How Does Car Insurance Work?

Car insurance helps to reduce the financial impact of an accident. In exchange for premium payments, you can receive coverage for liability for accidents you cause; medical expenses; or repairs to your car.

An auto insurance policy typically includes two types of coverage: third-party and first-party.

Third-party coverage helps to pay other people for damage or injuries you cause. A minimum amount of third-party coverage is required by law in most states. It includes:

  • Bodily injury liability
  • Property damage liability

First-party coverage helps you pay for your own injuries or damages resulting from an accident. Depending on your state, one or more of these coverages may be required. They can include:

First party coverage usually includes a deductible — the amount you must pay out of pocket before insurance will start paying. These coverages are designed to get you medical treatment and vehicle repairs as quickly as possible after an accident.

A car insurance policy may also include options such as:

  • Rental reimbursement
  • Roadside assistance
  • Gap (loan/lease) coverage

When you purchase an insurance policy, you will receive a declarations page that provides information on policy limits and deductibles, as well as who and which cars are insured under the policy. It is important to review your declarations page and policy package so that you know what your policy covers and excludes.

Using your car insurance

If you are involved in an accident, report it to the police and collect as much information as possible to provide to your insurance company. You should never accept payment directly from another driver, since doing so could prevent you from being fully reimbursed for your losses.

After you report your claim, a claims representative or adjuster will contact you to discuss the loss and next steps. They may ask you to send more details or pictures of the damage.

Depending on whether you use a doctor or repair shop in the company’s network, the insurance company may send a check to the provider or to you. Your insurer may then try to recover their payments to you from the at-fault driver’s insurance company through a process known as subrogation.

The information and descriptions on this site are general in nature. The coverage afforded for a particular loss depends on the specific facts and the terms, exclusions, and limits of the actual policy. Nothing on this site alters the terms or conditions of any policy, as the policy controls coverage. Coverage options, limits, discounts, deductibles, and other features are subject to underwriting criteria, state availability, and effective dates. Coverage provided and underwritten by NJM Insurance Company and its subsidiaries, 301 Sullivan Way, W. Trenton, NJ 08628.