How Does Car Insurance Work? A Complete Guide?

Driving and car insurance are inseparable. If you own and operate a car, you need to have an auto insurance policy, both mandatory and optional. But what goes behind the scenes? How does this complex industry of car insurance work?

The car insurance industry is a complicated one, with a plethora of different factors affecting all aspects of it; from the price to the risk assessment, everything is dynamic in the auto insurance industry.

So here is the complete and most comprehensive guide to everything you need to know about car insurance; how it works, what it covers, and the things to do and avoid to save money and get the best coverage. Let's get started.

What Car Insurance Covers

Before we look at the process of how car insurance works, we need to know the different types of car insurance out there and what they cover. A single-car insurance policy does not cover all the damages to your car or all the injuries the driver may sustain.

The different types of car insurance policies you can buy are:

Liability insurance

Comprehensive insurance

Collision insurance

Uninsured Motorist Coverage

Personal Injury Protection plan

There are a few more such as rideshare insurance, GAP insurance, etc. But those insurance policies have a particular use case and are only for some drivers. Let's take a look at what significant insurance policies cover.

Liability Insurance

Liability insurance is the most important car insurance policy. 49 out of 50 States require drivers to have a liability insurance policy to drive a car legally. Driving or even owning a car without this policy is a felony.

So what makes this policy so important? Liability insurance covers the cost of an accident for the other driver in a car accident caused due to your fault. This policy covers the cost of car repairs (and other property damages) and medical treatments for the injured driver.

Liability insurance does not cover the cost of repairs or medical treatments needed by the policyholder. This policy ensures that the road accident victim gets the necessary medical treatments and car repairs.

Comprehensive insurance

Comprehensive insurance is optional, meaning that drivers can either choose to buy it or skip it as it is not mandatory by the government. Comprehensive insurance covers the damages a car may sustain while being parked. This is the reason why it is also called 'Parked Car Insurance'.

Comprehensive insurance covers damages due to natural disasters, including earthquakes...

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