The Basics of Auto Insurance
Car Insurance Coverages, Deductibles, and Premiums: What It Means
Mar 22, 2009
For drivers who are starting to look for auto insurance, the terminology of auto insurance coverage can be confusing. From deductibles to collision, liability, medical coverage, and premiums, understanding auto insurance can be quite a mental challenge.
However, once the driver understands the basics of auto insurance, he or she is more prepared to move forward in obtaining auto insurance quotes and getting the car insured.
Auto Insurance Basics: What Is Auto Insurance?
Simply put, auto insurance protects the driver financially in the case of an auto accident or an act of God. Auto insurance also pays for damage the driver causes to another car in the case of an auto accident and medical expenses borne as the result of the accident.
Auto insurance is mandated by every U.S. state. If a driver refuses to purchase auto insurance, he or she faces substantial penalties including fines, revocation of the driver’s license, and even jail time in certain circumstances.
Auto Insurance Basics: How Auto Insurance Works
Essentially, drivers pay an auto insurance company a premium in order to be covered in the case of an auto accident or an act of God. In either scenario, the driver files a claim with the auto insurance company and pays only the amount of the deductible.
However, the driver may be required to contact another auto insurance company to file a claim. For example, if Driver A is at fault in an auto accident, Driver B files a claim with Driver A’s auto insurance company.
The amount the driver pays for auto insurance is based on numerous factors including deductible amount, driving record, type and amount of coverage, driving frequency, local statistics regarding accidents, and safety and theft statistics of the car.
Auto Insurance Basics: Coverages and Deductibles
States differ in the way they approach auto insurance. But generally, auto insurance offers two major coverage types: liability and collision.
Liability is coverage for property damage and personal injury done to others as the result of an auto accident. If the insured causes an accident, the insured’s auto insurance company pays for the damage and/or medical expenses for the other driver.
Collision is coverage for the insured’s car in the case of an auto accident, for example, body work or engine part replacement. Additional types of coverage are also offered by auto insurance companies (e.g., comprehensive coverage for theft, windshield damage, and acts of God).
Auto Insurance Basics: Paying Premiums
Drivers pay premiums to the auto insurance company every six months when the policy renews. However, most auto insurance companies offer differing payment options that may lower the cost of auto insurance including extended billing and monthly payments.
Drivers can also lower their costs by adjusting coverages and deductibles. For example, raising the deductible amount for certain categories of coverage or eliminating unnecessary coverages may lower the overall auto insurance premium.
Auto insurance doesn’t have to be confusing. With a basic understanding of auto insurance, how it works, coverages and deductibles, and how to pay premiums, those searching for auto insurance can be confident when approaching car insurance companies for auto insurance quotes.
See related articles, "Understanding Auto Insurance Terminology," "Understanding Auto Insurance Liability," and "How to Reduce Auto Insurance Rates and Save."
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