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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 content on this page is intended for informational purposes only. It is not an insurance policy, and does not, in any way, replace or modify the definitions and information contained in individual insurance policies. Terms and coverage availability may vary by state, and exclusions and deductibles may apply. Discounts also vary by state and may not be applied to all policy coverages. Coverage for an accident or loss is subject to the terms and conditions of the insurance policy applicable to a particular claim.