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Jerry partners with more than 50 insurance companies, but our content is independently researched, written, and fact-checked by our team of editors and agents. We aren’t paid for reviews or other content.
Almost every state requires car insurance, and each state mandates its own minimum coverage level. In case of accident or injury, your policy can help cover the expenses associated with car repairs, medical bills, or other relevant costs.
Car insurance
is a smart—and often legally required—way to protect yourself and others from the risks of driving. But how does it actually work? The first step is to purchase a policy from a company that will be tied to you and your vehicle. You can do this directly from a company or through a smart broker app like
Jerry
. You pay the premium monthly or annually to maintain coverage. If you get into a covered accident, file a claim. The company will assess the damage and pay relevant parties for expenses.
Okay, buckle up—here’s a quick dive into how car insurance works.
What is car insurance?
At its core, car insurance is a contract between you and your insurance company. It offers you a measure of protection in case of a car-related disaster that you can’t afford out-of-pocket.
It’s a clever way to divide the cost among all the drivers on the road, depending on their individual levels of risk. You pay into a pool of money every month, and in return, your provider agrees to pay out on covered claims, up to the limit of the policies you bought.
Depending on your policy, car insurance could pay for vehicle repairs, property damage repairs, medical expenses for you and others, roadside assistance, and even rental fees if your car is in the shop.
How does car insurance work?
Glad you asked! Once you pick an insurance company, here is the basic process:
- You select the types of coverage you need. Some policies pay for damage toproperty, othervehicles, orinjury to others. Depending on your state laws, certain types of coverage will be required and others will be optional.
- For each policy, you will select a financial limit. This is the amount that the insurance company will pay out in a covered incident, so you don’t have to pay thousands of dollars out-of-pocket.
- Each state has its own guidelines about minimum levels of liability insurance, but you can always exceed this minimum for extra protection.
- If you get into an accident, you file a claim online, by phone, or through a mobile application.
- The company pays for the damage as long as the incident is covered. They may pay you directly, or they may pay the mechanic who fixes your car.
- You must pay the deductible out of pocket (usually a few hundred dollars), and then your policy will cover the rest.
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What is a deductible?
Your deductible is the amount you agree to pay out-of-pocket before your insurance kicks into gear. If you choose a high deductible, your premium will go down. However, you should only do this if you’re prepared to pay the high fee when you need to make a claim.
Most deductibles are between $250 and $1,000.
Key Takeaway As long as it meets minimum state requirements, choose the coverage level and deductible amount that make sense for your situation.
How much does car insurance cost?
The average price for car insurance is $133 per month or nearly $1,600 annually. But your price could be lower or higher depending on your vehicle, location, driving history, and demographics.
If you drive a more expensive car, live in a city with a higher likelihood of accidents, or have a lousy driving record, you’ll probably pay more.
Do I need car insurance?
Yes! It’s a legal requirement to have car insurance in 48 of 50 states (
New Hampshire
and Virginia
are the exceptions). In every state, a driver is considered legally responsible for any damage they cause. This means that if you don’t have insurance and you cause an accident, you will be forced to pay tens of thousands of dollars to the injured parties.
If you drive without car insurance in a state where it’s required, you could be fined or lose your license.
Note that people who drive leased vehicles may have special requirements for car insurance. Lienholders sometimes require higher levels of coverage until you finish making your payments.
MORE: The 5 characteristics of a reliable car insurance company
What does car insurance cover?
You can build a custom policy to meet your needs, combining coverages so that you get maximum protection. Policies cover the driver and/or the vehicle.
Every policy covers a different type of incident:
Type of coverage | What does it do? | Who needs it? |
|---|---|---|
Liability | Covers damage to other drivers and their vehicles if you cause an accident | Required in most states |
Comprehensive | Covers damage to your vehicle from non-collision events, including weather damage, falling objects, vandalism, and theft | Drivers who live in places that are vulnerable to severe weather or high crime, especially if you park your car outside |
Collision | Covers damage to your vehicle caused by a collision | Drivers who live in areas with lots of traffic, speeding, or wildlife |
Uninsured/underinsured motorist (UM/UIM) | Covers costs if you get into an accident with an uninsured or underinsured driver | Required in some states |
Roadside assistance | Covers towing, winching, lockout assistance, flat tire help, and more | People who drive long distances or have older cars |
Gap coverage | Covers the difference in cost if your new vehicle gets totaled in an accident while you’re still paying off the loan | People who are driving new vehicles that aren’t paid off yet |
MedPay | Covers medical expenses if you or your passenger are injured in an accident | Required in some states |
Rental reimbursement | Covers the cost of renting a car while your own car is being repaired after an accident | Drivers without access to backup transportation in the event of an accident |
What does car insurance not cover?
Standard maintenance is not covered by car insurance. A general guideline is that car insurance covers accidental and sudden incidents. However, damages that occur over time or due to driver disregard are usually not covered.
Here are some examples of things that are not covered:
- Regular wear and tear (i.e. tires that have a worn-down tread)
- Mechanical or engine failure
- Malfunctions related to maintenance (i.e. steering system problems or faulty headlight)
But wait! There’s something called MBI, or mechanical breakdown insurance. Not all companies offer MBI—and it can be extremely pricey—but it could cover mechanical damage to some parts of your car, like the brakes or transmission.
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How to file a car insurance claim
If you get into an accident or suffer another incident that is covered by your car insurance, here is the general process for filing a claim:
- Collect as much information and documentation as possible.
- Take photos.File a police report.Keep receipts if your vehicle has to be towed.Write down the name and insurance information of any involved parties.
- Submit this information to your insurance provider over the phone, online, or through the company’s mobile app.
- Your case will be assigned to a claims adjuster who will assess your case and determine payment. This can take some time.
- You may need to pay repair shops directly and wait for the insurance company to reimburse you after assessing your claim.
How to buy car insurance
The best way to find the right policy is to shop around with
Jerry
. This allows you to compare quotes from top companies and get a feel for their customer service. While popular companies like Progressive
and GEICO
are famous for good reason, they may not be the best (or cheapest) option for your specific needs.Buying a policy can take as little as a few minutes (or 60 seconds with the Jerry app). Follow these steps:
- Start by asking yourself some questions about your vehicle and your driving needs:
- What type of car do you drive?How many miles a year do you drive?What kind of risks do drivers face in your area?Who will be driving your vehicle?
- Determine how much coverage you need and which types.
- Get personalized quotes (Jerry does it in 60 seconds) and compare rates.
- Pick the company and purchase the policy.
- Cancel your old policy, if applicable.
Stay on top of your renewal dates, and make sure that you don’t have a lapse in coverage. Not only does this leave you exposed to financial ruin (and it’s illegal), but it could raise your rates enormously when you’re shopping for a new policy.
Key Takeaway To make sure you’re getting the lowest rates, compare quotes from different insurance companies before you purchase a new policy. You can do this for free with the Jerry app.
How are car insurance rates calculated?
Your rate will be unique to you, as it’s calculated based on the amount of risk you present. Every company has its own secret formula for assessing risk, and they charge risky drivers more.
Here are some factors that go into calculating your premium:
- Driving record
- Zip code
- Age
- Gender
- Employment
- Deductible and coverage amounts
- Credit history (only in some states)
If you have been a very safe driver with no accidents and no claims, you will probably be able to find affordable insurance! However, any accidents on your record will cause companies to view you as a risky driver.
Young drivers with little experience on the road are also considered risky, and they pay some of the highest rates of all.
How to find cheap car insurance
If you want cheap car insurance quotes fast, go to
Jerry
. A licensed broker that offers end-to-end support, the Jerry app gathers affordable quotes, helps you switch plans, and will even help you cancel your old policy.“Jerryquoted me a price that saved me almost $4,000 a year in California! I definitely recommend Jerry.” —Patricia B.
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Does car insurance cover the car or the driver?
Car insurance typically follows the car, not the driver. For instance, if someone is temporarily driving your vehicle, your policy should cover them. Some policies will follow the driver, however.
How does insurance work when you get into an accident?
You must file a claim to get your expenses covered. Submit information to the insurance company. They will determine whether the incident is a “covered” event. If it is, they will either pay the service providers directly (hospital, repair shop) or reimburse you.
How do car insurance payments work?
Car insurance is an annual premium. Most people make monthly payments which are calculated based on this yearly sum. You can set up auto-pay, although many companies also accept payments by mail or phone.
Reviewed by Melanie Reiff.
