How Does Car Insurance Work?


Quick Answer

Car insurance pays on your behalf if at fault, or depending on your coverage, covers you for other’s fault if they are underinsured for injuries to yourself, your passengers and your car. Car insurance may protect your savings and home from lawsuits arising from car accidents.

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Full Answer

Insurance premiums are the amount you pay for coverage and may be lump sum for many months of coverage or monthly installments. A deductible is the out of pocket expense you incur before the insurance begins paying; a higher deductible results in lower premiums. Limits are the maximum amount that is paid for particular coverage; lower limits lower your premium.

Collision insurance protects your car against damage caused by a collision with another car. Comprehensive insurance protects your car against damage caused by other events, such as hitting an animal, theft or fire. Uninsured or underinsured insurance covers repair and medical bills for an accident caused by another driver who has insufficient or no insurance. Medical and personal injury insurance covers medical bills for yourself and your passengers. Bodily injury and property damage liability insurance protects your assets in case of a lawsuit. Rental reimbursement covers the costs of a rental car while yours is repaired. Loan and lease payoff insurance pays off the remaining balance of your car loan if your car is a total loss or stolen and not recovered.

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