Whether you’ve just bought your first car or you're shopping for a new – and hopefully less expensive – car-insurance policy, auto insurance can be mystifying. What kinds of coverage do you need? How much will it cost? What’s required, what’s optional, and what exactly is a deductible? Do you need different insurance if you drive for Uber or Lyft? And do you really need to know all this stuff?
Yes, you definitely need to know this stuff. It not only makes you a smarter consumer, but it can also save you money. You could save upfront by not paying for coverage that doesn’t suit your lifestyle, or you could save in the long run by opting to pay for a particular kind of coverage for situations that are likely to occur based on how you use your vehicle.
In this article, we’ll clear up some of the mystery around car insurance. We’ll start with the basic types of insurance you can get and what they do for you, your car, your passengers, and anyone else involved in an accident. We’ll also talk about what kinds of coverage are required in most states and what factors will influence how much you pay for your insurance. We’ll walk through the most common steps for filing a claim, regardless of who your insurer is. And we’ll talk about why you don’t want to let your auto insurance lapse.
This article has a lot of general information that applies to most readers. But as they say, your mileage may vary. Check with your insurer and your state to make sure you’re compliant with the legal requirements where you live. Also, not every insurer offers every kind of insurance, particularly the optional add-ons or discounts. Again, you’ll want to check with your policy or your insurance agent to find out which types of coverage are available to you.
If you cause an automobile accident, and are found to be at fault, you are liable for the damages. If that happens, liability insurance pays for the other person’s auto repairs and medical expenses. Often referred to as “minimum coverage,” liability is the very least insurance you can legally carry in most states. (Some states require more, two states require less. We’ll get to that in a minute.)
There are two varieties of liability coverage; you probably have to have both. Property damage liability insurance covers repairs to things like folded fenders and dented doors. Bodily injury liability insurance covers repairs to people – things like doctor’s visits and physical therapy. Liability insurance does not cover your medical or repair expenses for your own injuries or damaged car.
Liability insurance is where you start. You can build your auto insurance policy up from this basic coverage.
This one is a bit misleading. If something is comprehensive, it covers absolutely everything, right? Well, no. Not when it comes to car insurance.
Comprehensive insurance covers the repair or replacement of a vehicle that's damaged from something other than an accident with another vehicle. This is the insurance you want when a tree falls on your car during a hurricane or when hail dents your hood. It covers damage caused by animals – deer, we’re looking at you. It also covers damage from things like vandalism, theft, or riots.
Comprehensive coverage does not come into play for medical bills for other people or damage to other cars. Liability insurance covers those things. Comprehensive also doesn’t cover you if run your car into a fixed object like a building or a light post.
Your lender may require comprehensive coverage as a condition of your loan or lease. It's optional if you own the car outright. Opting not to carry this coverage is one way to save money on an older car that you’ve paid off but are going to keep for a while.
Check out our comprehensive car insurance guide for more information.
Personal Injury Protection (PIP)
Personal injury protection is often called “no-fault” coverage, and it is required in some states. It covers the medical expenses of the policyholder (that’s probably you) and anyone in the car with you at the time of an accident, no matter whose fault it is. Whether you run into another car or another car runs into you, this insurance will pay for medical bills.
It can pay for quite a bit more too. If you’re injured in a car accident, it covers rehab, childcare if you need help while recuperating, and even funeral costs. It can also cover you as a pedestrian – you don’t even have to be in a car.
Collision coverage picks up where comprehensive coverage leaves off. It takes care of repairs when you hit another object with your car, whether that’s another car or a light post. It does not cover damage from hail or hitting an animal.
Collision insurance covers you in any car you drive, not just your own. You're protected whether you get into an accident while borrowing a friend’s car or you’re on the way home with a car you just bought. It also covers damage to a rental car, but only in some states; double-check before relying on it for your next vacation.
It covers you if you have a fender bender in a loaner car from the shop while your car is being repaired. It also covers rollover damages and repairs from a hit-and-run accident. Anytime you’re in an accident that’s not covered by someone else’s liability insurance, this coverage will pay for the repairs.
To be clear, this does not cover repairs for another car involved in an accident or for any medical expenses for people in the other car. That’s your liability coverage, the minimum required in most states. Collision coverage is usually optional, but it can be handy for new drivers who are more likely to make mistakes and ding some doors.
Collision coverage requires a deductible, which is the amount you pay out of pocket each time you need to fix your car (more on that below). The limit for a collision policy is the value of your car, so if you’re driving a new car, it might be worth adding collision to your premium. If you’re financing or leasing your car, the lender might require it.
If your car is older, collision might not be worth the extra money. A deductible is required with collision coverage, so you’re going to pay money out of pocket no matter what. It’s up to you to decide if you’d rather pay a little extra with each premium payment to avoid a big repair bill later or if you’d rather keep that money in your pocket now and pay for all the repairs yourself in case of an accident.
Check out our collision car insurance coverage guide for more information.
Medical Payments Coverage
Medical payments coverage is optional. It covers you and any passengers in your car at the time of an accident. It also covers family members listed on the policy even if they're in another car. If a car they’re in gets in an accident and they need medical treatment, this insurance will cover it. It also covers your medical expenses if you’re in an accident as a pedestrian or a cyclist.
The interesting thing about this coverage is that it kicks in after your health insurance has been used up. So if your health insurance has a limit of, say, $50,000 per year, but your post-accident treatment will cost $75,000, medical payments coverage will pay for that extra $25,000.
There are no deductibles or copays involved in medical payments coverage. Once it kicks in, it can actually cover those out-of-pocket costs for you. Continuing with our example above, let’s say that after you’ve reached the $50,000 limit with your health insurance, you still need to visit your doctor for treatment. Each time you go, there’s a $20 copay. Since your medical payments coverage is now responsible for your medical bills after the accident, it will pay the copay and the cost of the doctor visit.
According to the Federal Emergency Management Agency, flooding is the most common natural disaster in the United States. It can happen when rivers overflow, dams and levees break, or snow melts rapidly. If your home is in a flood plain, you’re likely required to have flood insurance.
Flood insurance is administered by the federal government via the National Flood Insurance Program, which is run by FEMA. You can purchase it through your insurance provider, but it’s issued at the federal level. It can cover your home up to $250,000 and your personal property up to $100,000. Personal property is referred to as “contents coverage,” and it’s intended to cover the contents of your house. Your car is not covered by your home insurance in the case of a flood. Not even if you park it in the living room.
Comprehensive car insurance covers natural disasters, and a flood is a natural disaster. Opting for comprehensive auto insurance coverage is your best bet if you live in a flood-prone area and don’t want to pay for all potential car repair costs on your own.
Uninsured Motorist Coverage
Just because the state law says you have to have insurance to drive doesn’t mean everyone complies with that law. It’s entirely possible that you’ll be involved in an accident with a car driven by someone without insurance or whose insurance doesn’t cover the costs of your repairs or medical bills. That’s where uninsured/underinsured motorist coverage comes in. This is required by some states, so you’ll want to see if that’s the case where you live.
In addition to covering the cost of your repairs when the at-fault, or liable, driver doesn’t have any or enough insurance, this coverage will pay for injury and death expenses. It can also come into play if you’re involved in a hit-and-run accident.
Some states have really low or nonexistent insurance requirements. Liability insurance might not even be required, which leaves you in the insurance lurch if you get into an accident with someone who’s underinsured. If you live in a state with low minimum insurance requirements, you might want to opt for this coverage.
Gap coverage is a common type of insurance, but its name is a bit misleading. You might think that gap insurance is meant to bridge a period of time when you’re without auto insurance for some reason, but that’s not right.
Dealerships often offer gap insurance, also known as lease/loan gap coverage, when you buy or lease a brand-new car. It’s common knowledge that the minute you drive off the lot in your new car, the car’s value drops like a rock. Your brand-new car loan or lease, however, does not. So what you owe on the car is more than what the car is worth for the first few years. That's the gap covered by this insurance.
Gap coverage is most helpful when you have a long finance term, maybe five years or more. You're monthly payments are smaller in those situations, so the amount of time that you owe more than the car’s value is likely to be longer. This insurance is also useful if you have a low down payment on your new car.
Gap coverage works when your new – or newish – car is totaled or stolen. That’s when the difference between the value of your car and what you owe on it really matters. If your car is worth $20,000 when it’s totaled, for example, the insurance company will pay your lender up to $20,000. But if you owe $22,000 on your loan, then you have to come up with $2,000 to pay off the loan in full. Gap coverage would help you pay that $2,000 on a car you can’t drive anymore. Some lenders and leasing companies require this coverage, so make sure you have it before you sign on the dotted line.
Mechanical Breakdown Insurance
Insurance for mechanical breakdowns is optional in every state, so it’s up to you if you want to pay a little extra over time to avoid a large payment when something goes wrong with your car. This coverage is available for new cars through some insurance companies as an alternative to an extended warranty from the dealership. It’s also called a vehicle repair plan or a vehicle service contract, depending on which insurer is selling it.
If you decide you’d like mechanical breakdown coverage after you’ve had your new car for a few months, it’s not too late. It’s usually available for cars up to about a year old with fewer than 15,000 miles on the odometer. (Americans drive an average of 13,476 miles per year, so this insurance should cover that first year.)
All new cars come with limited warranties and powertrain warranties. The length of these warranties varies by manufacturer. The limited warranty covers everything in the car for a shorter amount of time, usually three to five years, but only if something breaks or is defective. It does not cover maintenance, like oil changes, or wear and tear, like replacing a headlight bulb. The powertrain warranty lasts longer, usually five years, and it only addresses defects in the powertrain (engine, transmission, driveshaft, and if it’s electrified in some way, batteries and motor). Again, this doesn’t include maintenance or wear-and-tear services.
Mechanical breakdown insurance usually picks up where the manufacturer’s limited warranty leaves off. So when you reach three years or 36,000 miles – a typical term for a warranty – the additional coverage would begin. But be aware that this insurance still might not cover wear-and-tear items or maintenance.
Vehicle repair plans usually involve a deductible, so you’d still have to pay out of pocket for each repair up to a specified amount, depending on your policy. Any repair costs above that amount would be covered by insurance, as long as the repair in question is covered by the policy. With vehicle service contracts backed by insurance companies, you can take your car to any mechanic you like rather than being locked into servicing your car at the dealership.
Depending on your insurer, there are several little extras that you can add to your auto insurance policy, or there might be courtesies or perks included in your coverage.
One extra that’s often worth a little more money (if it’s not included already) is a loaner car while your car is in the shop. Insurance agents and policies refer to this as a temporary replacement vehicle, so that’s what you’ll want to look for in your policy paperwork. With it, you can rent a car and your insurance will reimburse you for the rental.
Some policies allow you to add roadside assistance if you don’t already have that service through an auto club or your car’s warranty. You can also opt for new car replacement, which allows the insurer to replace your totaled car with a new one rather than cutting you a check for the depreciated value of your wrecked vehicle.
Some little extras come baked right into your auto insurance policy, like coverage for your pets if they get hurt in an accident. Pets are passengers too!
How Much Car Insurance Do I Need?
As we mentioned above, almost every state has minimum requirements for insurance. That means you need to have a vehicle to drive, a driver’s license, and insurance of some kind before you can legally hit the road.
The requirements vary from state to state, so you’ll want to check what you need in your state. This can be particularly important if you’re moving. Your new state may require more or less or just plain different insurance than your former state.
The most common kind of coverage that you must have is liability – both for bodily injury and property damage. This insurance pays for the other driver’s medical bills and car repairs when you cause an accident.
After that, personal injury protection insurance is commonly required. This insurance covers you, the policyholder, no matter which driver is liable. Some states are known as “no-fault” states because they don’t require liability to be proven in accidents. Those are the states most likely to require PIP insurance, so your own insurance covers your own medical and repair costs. You don’t have to rely on the other driver being insured.
Finally, some states also require you to carry uninsured/underinsured driver coverage. This insurance pays for your costs when you’re in an accident with a driver who doesn’t have enough coverage (or any coverage) to pay for your car repairs or medical bills.
The Exceptions to the Rule
There are a few states that do not require insurance, but that doesn’t mean it’s just a hit-and-run free-for-all. Arizona, for example, does not require drivers to carry minimum insurance. The state allows you to instead prove that you will take financial responsibility for any accidents you cause by issuing a $40,000 certificate of deposit to the state treasury. If you don’t put up this bond, you have to have liability insurance.
New Hampshire has no minimum insurance requirement, nor do they have a bond requirement. They do have a law that says you’ll pay for damages in any accidents you cause. In theory, if you have mounds of cash at the ready that can pay for another driver’s medical and vehicle bills, then there’s no reason to have car insurance in New Hampshire. In practice, it’s easiest for most drivers to carry liability insurance and medical payments insurance. It’s also a good idea to pay for underinsured/uninsured driver coverage since there’s a chance the other driver won’t have insurance or mounds of cash at the ready. Virginia has similar insurance laws.
If you have room in your budget for more than the bare minimum insurance required by your state, look to the minimums in other states to find out what might make sense to add to your policy.
For instance, if your state only requires bodily injury and property damage liability insurance, you might consider uninsured/underinsured motorist coverage or PIP coverage. That way, you know you’re covered regardless of the other driver’s coverage or lack thereof.
You can also assess your situation and purchase coverage appropriate for your life. If you know floods, hail, or windstorms are likely to be an issue where you live, for instance, consider adding comprehensive coverage, which covers your car if it's damaged from a natural disaster. If you often commute to work on your bike, medical payments coverage may be a worthwhile expense. If you have a new driver in the household, you may want to add collision coverage to your existing policy to take care of the inevitable dings and dents that are going to accumulate on your car.For more information on the amount of car coverage that’s right for you, check out
If You Drive for Uber, Lyft, or the Like
Ride-hailing is a whole new world for insurance companies. As more drivers use their own cars to pick up passengers for pay, the industry must adjust to make sure everyone is adequately covered.
What the Company Provides
Uber and Lyft are transportation network companies – TNCs, in industry speak. They provide insurance for their drivers while the drivers are using their cars to pick up fares. The specifics vary by TNC, but here are the basics:
- You are covered for liability when the app is on and you’re waiting for a passenger to hail you via the app.
- When you’re on the way to pick up that passenger and while they’re in your car, you have liability and uninsured/underinsured driver coverage.
- If you pay for collision and/or comprehensive insurance for your car on your personal policy, then the TNC will provide that coverage as well while you have a passenger in your car or are on the way to pick up a passenger.
- Whenever the app is off, your personal insurance policy is the only insurance covering your car.
What Your Insurer Provides
Some insurers offer what they call “hybrid” insurance that covers you in both personal and ride-hailing situations. There are usually some stipulations – these policies can’t cover vans and buses, for example. The idea is to cover the casual Lyft driver not a professional limo or airport shuttle service.
The benefit of these hybrid policies is that you deal with your own insurer rather than the TNC’s insurance provider. So there may be some simplification when it comes to making a claim. Your personal hybrid policy may also have a lower deductible than the TNC’s, so you pay less out of pocket for repairs or medical bills. Uber, for example, has a $1,000 deductible, so it’s possible yours is lower.
How Much Does Car Insurance Cost?
As with many services, when you ask how much car insurance costs, you’ll usually hear, “It depends.” Of course it does. But is it is as much as an ice cream cone or as much as a Dairy Queen franchise? Let’s narrow it down a bit so you’ll know what to expect.
The Dreaded Deductible
A deductible is the amount of money you pay out of pocket for any repair bill or medical cost before your insurance kicks in any money.
If you hit a deer, for example, your comprehensive insurance will cover the repairs. You take your car into the shop, where it will cost $1,000 to fix the bumper, hood, and windshield. If your deductible is $500, you’ll pay $500, and your insurance will cover the remaining $500. Let's say there's less damage, and the shop quotes you $350 to repair the bumper. Because that’s less than the amount of your deductible, your insurance wouldn’t pay anything.
Unlike health insurance deductibles, auto insurance deductibles don’t stack. So if you pay $500 for the damage caused by the deer and then hit a bear four months later, your deductible is still $500 for damages caused by the bear. Your insurance will cover any repair bills above $500 for the bear’s new dents. (No animals were harmed in the making of these examples.)
If another driver causes the accident, their liability insurance – if they have it – will pay for your car repairs. You do not have to pay the deductible.
A higher deductible means you pay less for insurance premiums. That’s because you’re taking on more of the financial risk for repairs and medical bills rather than putting it on the insurance company. A lower deductible means higher premiums, but it also means paying less out of pocket at the shop or doctor’s office after an accident.
There are zero-deductible insurance policies, where you pay nothing out of pocket, but they’re expensive. Some coverages, like uninsured/underinsured motorist and PIP insurance, require a deductible no matter what. And in situations where you’ve done something stupid to your own car, like backing into a garbage can and denting the bumper, you can choose to not repair the car and thus not pay the deductible. As long as you didn’t damage anyone else’s property, injure another person, or make your car unsafe or illegal to operate, you’re allowed to drive a beat-up car. No deductible payment required.
Value of Insured Vehicle
The value of your vehicle is a big factor in determining how much it costs to insure it. A car with a higher value is going to be more expensive to replace than a car with a lower value. A new Mercedes-Benz GT sports car is going to cost more to insure than a new Honda Civic compact car. That’s because if someone steals or totals your Mercedes, the insurer could be on the hook for as much as $100,000. In the case of the Civic, it might be more like $20,000.
Just like the cost of replacement, the cost of repairing your vehicle will come into play when figuring out how much your insurance will be. Insurers will check on the types of repairs that are typical for the year, make, and model of your car and the costs of those repairs. If you need to have a hand-crafted part shipped from the UK for your Bentley, it’s going to cost more than a repair with an off-the-shelf part for your Ford or Nissan.
The Car’s Location
Location matters for car insurance as much as it does for real estate. In general, urban areas mean higher rates than rural areas. That’s because there’s more traffic, which means more accidents that result in claims. Your car is also more likely to be stolen or vandalized in a city than in a small town. Having anti-theft features for your vehicle can lower your insurance rate.
It also matters where you park your car. Is it on the street, where anyone can get to it or bump into it while they try to park? Is it in a shared parking garage? Is it in a private garage on your property next to your house? If it’s on the street, you can end up paying more for comprehensive and collision coverage. The more sheltered the car is, the better when it comes to lowering your insurance rate.
Your Driving Record
The first thing most people think of when asked about their driving record is tickets – speeding tickets, parking tickets, all the tickets. Those definitely count when it comes to determining the cost of your auto insurance, but those aren’t the only things.
Your accident history also figures into what you’ll pay for new insurance, as well as serious traffic violations like driving under the influence. If you’ve done it before, insurance companies assume you’ll do it again. They’ll make you pay for the risk they’re taking in insuring your car.
How much you drive your car also matters. If it’s sitting in the driveway – or better, in the garage at your house – very little is likely to happen to it. Commuting to work is going to rack up miles on the odometer and potentially put your car in harm’s way twice a day.
There’s a catch-22 here for new drivers. Just because they have no history of accidents or tickets doesn’t mean they’re less expensive to insure. Statistically, new drivers make a lot of mistakes and get in a lot of accidents, making them some of the most expensive drivers to insure.
Demographics are the broad categories that humans slot into. Insurance companies use statistics to assess how risky your category is. The riskier your demographic, the more expensive your car will be to insure.
Teenage males fare the worst, demographically. Statistics show that they’re the most likely to get into car accidents. Regardless of age, males are more likely than females to have serious accidents and receive driving-under-the-influence citations. Statistically speaking, all drivers get better as they age and gain more experience, especially once they’re over 25 years old.
New, young male drivers are the most expensive to insure, while female drivers over the age of 25 are probably the least expensive. Eighteen-year-old males, don’t despair; there are things you can do to mitigate these demographic factors. Having a clean driving record, driving fewer miles, parking your inexpensive car in a safe place, and other things will help lower those premiums.
It’s important to note that while age and gender can figure into your insurance rate, insurers absolutely cannot use racial, ethnic, and religious demographics as factors in your rate.
Your Credit Score
In recent years, insurers have started checking credit scores and incorporating that information into their calculations for auto insurance rates. Statistically, people with higher credit scores are less likely to file a claim. If you’re less likely to file a claim, you’re less of a risk to the insurance company, and that lowers your rate.
Insurers typically look at what types of credit you have, how long your credit history is, and your payment history. Having missed or delinquent payments on your loans or credit cards will affect your credit score and your insurance rate. Insurers don’t look at your income when assessing your credit report.
How to Save Money on Your Auto Insurance
Having a clean driving record and living outside an urban area will help you save on car insurance, but if you’ve already got a few speeding tickets and an apartment in a high-rise, only a time machine and a moving van will change those factors. There are other ways to save on your car insurance, and most of them have to do with taking some of the risk off the insurer’s plate.
Change Your Deductible
Raising your deductible is one of the easiest ways to lower your insurance payments. Changing your deductible from $500 to $1,000 can save you about 9 percent in overall insurance costs. Insurers can afford to offer you lower premiums if you agree to pay more of the repair costs upfront when you get in an accident.
Your budget should determine if it's wise to raise your deductible. If you have a savings account with an emergency fund, then raising your deductible makes perfect sense. However, if a big repair bill would sink your household but a few extra dollars with each car insurance payment would not, then keep that low deductible. There are other ways to save money on insurance.
Look for Discounts
Most insurers offer several kinds of discounts for customers, and bundling is one of the most popular. If you have auto and home insurance with one company, or insure multiple vehicles with one company, the insurer will usually offer a lower rate for all the coverage you have with them.
An easily overlooked way to save is to flip through all those membership cards in your wallet. Clubs and associations sometimes negotiate special discounts with insurance companies, as do large corporations. If you work for a big company, see if there’s a discount with one of the insurance companies for employees like you. There are usually discounts for current and former members of the military as well.
Insurers often provide discounts for safe drivers, but if you already have tickets or accident claims in your history, you’re going to need that time machine again to get these discounts. Those with a clean record should make sure they’re getting this discount from their insurer.
Not all discounts are without downsides. Some insurers offer “vanishing deductibles,” meaning that after a stretch of time without claims, your deductible gets smaller and smaller until it reaches zero. Be aware, though, that these deductibles aren’t truly gone. They’re usually wrapped back into your premium, so you’re still paying the cost of the deductible a little at a time.For more specifics on car insurance discounts, check out
Buy a Car That’s Cheaper to Insure
Remember that the value of your car is one of the biggest factors in what you’ll pay for insuring it. A car that’s less expensive to repair or replace and less likely to be stolen will be less expensive to insure. Again, it’s a matter of taking some of the risk off the insurer’s plate.
You can check theft rates and reliability scores yourself. Nearly every U.S. News review includes a reliability rating based on data from the J.D. Power Vehicle Dependability Study or the J.D. Power Predicted Reliability rating. Each summer, the National Insurance Crime Bureau publishes its Hot Wheels report of the most stolen cars of the year. It’s not always the newest cars that make this list, so it’s worth taking a look if you’re shopping for a used car too. Adding anti-theft measures, whether it’s a physical steering wheel lock or a high-tech alarm, can lower your insurance cost.
Speaking of adding features, a vehicle with more – and more advanced – safety features can be less expensive to insure. It might add cost upfront for some of the most high-tech safety systems, but these technologies can reduce the insurer’s cost and thus reduce your payments. Passive features like air bags and seat belts keep occupants safer and reduce the potential of high medical bills. Active features, like forward collision mitigation and blind spot monitoring, can prevent accidents from happening in the first place. An accident that doesn’t occur is one that doesn’t require a claim.
Improve Your Credit
Improving your credit is not a quick fix for getting a better auto insurance rate. But if you know you’re going to compare insurance rates sometime in the next year or two, it’s worth cleaning up your credit as much as you can. Most insurers use a credit report when calculating your insurance rate.
You can get a free credit report and learn more about improving your score at the Federal Trade Commission website. The basics include making payments on time and maintaining a reasonable debt-to-income ratio. You don’t have to be debt-free, but you do have to show that you can manage your debt responsibly.
Even if you have insurance that you’re happy with, you should check your credit score regularly for fraud. Fraud is a real nightmare no matter what, but one facet of that nightmare is that it can affect your credit score, which can then affect your auto insurance.
Use Usage-Based Insurance
There are many reasons that you might not use your car much, and you shouldn’t have to pay for insurance as if you’re constantly in traffic. Maybe you carpool or take public transit to work, or maybe your kid’s car is in the garage while she’s away at college. You don’t want to have a car without insurance, but you should definitely look into paying a reduced rate when you reduce your drive time.
Those are broad-stroke, old-school types of usage-based insurance though. We’re in the 21st century, so you can bet there’s an app for that. And a dongle. The dongle is a plastic piece that fits under the car's dash, somewhere near the steering column. It plugs into your vehicle’s OBD-II port to read data about your driving habits, like how far you travel, your speed, and how often you brake hard or jerk the steering wheel – two things that can indicate you’re narrowly avoiding a collision. It reports this information to your insurer. If you drive safely and dive very few miles, your rate will be lower than if you put lots of high-speed miles on your car.
Usage-based insurance allows insurers to narrow those big demographic categories down to one driver: you. They can more accurately price your premium based on how, when, and where you drive. This can help drivers who should be a lower insurance risk thanks to safe driving habits, despite being in a higher-risk category due to their demographics or credit scores.
These little dongles can also decrease emergency response times to accidents or thefts since the car can send information about its location and status. These not only offer you peace of mind but also lower the risk on the part of the insurer. The insurance company would like to have your stolen car returned quickly and intact rather than pay out for a new vehicle.
Usage-based insurance is on the rise, with 70 percent of insurers expected to offer it by 2020. Progressive was one of the first to test these waters with its Snapshot insurance, which uses either an app on your phone or a dongle to collect information.
Privacy is the big tradeoff for these digital usage-based services. For them to work, you have to give information about your personal driving habits to your insurance company. Read the fine print very carefully so you know what you’re sharing and what the company will do with that information.
How to File a Claim
All right, you’ve got your insurance and you’re paying a reasonable price for it. Now let’s walk through what to do if you have to file a claim. Every insurer and every state will have variations on these steps. Every type of claim will present its own quirks too. These steps are intended to show you how the process usually works so don’t go into a claim without a clue.
First, if you're in an accident, you’re going to want to call the police. This is true in states that require liability insurance and all “no-fault” states. If there is damage to either car or injuries to any of the people involved, a police report will probably be necessary for filing a claim.
If you caused the accident, you’ll file a claim against your liability insurance to pay for the damage to the other person’s car. If the other driver caused it, they’ll file the claim and pay for your car. You won’t pay the deductible in that case. Collision coverage or uninsured/underinsured driver coverage may also come into play here, if you have those types of insurance on your auto policy.
As soon as you can – even from the scene of the crash – call your insurance agent or company. They’ll ask you questions and request documentation (like that police report). You can often fill in forms online or upload documents from an app on your phone. Speaking of your phone, grab it and take as many pictures of the damage as you can.
An insurance adjuster will investigate the claim and issue an estimate for repairs or determine if the car is totaled. In some cases, the adjuster comes in person to investigate; in others, she’ll only need to see the documentation to create the estimate.
Follow up with your agent or insurance company to find out if there are any deadlines you need to meet for uploading additional paperwork or filing a claim. Also ask when you’ll be contacted about your claim and make a note on your calendar.
The Fault in Our Cars
In the moments after a crash, it’s normal for people to get out of their cars yelling, “I’m so sorry! This is all my fault! I didn’t even see you! I have insurance, don’t worry!” This isn’t a good idea, no matter how well-meaning you are. You don’t want to admit fault at the scene of an accident – not to the other party and not to the police when they arrive.
After a crash, you certainly can and should make sure that you and any other people involved are OK without admitting fault. You can even trade insurance information with the other driver without admitting fault. You can talk to the police officer who arrives on the scene and tell her exactly what happened. She’ll get the other driver’s version of the story too, as well as any witnesses.
Even if you believe you were at fault, there might be information that you don’t know about. Witnesses might have seen the other car swerving or gunning it before the light turned red. The other car’s brakes might have gone out – a mechanical failure that’s not your fault. Fault will be established whether you claim it or not.
In the end, the crash may have been your fault. That’s why so many states require liability insurance. If you’re at fault, your insurance company is liable for repair costs and medical bills for the other driver, and you’ll pay your deductible.
Why Are Claims Denied?
You pay the premiums and can cover the deductible, so why would your insurance company deny a claim? These are the three most common reasons insurance companies deny claims:
- The driver is someone who lives with you or has access to your car, but they're not on your policy.
- You were using your personal car for business purposes at the time of the accident.
- The car isn’t “garaged” at your house. This isn’t about the car being in your garage literally. It means that a car is insured on your policy, but it's owned and kept at someone else's address.
Insurers will also deny claims for what could be called self-inflicted damage. That includes damage done while off-roading or at the track. And almost no insurance policy (or warranty, for that matter) covers wear and tear – it's a waste of time to file a claim for worn-out parts like brakes or seals.
What Happens to My Insurance After a Claim?
What happens to your insurance after filing a claim depends on several things. What kind of claim was it? There’s a difference between a tree falling on your car (comprehensive coverage) and paying for damages to someone else’s car (personal property liability coverage).
Also, insurers will look at how many claims you’ve filed in the past. A half-dozen claims over many years of driving is not as bad as a half-dozen claims in the past two years. Having the same insurance provider over those many years also helps. Insurance companies reward loyalty. The amount the insurer had to pay out also matters. Claims involving smaller dollar amounts for repairs are more favorable than multi-thousand-dollar claims, like replacing totaled cars.
Your driving record also counts, even if you don’t file claims. Speeding tickets and DUI citations will tip the scales toward changes to your insurance after a claim. Driving recklessly or under the influence will raise your rates a lot, or the company may cancel your insurance altogether. They’re in the businesses of risk management, and you’ve become too risky and expensive for them to insure.
In states that require liability insurance, if the other driver was at fault, your rates are unlikely to change. But in no-fault states, your insurance will pay for the damages (above your deductible) no matter who caused the crash. In that case, it’s more likely that your car insurance rates will go up.
How to Avoid a Coverage Lapse When Buying Car Insurance
If you’re not going to drive your car, or if car insurance gets too expensive to maintain, it might be tempting to not have insurance – to just cancel it or stop paying for it.
This is a big mistake. Technically, in all but a few states, auto insurance is required. So even if the car is sitting at the curb, if it’s not insured, it’s breaking the law. A lapse in insurance may eventually be reported to the DMV. If you really don’t want to pay for insurance, turn in your plates and cancel your registration.
If you are so daring (to put it kindly) as to drive without insurance, things are not going to go well for very long. When an accident occurs, you can be sued for the cost of damages and medical bills. You’ll end up paying those costs out of pocket because you don’t have liability insurance to cover them for you.
The two most frequent reasons for insurance companies’ cancelling policies are nonpayment and driving offenses. Both of these are largely avoidable. In the second case, don’t drive under the influence or speed. Those are easy ways to have your insurance cancelled.
The first case, nonpayment, is harder for a lot of people. But before letting your policy lapse, call your insurer and see what can be done. They might be able to find discounts for you or reassess your coverage to make it less expensive. If you really can’t afford it, take off those plates and officially cancel the policy. There is no grace period for insurance. When you can afford the insurance to drive again, you’ll have to pay a reinstatement fee to the DMV for your registration.