Confused about car insurance? Got any car insurance questions that you would like to have answered? Carmudi has prepared some frequently asked questions about car insurance that may supply you with the answers you need. Let’s get started.

What is car insurance?

By definition, car or auto insurance is a binding contract between an individual and his car insurance company wherein the latter agrees to cover monetary losses should the individual’s car experience theft, vandalism, an accident, and/or other forms of damage or loss.

This coverage remains active as long as the individual is diligent with the payment of his monthly car insurance premium.

Why do you need car insurance?

When you drive a car on the road, you immediately put yourself at risk. You can try to be the safest driver you can be, however, you’re not the only driver on the road, and other driver’s may not be as safety-conscious as you. Plus there are road conditions that increase your chances of having an accident, such as wet roads, rough terrain, etc.

Auto insurance coverage ensures you won’t get into financial trouble in case you or other drivers make a mistake that leads to physical harm or property damage.

How does car insurance work?

Car insurance is designed to protect car owners from financial hardship that can result from the potentially expensive costs often associated with vehicular accidents.

Without car insurance, the financial risk will rest on you, the car owner, in the event of an accident. Car insurance can mitigate some if not all of that risk.

What does car insurance cover?

There are several types of car insurance, each of which provides different types of coverage. Certain types of coverage are required by law, while most are optional. Generally, drivers are required to purchase compulsory third party liability or CTPL, which pays for property damage and injuries caused to others in an accident.

It does not cover the insured’s own property damage and injuries. If you want to cover your own damage, you will need to obtain other types of coverage, such as a comprehensive car insurance policy.

Does comprehensive car insurance really cover everything?

No. While comprehensive car insurance is wide-encompassing, it doesn’t really cover everything. What it does cover is third party, fire, theft, and even accidental damage to your car. Damages which are considered as Acts of God, such as flooding and earthquake damage, are typically excluded from this coverage.

Stipulations and benefits vary between insurers, so confirm with your insurer what’s included when you want to discuss this kind of coverage.

Car insurance coverage

Who is covered by my car insurance?

Since your car insurance is directly linked to your car and not necessarily you, the driver, your coverage applies to any licensed driver in your household, as well as anyone you permit to use your vehicle. However, anyone who you fail to include in your policy will not be covered.

If these unlisted individuals take out your car and figure in an accident, you will be the one responsible for all the damages that they may incur.

How much car insurance do I need?

As mentioned, all drivers are required to have CTPL insurance, however, for your own protection, you probably want more than just the bare minimum. To determine how much auto insurance you need, you must first consider four factors, namely:

  • The make and model of your vehicle
  • The value of your assets
  • How you drive, and when
  • Your frequent passengers

A consultation with an insurance agent is in order for you to identify the accurate amount of cover that you need.

What is “No Fault” insurance?

No Fault Insurance is a coverage benefit that you can receive even if you are the one who caused the accident. Contrary to what the name may imply, a No Fault policy doesn’t mean that you are not at fault for the accident, it simply means that your insurer will provide compensation for you regardless of who caused the accident.

If the accident was caused by the other driver, you wouldn’t need to deal with his insurance company. Instead, you can receive compensation directly from your provider.

If I’m buying a new car, do I have to choose my car before I apply for car insurance?

That is the regular way of doing things. However, it can be more helpful to get in touch with an insurance agent first before you select your car. The biggest benefit of doing so is that you can learn which models cost less to insure. For instance, knowing how much the premium differs between a coupe and sedan version of the same make and model may help you better decide which type to buy.

How do car insurance companies evaluate my risk?

Insurance companies evaluate your risk via your Risk Assessment Indicator, which is a numerical score assigned to you based on your credit report.

Your RAI can predict your future claim activity, and this helps insurance companies come up with a rate that coincides with the level of risk that you present to your car insurance provider.

After obtaining coverage, when is the right time to reevaluate it?

You should consider reevaluating your car insurance coverage whenever a major change occurs in your life, such as marriage, having a child, moving, or buying a home. Such major life changes can have a significant impact on whether your current coverage still provides the right amount of protection for you.

Does the location of my home really affect my auto insurance premium?

Yes, where you live is one factor that dictates the amount of car insurance premium you have to pay. Typically, city dwellers pay higher premiums than those who live in the suburbs or country.

The reason for this is that certain city living conditions pose a higher car ownership risk, such as more traffic and the prevalence of theft and vandalism. Nevertheless, there are steps that you can take to reduce your car insurance premium, such as:

  • Choosing a higher deductible
  • Taking a defensive driving course
  • Qualifying for discounts such as a low mileage discount, no claim bonus, student/senior discount, etc.
  • Forgoing comprehensive and/or collision coverage
  • Improving your credit rating

Should you have other questions or want clarification, don’t hesitate to ask us in the comments section.