How Does Car Insurance Work?

Everyone knows you need car insurance. But do you understand the different coverages and how they work?

There are six million road accidents in the United States each year. Having the right insurance helps cover the costs of physical and financial damages to you and other drivers. Without insurance, you might have to pay all the hospital bills and car repair costs on your own. Furthermore, driving without the minimum level of insurance required by the state where you live is illegal and could result in fines and penalties. 


What types of insurance coverage are available? 

Each state is different, but there are typically four types of coverage.

  1. Bodily injury liability helps protect you financially from the liability associated with injuries sustained by the other party.  
  2. Property damage liability helps cover damages to the other person’s property, including their vehicle. It only applies if you are at fault. 
  3. Collision helps cover damages to your vehicle after the deductible has been met. A deductible is a specific amount you must pay out of pocket before your insurer starts paying.
  4. Comprehensive helps cover damage to your car that isn't from an accident, such as theft, vandalism, or natural disasters. A deductible typically applies to comprehensive, too.

Now that you understand the types of coverages, here's how they work.

How insurance works after an accident

Ed is driving along. He accidentally hits and injures another driver. 

  1. Since Ed has bodily injury coverage, his insurer could pay for the other driver’s medical bills. 
  2. As he has property damage coverage, his insurer could pay for the damage to the other driver's car.
  3. And because Ed has collision coverage, his insurer could pay for the damage to his vehicle.

If Ed didn't have insurance, he'd be responsible for all costs, potentially putting his financial assets in jeopardy and making an unfortunate situation even more difficult for the other driver.


When shopping for insurance, it’s best to find an independent insurance agent who can guide you based on the state where you live. Once you're insured, if you're involved in an accident, file a claim for your insurance company to review, pay your deductible if applicable, and your insurer will pay out if the accident falls under your coverage.


Having the correct auto insurance gives you peace of mind and helps protect you from considerable financial costs, while also protecting your community.


Find your local agent today.