How Does Car Insurance Work?

Get the facts on how car insurance works, does it cover the car or the driver, and what happens when you file a claim.

Car insurance can seem a bit mysterious. You've probably heard of "liability insurance" and "collision coverage," but how do these policies help you? What happens when you file a claim with your insurance company? And, perhaps most importantly, how does car insurance work? Let's clear up some of the confusion.

What does car insurance cover—the car or the driver?

It depends on the type of policy you have. If someone gets hurt, certain policies, like bodily injury liability and personal injury protection, may cover medical bills and lost wages. 

Other coverages, like property damage and collision insurance, pay for vehicle repairs when a car gets damaged in a crash.

 What types of auto coverage are available?

A smorgasbord of auto insurance options—some required by law, some optional—are available. Here's a rundown of some common types, but talk to your agent about which kind of coverage makes sense for you.

  • Liability insurance covers damages you cause when an accident is your fault. Drivers are required to carry liability coverage in most states. There are two main types: If you cause an accident and people get hurt, bodily injury coverage may pay for their medical bills and lost wages. Property damage liability pays for repairs if you damage someone else's vehicle or property.
  • Collision coverage pays for repairs to your car after you collide with another car or an object.
  • Comprehensive coverage reimburses you for theft or for non-collision-related damage to your car such as fire damage, hail damage, or a tree falling onto your auto.
  • Uninsured property damage coverage reimburses you for damages if you're struck by a driver who doesn't have auto insurance. Depending on the policy, it might pay for auto repairs and/or medical bills.
  • Underinsured motorist coverage pays for your auto repairs and/or medical bills when another driver hits you but doesn't have enough insurance to pay for all of your expenses. 
  • Personal injury protection (PIP) helps pay for medical bills and lost wages if you or your passengers are injured in a crash. (It's required in some states, including Utah.)
  • Medical payments (MedPay) helps pay for medical payments and funeral costs if you and your passengers are hurt in an accident, regardless of who caused it. (If you have PIP, you won't need MedPay.)

What is the average cost of auto insurance?

Your insurance rate depends on a lot of factors—from your driving record to how many miles you log. But the average cost for full coverage ranges from around $1,290 for an SUV to $1,350 for a small sedan to $1,400 for a medium-sized sedan.

Insurance requirements (and costs) vary by state, so make sure you're familiar with your state’s minimums—whether you live in Alaska, Arizona, California, Montana, Nevada, Utah, or Wyoming—so you don’t skirt the law. 

What happens when you need to file a claim?

Here's how the insurance claims process works:

  • At the scene of the accident, you'll need to gather information. Exchange driver's license and insurance information with any other drivers involved, if it is safe to do so. Make notes to yourself about the details of the accident. If the crash was major, call the police, and if anyone was seriously injured, call 911. Here’s more advice on what to do right after an accident.
  • Contact your insurance company to start the claims process. You'll need to share important information, details, and documentation. And don’t worry if you're heading into unfamiliar territory; your claims representative will walk you through the process.
  • Your claims representative will determine whether your claim is approved based on the damages to your vehicle and the cause of the accident.
  • If your claim is approved, your insurance company will help pay for the damages to your vehicle. If you were injured, your insurer may also help pay your medical bills, depending on your policy.
  • You pay for your portion of the damages. If your claim is approved, you'll simply need to pay your deductible—the amount your policy says you must pay out of pocket before coverage kicks in. If your policy's deductible is $500 and the repairs cost $2,000, for example, you'll pay $500 and your insurer will pick up the tab for the remaining $1,500. If your claim is denied, on the other hand, you'll be responsible for the expenses.
  • You’ll receive a payment from your insurer if your claim is approved.

Do I buy insurance before registering a car?

Yes, it’s required by law in most states that you provide proof of insurance to register your vehicle. 

Can you use an address other than your home address for car insurance?

Yes, you can use a different address at which to receive mail. However, your vehicle must be rated at the address where it's garaged. 

Can someone who doesn't have a permanent address get car insurance?

Insurance rates are set, in part, based on geography. Insurers generally offer coverage only if you have a verifiable address where your car will be garaged or parked.

Can you insure a car for weekends only?

No, AAA and other major insurers don't offer weekend-only coverage. 

Does wrapping a car void insurance?

It depends on your insurance company. Some companies will hike up your insurance rate or even cancel your policy if you customize your vehicle with wrap film. 

Will insurance total my car if airbags deploy?

Not necessarily. In some cases, the cost of replacing a deployed airbag will exceed the value of the car, but not always. 

Will insurance total my car for a blown engine?

Auto insurance only covers damage caused by an accident. It doesn’t cover damage due to wear and tear, such as a blown engine. 

Can you show proof of car insurance on your phone?

Yes, if you get pulled over, you can show proof of insurance on your phone. If you have AAA coverage, you can display your insurance card on the AAA Mobile app.

The availability, qualifications, and amounts of coverages, costs and discounts may vary from state to state and there may be coverages and discounts not listed here. In addition, other terms, conditions, and exclusions not described above may apply, and total savings may vary depending on the coverages purchased. For more information regarding your eligibility for certain coverages and savings opportunities, please contact your AAA agent. Insurance products in California offered by AAA Northern California Insurance Agency, License #0175868, in Nevada by AAA Nevada and in Utah by AAA Utah. Insurance provided by CSAA Insurance Group, a AAA insurer.