What Is Auto Insurance, And How Does It Work? (2024)

What Does Basic Auto Insurance Cover?

Mandatory auto insurance coverage differs from state to state. However, most states require basic auto insurance focused on keeping you financially whole after you or someone driving your vehicle injures someone or damages another vehicle or someone’s property.

This type of coverage is known as liability insurance, and it comes in two forms:

• Bodily Injury Liability: Covers costs for injuries or death to others

• Property Damage Liability: Pays for damage to another person’s vehicle or property

Many states also require drivers to carry personal injury protection (PIP) insurance, which provides reimbursement for medical expenses stemming from injuries sustained in an accident.

Medical payments coverage (MedPay) is a similar form of insurance that offers the same coverage as PIP. However, PIP can also cover lost wages and other expenses that arise during recovery, while MedPay doesn’t.

Other Car Insurance Types

Noticeably absent from basic auto insurance is vehicle coverage. Mandatory car insurance coverage focuses on the damage vehicles cause, not the damage done to them.

There are four other types of personal auto insurance you can purchase to cover your vehicle in the event of an accident:

Collision Coverage

Collision coverage pays for repairs to your car, truck, or other motor vehicle if you hit another vehicle or an object, such as a guard rail, tree, or street light.

Comprehensive Coverage

Comprehensive coverage addresses everything outside of collisions with other vehicles or objects. It may cover losses from fire, flooding, earthquakes, windstorms, hail, riots, theft, vandalism, falling objects, animal-related damage, and more. It also can pay for repairing or replacing a cracked or broken windshield.

Uninsured Motorist Coverage

If you or a designated driver is hit by someone who doesn’t have auto insurance, uninsured motorist coverage can offset the resulting costs. This type of coverage can also prove highly valuable if you’re the victim of a hit-and-run.

Underinsured Motorist Coverage

It’s not uncommon for motorists to be hit by other drivers who don’t have sufficient coverage to pay for their losses. This is where underinsured motorist coverage comes in. It can pay the difference between your total loss and the limits of the driver who was at fault.

If you lease your vehicle or bought it with a loan, your lender or dealer may require you to purchase collision and comprehensive coverages.

Do You Need Insurance to Register a Car?

You need liability insurance to legally drive in almost all of the 50 United States. Every state except New Hampshire, South Carolina, and Virginia mandates that drivers carry a liability car insurance policy for property damage and bodily injury.

In New Hampshire, you’re not required to carry auto insurance if you can prove you have the financial wherewithal to meet the state’s financial responsibility requirement if you have an accident. Otherwise, the state can suspend your driver’s license.

South Carolina requires auto insurance. However, you can opt out of the requirement by paying a $600 uninsured motorist fee each year. If you cause an accident, you’re still on the hook for paying for damages. Virginia has a similar system, imposing a $500 uninsured motorist fee.

Why is car insurance mandatory? It’s all about liability.

If you cause an accident or someone else hits you, someone has to pay for the repairs and medical bills. Car insurance benefits and accident settlements can keep you from experiencing major financial setbacks after an accident.

Knowing this might also help you answer another important question: Do you need car insurance?

How to Get Car Insurance

How do you get insurance on a car? You likely shopped around when you purchased your vehicle. You should do the same when looking for a car insurance policy.

Here are five key steps for buying auto insurance:

1. Determine the Amount of Insurance You Need

If you have a new vehicle or purchased one with a loan, you may want to get collision and comprehensive coverage along with the basic state requirements. However, if you have an older vehicle, you might be able to forgo this coverage.

2. Provide Your Personal and Driving Information

When applying for auto insurance, you’ll need to give your name and date of birth, the make, model, and vehicle identification number (VIN) for your car or truck, and a copy of your driving record.

3. Decide How to Buy Your Insurance

You can buy insurance directly from an insurance office, via an insurance company’s website, or through a captive agent (who works for a single insurance company) or independent agent, who represents multiple insurers.

4. Purchase Your Policy

Auto insurance policies typically run six months to a year before renewal. Most insurers also allow policyholders to pay monthly installments. However, you may be able to score a discount by paying for your full term up front.

5. Cancel Your Old Policy

If you have an existing auto insurance policy, wait until you purchase your policy to cancel it. That way, you can avoid having a gap in your insurance that could leave you exposed to the risk of liability.

The next logical question is, “How much does car insurance cost?” The average annual cost of auto insurance is $2,068. Several factors influence the price of auto insurance, including age and gender, driving history, credit score, location, type of vehicle, and how it’s used.

Connect With Insurance Professionals

Buying auto insurance is fairly straightforward, but you still may have questions. ConsumerShield can provide answers that make you feel confident you’re getting the auto insurance you need. Contact us today to learn more about how to protect yourself with auto insurance.