How Does Auto Insurance Work? Know the Basics to Save Money Online

The good news for consumers is that auto insurance is easy to understand once they know the essentials. It's not out of the ordinary for consumers to carry auto insurance for some time but not know how it works – until they need to file a claim, that is.

Without a doubt, never filing a claim is the ideal scenario, but most drivers will end up going through the claims process at some point. Nowadays, the risk of driving nearly assures that an incident will occur eventually, even if the driver isn't at fault. The hope is that no one is injured and that the auto insurance policy will appropriately cover the damages.

Most of the time, filing a claim runs smoothly, yet there are many ways that the process can go awry if drivers aren't careful to follow procedures. Mainly, problems surface due to drivers not comprehending their policy well enough to account for unexpected expenses like repairs or medical bills.

To make things easy to digest for beginners, this article will walk consumers through what auto insurance is and why it's so important to have a policy in place well before an accident.

What are the essentials of a quality auto insurance policy?

There are many ways that an insurance company can provide financial protection. All of them boil down to paying more upfront to spend less when something goes wrong. Really, auto insurance works similarly to home and health insurance but with crucial differences.

Auto insurance companies measure risk in several ways to decide on approving drivers; policy's cost directly relates to the benefits and the risk level of insuring that particular driver.

At the most basic level, auto insurance is an agreement between a company willing to reimburse a driver for any and all financial damages specified in the arrangement. The trick is to find a policy that clearly the benefits, and that's what might raise or lower the price of the policy's premiums and deductibles.

What's an auto insurance premium?

Insurance premiums are what drivers need to pay to keep their coverage in good standing. It's the price drivers pay to keep the insurance policy active throughout the duration of the agreement.

If someone misses a monthly premium payment, their coverage could lapse and nullify the insurance company's financial responsibility. In fact, no auto insurance companies allow drivers to lose their policy and then claim damages when it wasn't in force – though many have tried over the years.

Depending on how drives want to pay the premium, they can buy insurance month-to-month or purchase coverage for periods as long as a year.

It's important to note that the cost of insurance premiums may change over time, generally higher if the driver is filing a lot of claims, especially frivolous lawsuits. In this scenario, a consumer's history with other companies will affect how much premiums cost when they eventually get coverage through a different carrier.

But unfortunately, drivers often misinterpret the difference between premiums and deductibles.

What's a deductible?

Similar to health insurance, a deductible is an amount a driver must pay out out-of-pocket before benefits kick in after an incident. The deductible cost could be higher or lower than the premium's price, depending on the type of coverage someone chooses.

The general rule is that insurance policies with low premiums will also come with high deductibles. Insurance companies price policies this way to give consumers a range of options instead of requiring them to pay for a full year of coverage fir right away.

If a driver is willing to pay more later to pay less at the moment, an auto insurance policy with a relatively high deductible could be their best option financially. The tricky part is knowing how filing a claim might impacts a driver's finances, and coverage limits are often overlooked until it's too late.

What are coverage limits?

Some drivers misconstrue how much their policy will payout, mistaking assuming that they'll be reimbursed for the price they paid for the vehicle. Another assumption is that the insurance policy will cover all related expenses, such as medical bills and lost wages.

The best way to avoid "sticker shock" when going through the claims process is to know the policy's coverage limits. As far as auto accidents go, if the vehicle's cash value is higher than the policy's limits, the insurer could choose to cover the repair costs. But if the situation is reversed, the more likely scenario is that the insurance company will only pay out a limited amount.

How does auto insurance work when drivers need to file a claim?

When someone needs to file a claim, the general process is simple enough. Typically, insurance companies will require proof of liability via a police report in most cases, but there are scenarios where law enforcement won't need to be involved.

The bottom line is this: how much consumers pay for coverage determines whether the insurance policy will cover the financial loss. That's the whole point of having auto insurance: to account for the cost of recovering from theft, an accident, or any additional mishap that might damage the vehicle (e.g., damage from natural disasters).

How to find an insurance company that explains policies well

It's a mistake for drivers to assume that all insurance companies offer the same level of service and perks. An insurance carrier could advertise policies with low premiums but fail to specify that they also come with high deductibles.

Unless drivers have a comprehensive tool to sort through various offers at once, shopping for the best coverage could take a long time.

Visiting sites like QuoteLab.com – a new online insurance marketplace where drivers can quickly compare rates side-by-side – is the fastest way to find affordable policies.

Click here to begin finding auto insurance that's both comprehensive and priced affordably on QuoteLab.com!