Car insurance is an agreement between you and an insurance company, which protects you against financial loss if your vehicle is involved in an accident or stolen, explained Mark Snyder, claims expert at Hi Marley, an insurtech company.
Car insurance can cover your expenses related to property damage, bodily injury and other medical expenses. Basic coverage is required in most states, but the exact rules vary.
How does car insurance work?
Essentially, you agree to pay a certain amount of money every six months to a year, known as your premium, in exchange for protection against sudden financial hardship after an accident, said Sarah George, an insurance writer and expert at finder.com.
Your premium is calculated by the insurance company based on how much coverage you need and your personal risk factors. “That includes the age of the vehicle, driver’s age, driving record and geographic location where the vehicle is housed or used, to name a few,” Snyder added.
If you’re involved in an accident, you file a claim on your insurance policy. Your insurer will then evaluate the situation and determine how much money you should be paid out to cover expenses. If applicable, a deductible (a certain amount you agree to pay out-of-pocket) is deducted from the payout. Often, filing a claim results in your premium increasing temporarily, especially if you were at fault.
