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Researching car insurance? Here's how it works

Accidents happen when you least expect it, something that goes for both product protection and car insurance. Whether you’re at fault or not, it is essential to have the proper coverage for you and your vehicle. Knowing how car insurance works is important in order to make sure you are protected when you get behind the wheel.

Everyone who purchases a car is required by law to have car insurance (unless you live in New Hampshire, but they have different requirements if you choose not to purchase car insurance); if you forgo car insurance, you could incur penalties and fines. Each state's car insurance laws will detail the minimum amount of coverage you need. It isn’t complicated to obtain the proper coverage for your vehicle. In fact, there are many car insurance options out there so the most difficult part is choosing the provider and coverage options that work for you. Before you start shopping for car insurance, here are a few things to consider:

  • What type of car do you drive?
  • How many miles do you drive?
  • Where do you live?
  • Do you have a good driving record?
  • Who will drive your car?
  • Did you have any gaps in previous car insurance coverage?

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What is car insurance?

Car insurance offers financial protection for you in the event of an accident, vandalism, or theft. It can help you pay for repairs, medical expenses, or rental fees if an unfortunate event were to occur. Without insurance, you would have to pay it all out of pocket, potentially putting yourself at financial risk if you didn’t have emergency savings to help handle the costs.

How does car insurance work?

Car insurance is a contract between the policyholder (you) and insurance provider to pay an agreed monthly or yearly premium for the policy. The annual premium is what you pay the insurance providers for the coverage. Deductibles are the out-of-pocket expense you’ll be required to pay before the coverage kicks in, should you need to file a claim. Once you pay the car insurance deductible, the provider agrees to pay for the losses and expenses related to the covered accident when a claim is filed.

A claim is a formal request from the policyholder to the insurance provider for compensation after an accident. Once the provider reviews and validates the claim, they will start the payments. Just remember, the amount that you pay for your annual or monthly premium will help determine how much the insurer will cover.

For example: You make a collision insurance claim for $6,000 in damage. If your deductible was $500, that is all you would pay. The insurance provider would cover the remaining $5,500 in damages.

How much does car insurance cost?

The national average cost of car insurance in the U.S. is $2,148 per year, and the average car insurance cost per month is $179; however, this will vary per person based on various factors. Each car insurance policy is unique to the driver and the vehicle being insured. Insurance providers will look at several key factors to calculate the cost:

  • Your driving record (fewer claims suggest a safer driver).
  • Your location (more populated areas can increase the risk of accidents, vandalism, or theft).
  • Your coverage history (continuous car protection is preferable).
  • Your vehicle (make, model, and year will affect the cost).
  • Your driving habits (the more you drive, the higher your rate may be).

In addition to the premium, you will also choose your desired deductible which can range from $250 to $1,000. If you choose to pay a higher deductible, your car insurance premium may go down; however, you will have to pay more out of pocket if an accident does occur. Vice versa with a lower deductible, your car insurance premium may be higher.

It can be nerve-racking to purchase a car insurance policy because of the added expense and the pressure of choosing the policy that provides you with the optimal level of coverage. But in the event of an accident, car insurance can save you from going into debt to cover the expenses. For example, if you purchase an average car insurance policy, you would pay the $500 deductible, but could be covered with $100,000 for bodily injury, and $50,000 for property damage.

What does car insurance cover?

Car insurance can help cover different costs associated with an accident, depending on what you choose to add to your policy. Here are a few of the most common types of coverage you can purchase:

Liability insurance

Most states will require this type of coverage from their drivers. Liability insurance offers protection against any possible financial loss as a result of a car accident that was at the fault of the policyholder (caused by you). It will include bodily injury liability coverage and property damage liability coverage to the other party involved. Liability insurance does not cover damage to you or your vehicle. Since it's often required, finding the cheapest liability car insurance can be difficult and require a fair amount of research.

Collision insurance

Collision coverage protects against damage to your car from hitting another vehicle or object, regardless of fault. Collision insurance can pay to repair or replace your vehicle if it's involved in an accident with either a stationary object or another vehicle.

Comprehensive insurance

For some drivers, it is not enough to only have liability coverage. Comprehensive car insurance covers non-collision events that are outside of your control, including theft, vandalism, glass and windshield damage, fire, accidents with animals, weather, or other acts of nature. Often referred to as "comprehensive insurance," comprehensive coverage refers to a specific coverage on an existing policy, not a separate type of insurance.

Full coverage car insurance

The combination of liability, comprehensive, and collision insurance policies is usually referred to as full coverage car insurance. Since liability insurance is a required coverage in nearly every state, the term “full coverage” simply means you also have comprehensive and collision insurance coverage added to your plan.

It is important to review the specific coverage details with your provider, as there isn’t a policy out there that will ensure you’re 100% covered in all situations. This extra protection can be costly, so be sure you understand what is included and if the additional coverage is really worth the premium.

Medical payment insurance

18 states require drivers to purchase this coverage. Otherwise known as Personal injury protection, it will cover medical payments related to injuries that result in a car accident, regardless of who is at fault. Some expenses it can cover are:m

  • Doctor visits
  • Medical treatments
  • Ambulance fees
  • Funeral costs

Uninsured motorist insurance

Even though it’s required by law, 12.6% of drivers in the U.S. are still uninsured. If you were to get into an accident where the driver at fault is uninsured, this type of insurance will help cover your medical fees, lost wages, and car damage you may incur. It is also an option to purchase uninsured motorist bodily injury for coverage on medical fees and uninsured motorist property damage coverage to help cover damages to the vehicle.

Although this might be considered a high risk car insurance option, and might add an extra expense, it's still a good idea to have just in case.

Rental car reimbursement insurance

Yes, you can even insure a rental! In the event that your car is getting repaired, some dealerships will provide you with a rental vehicle while they are servicing yours. It is important to know what type of car insurance you need when it comes to rental vehicles, as this coverage isn’t typically included. Some policies will cover the rental car under your existing insurance. If the rental vehicle suffered lots of damage, rental car reimbursement will help pay for the rental car. Keep in mind that this does not cover the expense of rental cars for vacation.

Helpful Tip: Take a look at your existing policy because some car insurance providers do cover this in their policy, and there is no need to purchase additional coverage.

Auto property damage liability

This type of insurance can help pay for the repairs if you damage another person's property. There are two types of liability coverage if you cause an accident:

  • Property damage liability insurance covers repairs if you hit another car.
  • Bodily injury liability insurance covers medical costs if you injured someone during an accident.

Keep in mind that what your state requires is only a baseline. It is important to assess your needs and evaluate your personal situation as a driver to determine the right coverage. No matter the policy you choose, it should cover vehicle damage, medical expenses, and property damage for yourself and others.

Get the ultimate protection with Mulberry Unlimited

There are enough car insurance providers out there to allow you to customize a plan that works for you. Save money by shopping around and comparing quotes from different providers. See how much you can save by switching car insurance providers, and also be sure to subscribe to Mulberry Unlimited to find out how you can get comprehensive product protection coverage for almost all your online purchases under the same plan.

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We are on a mission to help consumers protect everything they buy. Mulberry is an innovative product protection platform that enables businesses to seamlessly embed a customized protection program, delivering a unique user benefit for customers.

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