars or more.
One type of coverage reimburses you for damages you cause to other people, their vehicle or other property. Most states require you to purchase this type of coverage, known as liability insurance.
A second type of coverage reimburses you for damages to yourself and your own vehicle. Typically, this collision and comprehensive coverage, which comprise full coverage, is optional if you don’t have a lien on your vehicle. But if you have a car loan, the lender will require you to purchase a full-coverage policy.
What does car insurance cover?
Car insurance covers several types of losses associated with auto accidents, which are described below. Types of coverage include:
- Bodily damage liability. Reimburses you for damages you cause to other people, such as if you injure or even kill them in an accident. Nearly every state requires you to carry this coverage.
- Property damage liability. Reimburses you for damages you cause to other vehicles or property. Once again, nearly every state requires you to carry this coverage.
- Collision and comprehensive. Collision reimburses damages to your own vehicle that result when you crash into another car or object. It also covers damages if you flip the vehicle without hitting anything. Comprehensive reimburses damages to your car that do not result from a collision. It also compensates you if your vehicle is stolen. These types of coverage are optional, although your lender likely will require you to purchase them if you have a car loan.
- Medical payments/personal injury protection (PIP). Some states require you to carry these forms of coverage, which reimburse you and injured passengers for things like medical expenses and lost wages.
- Uninsured/underinsured motorist. Reimburses expenses related to accidents that involve a driver who has no insurance or inadequate levels of coverage. It also protects you in the event of a hit-and-run accident.
How much does car insurance cost?
The annual cost for a full coverage car insurance policy in the U.S. is $1,895 or $158 per month. The rate for a liability-only policy with limits of 50/100/50 is $647 per year or $54 per month. The rate for a state minimum liability only policy is $502 per year or $42 per month.
Every state except New Hampshire requires car insurance, but the minimum required amounts vary by state.
What affects the cost of car insurance?
Many factors help determine the price you pay for car insurance. How carefully you drive plays a significant role. A better driving record — with fewer accidents and tickets — typically earns you lower rates. And if you agree to let your insurance company monitor your driving behavior, you may get a break on your premiums if you perform well behind the wheel.
Other factors that impact price are harder to control. The type of vehicle you drive, the car’s age, where you live, and your age and gender all affect the price you pay for coverage.
What is a car insurance deductible?
The deductible is the amount you agree to pay before your insurance coverage will pay for a claim. Typical deductible amounts are $250, $500 and $1,000. Generally, the higher the deductible you agree to accept, the lower your premiums will be. But you must have enough savings to pay the deductible if you make a claim.
Read more: Here’s why raising deductibles saves you money
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How does car insurance work after an accident?
Jacobs says that nailing down who is at fault in an accident is a significant factor in determining which coverages apply to an accident claim.
“If you are at fault, the damage to the other party’s vehicle, property, or any injuries usually fall under your liability coverage,” she says.
Damage to your own vehicle would fall under what is known as “first-party coverages,” such as comprehensive or collision, depending on who is at fault and what damage was caused.
How does car insurance work if another driver hits your vehicle?
If someone else hits your car, the state where you live determines how the claim will unfold. In most states, the at-fault driver’s insurance will pay the claim. However, if you live in a state with no-fault insurance, your own insurance will pay for the damages.
How do you file a car insurance claim?
Insurance companies typically ask you to contact them promptly after the accident and provide details about what happened. As part of the claims process, they will ask you to provide the other driver’s insurance information and to give them photos from the accident site if you have them.
However, each insurer has its own policies for filing a claim, so it is essential to contact your insurer and learn the precise steps necessary.
How do claim payments work?
Regarding receiving your check, the rules vary by insurer and state. The check will often be made to you and the repair shop.
The check may go directly to your lender if you have not paid off your auto loan and your car is totaled. If someone else is at fault, the driver’s insurance company may send a check directly to you.
Learn more about car accident claims — here’s what you need to know
What type of car insurance do I need?
Determining your insurance needs can be tricky, but you generally want enough insurance to protect all your assets. You could be sued if you severely injure someone while driving. So, being underinsured is a significant risk.
“A qualified agent can help determine your coverage needs and how to best meet those,” Jacobs says.
It depends on your car, finances and driving needs:
- First-time drivers: Full coverage (liability, collision and comprehensive) is usually best because you have little driving history and a higher risk of accidents.
- Financed or leased cars: Lenders require full coverage and often gap insurance to protect their investment.
- Owners of older, paid-off cars: Liability-only may be enough if your car’s value is low and the cost of full coverage outweighs the potential payout.
- High-value or new cars: Full coverage with add-ons like new car replacement or accident forgiveness may make sense for extra protection.
The right coverage comes down to balancing the value of your car with the amount of risk you’re comfortable taking on yourself.
Shopping for car insurance
There are several ways to shop for car insurance: Getting quotes online, getting quotes from individual insurance companies, working with an insurance broker or going directly to a company to work with an agent.
Whichever method you pursue, make sure you get multiple quotes. This is the best way to compare and contrast policies to land the best deal. Repeating the rate-quote process at least once annually can help you discover if there are better plans that can save you money.
Frequently Asked Questions: Car insurance
What is a car insurance premium?
A car insurance premium is the money you pay in exchange for car insurance coverage. Many insurers charge a premium based on six months of coverage. However, it’s also possible you could be charged monthly or on an annual basis.
How long does it take to get car insurance?
It takes very little time to secure an auto insurance policy online. If you look for a policy online and find one that suits your needs, you can apply for coverage and get a policy the same day. The entire process can take 30 minutes or less.
Will car insurance cover your vehicle if it’s totaled?
If your car is totaled, you will be paid for the vehicle’s current value, not the price you paid when you purchased the car. But remember — an insurance company will not reimburse damages to your vehicle unless you carry comprehensive and/or collision coverage.
Is car insurance required in every state?
Almost every state requires drivers to carry at least a minimum amount of liability insurance. Only New Hampshire and Virginia allow drivers to skip insurance, but strict financial responsibility rules apply if you cause an accident.
What does ‘full coverage’ car insurance mean?
“Full coverage” isn’t an official policy — it usually refers to liability, collision and comprehensive combined. It provides broader protection but doesn’t cover everything, like maintenance or wear and tear.
Does car insurance cover theft?
Yes, if you have comprehensive coverage. Liability insurance alone will not cover your car if it’s stolen.
How does a car insurance deductible work?
Your deductible is the amount you pay out of pocket before your insurance kicks in. For example, if you have a $500 deductible and $2,000 in covered damages, you pay $500 and your insurer pays $1,500.
What happens if I drive without car insurance?
Driving uninsured can result in fines, license suspension, vehicle impoundment, and financial responsibility for all damages in a crash. In some states, penalties can also include jail time.
Does car insurance follow the car or the driver?
In most cases, insurance follows the car. That means if someone else drives your insured vehicle with permission, your coverage usually applies. Rules can vary by state and policy, so always check with your insurer.
What factors affect my car insurance rates?
Insurers consider your age, driving record, location, vehicle type, credit score (in most states) and even how much you drive. These risk factors help them set your premium.
What happens if I let my policy lapse?
If your coverage lapses, you’ll be uninsured and may face fines or license suspension. When you buy insurance again, insurers may charge higher premiums because of the gap in coverage.
How does car insurance work if you’re an Uber or Lyft driver?
Even if your car is insured, you are not covered if you use the car for work. If you operate a rideshare vehicle, check with your insurance company about adding a rideshare endorsement.
What is excluded from car insurance?
Car insurance does not cover you for everyday wear and tear that occurs to your car as you drive it.
Additionally, a standard car insurance policy also will not cover you for situations where you are using the car for business purposes. You need a separate business auto insurance policy or some other form of supplemental insurance for business coverage.
Final thoughts on car insurance
There are many ways to save on car insurance, ranging from purchasing your car insurance policy from the same insurer who provides your home insurance — which often nets you a discount — to taking driver safety courses.
But perhaps the best way to save is to regularly compare and contrast quotes from multiple insurance companies and choose the most affordable carrier that offers the coverage you need.
Sources
- Insurance Information Institute “Understanding your Insurance Deductibles — Explained by III” Accessed September 2025.
- Insurance Information Institute “No-fault Auto Insurance — Explained by III” Accessed September 2025.
- Insurance Information Institute “Understanding the Valuation and Repair Process — Explained by III” Accessed September 2025.
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