How Does Auto Insurance Work?

Auto insurance companies use many different criteria to evaluate an insurance application via a process called underwriting. Each car insurance company has guidelines regarding which groups of drivers they want to accept and how much they will charge the groups they consider a greater risk. The guidelines are different for each company, meaning that two companies comparing the same driver can arrive at vastly different conclusions.

Before you get a quote, the insurance company is going to do a little digging about you. During the underwriting process, you will be placed in a group with other applicants based on how much money and how many claims the insurance company believes it may have to pay.

At this time, the insurance company will look at things like your driving history, whether you’ve been in a lot of accidents, your age, gender, and a bunch of other demographic factors. These factors vary from insurance company to insurance company.

What does Auto Insurance Cover?

Liability Insurance

There are two types of liability coverage — bodily injury and property damage. The first covers costs associated with injuries following an accident; the other covers costs associated with damage to personal or business property.

Uninsured Motorist Bodily Injury

Uninsured motorist coverage helps pay for medical bills and damage to your vehicle if you’re in an accident with an uninsured (or underinsured driver), and they’re at fault.

Personal Injury Protection

If you or your passengers are injured in an accident, personal injury protection helps cover medical bills and lost wages. If the accident is fatal, it may also pay for funeral expenses.

Medical Payments Coverage

It helps pay for medical bills you or your passengers incur because of an accident, regardless of who was at fault, just like personal injury protection.

Collision Insurance

Collision coverage helps pay for damages stemming from an accident. It includes damage to your vehicle if you hit another car or a stationary object such as a fence, lamp post, or telephone pole. It's optional, but lenders often require it if you finance or lease your vehicle.

Comprehensive Insurance

Comprehensive coverage helps pay for damages related to things other than accidents such as theft, natural disasters, falling objects, and contact with an animal. Like collision coverage, it's optional, but your lender may require it if you finance or lease your car.