Most people know that after an accident, they’ll likely need to use the car insurance they’ve been diligently paying for. Car insurance can protect you from financial liability that has the potential to be devastating.
Being protected by a car insurance policy that is appropriate for your needs — and your budget — is vital.
What Is Car Insurance?
A car insurance policy is an agreement between you and your insurance company. At regular intervals — typically once a month, every six months, or annually — you pay the cost of the policy. In return, the car insurance pays for damages that occur when an accident happens, whether that damage is to your car or someone else’s car. What and how much the insurance will pay depends on the type of car insurance coverage you purchase.
How Does a Car Insurance Deductible Work?
If the time comes to put in a claim, you’ll most likely have to pay a deductible first. The deductible for car insurance works in a similar way to that for medical insurance. It’s the amount of money you will pay out of pocket on a claim before your policy picks up the rest — up to the limit you agreed to.
If you sign up for a high deductible, then your policy payments will be lower. A policy with a $1,000 deductible will not cost as much every month as a policy with a lower deductible. But if you find you need to put in a big claim to have your car fixed, you’ll have to come up with that $1,000 up front. If that is too big a hit for your bank account, then you may want to consider a lower deductible.
Most deductibles range from $100 to $2,000.
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Types Of Car Insurance Coverage Options
Car insurance coverage varies by type of coverage, amount of coverage, and amount of deductible. Some drivers may want to purchase specialty coverage that will be priced separately — for example, coverage for antique automobiles or vehicles driven for commercial purposes, or ride-share insurance.
Insurance companies will pay up to the limits of the policy, after any deductible.
Liability Coverage
A basic car insurance policy is liability coverage that will pay if there are bodily injuries to people in the other car or vehicular damage to the other car, and you are at fault.
Uninsured or Underinsured Motorist Coverage
Sometimes included in a liability policy package, but also available as a separate part of a policy, is uninsured or underinsured motorist coverage. If someone without their own liability insurance coverage hits your car, this type of insurance pays for your bodily injuries and physical damage to your car.
Emergency Road Service Coverage
If your car breaks down, your battery dies, you lock your keys in your car, or other types of emergencies that might leave you stranded, emergency road service coverage can be helpful to have. This type of coverage, sometimes called roadside assistance coverage, may pay for a tow truck, a locksmith, or even bring gas to you so you can make it to the next gas station. This is generally very affordable coverage to add to a policy.
Comprehensive and Collision Coverage
Comprehensive insurance covers repairs to a car that is damaged — outside of an accident — or stolen. Damage could be things like vandalism, a broken windshield, a fallen tree on your car, or other occurrences out of your control.
Collision coverage will pay to repair or replace your car if it’s damaged in an accident with another car or even an object such as a fence or tree.
These two coverages are sometimes listed together as “comp and collision” on a policy, but they are available as separate purchases in most cases. Both may be required by a lender if you’re leasing a car or still paying on an auto loan. They’re the most common types of car insurance to include in a deductible.
Personal Injury Insurance
Personal injury insurance, or medical payments coverage, will pay for your and your passengers’ medical expenses after an accident, no matter which driver was at fault.
Gap Insurance
If you are still making auto loan payments or you’re leasing a car, gap insurance might be something to consider. This type of coverage will pay the difference between the amount the car insurance company pays and what you still owe on the purchase or lease in the case of a total loss after an accident.
Understanding car insurance terms will help you make a smart decision about what types and amounts of coverage to purchase.
Do You Need Car Insurance?
In most states, you must have at least some form of liability coverage. In fact, to legally register and drive your car, you’ll have to establish and maintain a minimum level of coverage.
New Hampshire and Virginia are two exceptions.
• New Hampshire drivers are not required to carry any automobile insurance unless they have been convicted of driving while intoxicated, have had their driver’s license revoked, or were at fault in a car accident and were uninsured, among other stipulations.
• Virginia drivers who choose not to carry liability insurance must pay an uninsured motor vehicle fee when they register and license their vehicle.
In all U.S. states, driving without at least minimum liability coverage may result in being fined and even losing your driver’s license.
How Much Car Insurance Do You Need?
After you’ve purchased liability coverage, other coverage may be optional. Older cars whose value is lower than the coverage costs, including any deductible, might just need liability coverage, instead of comprehensive and collision coverage.
Some things to consider when purchasing insurance are the value of your car, your driving history, how far and how often you drive the car, and how much you could afford to pay out of pocket if you are in an accident.
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Discover real-time vehicle values with Auto Tracker.¹
Now you can instantly monitor vehicle prices in this unprecedented market—to help you make smart money moves.
How Much Does Car Insurance Cost?
According to Bankrate.com, the average full-coverage car insurance policy costs $2,014 per year or about $167 a month. However, these averages vary widely by state. Michigan, Louisiana, Florida, and Nevada reportedly have the most expensive car insurance policies.
Other factors that go into car insurance policy prices are what kind of driving record you have, your age and gender, and the type of car you’re insuring, among others. If you get a speeding ticket or you’re at fault in an accident, your insurance policy is most likely going to go up in cost.
Car insurance is highly competitive, so comparison shopping can be a wise move.
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How to File a Car Insurance Claim
It’s recommended that claim filing should happen as soon as possible after an accident. Call your insurance company and be ready to inform your insurer which vehicle was involved, who was driving, the exact location and time of the accident, the description of the damage, and the name and insurance of the other driver.
If the incident you report is covered, your insurer will pay, up to the policy limits, for the cost of the damage you caused, or the damage to your car, minus the deductible if you have one. Your insurer may pay you directly. Or payment may be made to the other driver or to the repair shop working on your car.
Some insurers request a copy of the police report filed on an accident. If you didn’t call the police at the scene, you can still go to the local police precinct to file a report.
Recommended: Car Insurance Guide for New Drivers and 3 Ways to Save
The Takeaway
Car insurance pays a claim when there are injuries to people and damages to a vehicle when an accident has occurred. Types of coverage vary from minimal liability coverage to more broad-spectrum comprehensive and collision coverage, in addition to some coverage for special situations.
Taking the opportunity to compare car insurance companies before committing to a policy can be a smart move that might save you money on your insurance rate. When you’re ready to shop for auto insurance, SoFi can help. Our online auto insurance comparison tool lets you see quotes from a network of top insurance providers within minutes, saving you time and hassle.
Photo credit: iStock/Melena-Nsk
¹SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc’s service. Vehicle Identification Number is confirmed by LexisNexis and car values are provided by J.D. Power. Auto Tracker is provided on an “as-is, as-available” basis with all faults and defects, with no warranty, express or implied. The values shown on this page are a rough estimate based on your car’s year, make, and model, but don’t take into account things such as your mileage, accident history, or car condition.
SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.
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