A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products, including home, life, auto, and commercial, and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, mainly in the insuranc...

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Reviewed by Leslie Kasperowicz
Farmers Insurance CSR 4 Years

UPDATED: Oct 14, 2021

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Car insurance is a legal requirement in most states and is meant to protect the insured against financial loss in case of a car accident, vandalism, or theft. Depending on the kind of car insurance policy the driver has purchased, other people riding in the car could be protected in case of an accident.

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According to the Insurance Information Institute, there is a death caused by a car accident every 16 minutes and an injury every 14 seconds, on an average in the United States. In 2010, 90 people were killed in auto accidents. Given such high numbers of injury, death, and damage, it is important to learn about the different kinds of coverage offered by the auto insurance industry and whom it covers.

Understanding Car Insurance

Automobile insurance is essential and largely mandatory if you drive a car in the United States. For instance, the Washington State Department of Licensing mandates that if you are driving a car registered in the state, you must have either auto insurance, self-insurance, certificate of deposit or a liability bond. This is to pay for damages, injury, and death caused by any auto accident you are involved in or which you are at fault. Similar rules apply in most states.

Irrespective of the legal requirements, the sheer cost of an auto accident including repair and replacement costs, property damage, and medical costs, makes it imperative to get as much coverage as possible.

According to Investor Guide, there is two categories of car insurance policies: third-party liability and first-party insurance. The first party is the owner of the car insurance policy, the second party is the insurer, and the third party is the other person or persons involved in the accident.

In other words, third-party liability insurance is meant for all injury and damage caused to other people when you are at fault while first-party insurance will cover damages to the driver and passengers.

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Types of Car Insurance Policies

Each category of car insurance mentioned above has multiple types of policies. It is important to understand the nuts and bolts of each policy to match your requirements.

Third-party liability policies come in two forms: bodily injury and property damage. Bodily injury liability is meant to cover medical treatment costs, lost wages, legal fees, as well as emotional and physical suffering of the injured party when the driver is at fault. Property damage liability covers all property damage caused by the driver at fault.

Bodily injury is divided into two amounts (say, 100/300. The first number denotes the cap for coverage when one individual is hurt or killed while the second number is for the amount available for the total accident cost.

A property damage policy tacks on another number to third party liability policy (say, 100/300/25), which indicates the amount in thousands that is available to cover any damage done to the injured party’s property such as their car, the fence, or the side of the house, among others.

First-party coverage comes in many forms. Some of the best-known types include comprehensive, collision, personal injury protection, and uninsured or underinsured motorist protection.

First-party coverage pays for any damage or injury done to the driver and passengers. This usually kicks in when the accident occurs and the policyholder is not at fault:

  • As an Act of God
  • In a hit-and-run
  • When the driver at fault does not have any insurance nor has inadequate insurance to meet the expenses

Protecting Passengers in Your Car

When you buy car insurance, make sure you get enough protection to cover any costs if passengers are injured or killed in an accident where your car is involved. The costs include bills for hospitalization, treatment, funeral arrangements, lost wages, and legal costs among others.

Car insurance is extremely important, especially if you are at fault. In such a case, you can protect your passengers as well as those of the other car through two types of insurance.

Bodily injury liability pays towards the damages in the other car whereas personal injury protection (PIP) will cover your passengers and their treatment costs. PIP also pays towards your own medical bills as well as the bills of any other individuals such as pedestrians hurt by your automobile crash.

In fact, PIP is mandatory in most states. However, PIP coverage works differently depending on the insurance company you purchase it from. So you must read the fine print of your insurance policy to make sure you have all the protection you need.

If you and your passengers are injured in a crash where you are not at-fault, then the PIP of the other driver rolls into play. If the other driver at-fault is not insured, then your PIP has to cover all damage costs to your passengers since you were responsible for their safety in your car.

Finally, if neither car involved in the accident have insurance, then the passenger’s own car insurance and health insurance kicks in to pay for the medical bills and other treatment costs.

Protecting Other Drivers of Your Car

Insurance companies expect you to list all drivers of your car or cars in your insurance policy. They are required to undergo the same underwriting and record checking as you do. However, if you have a friend or family member who needs to drive your car and is not listed in your policy, it is prudent to talk to your insurance company or insurance agent to make sure they and your car are covered under your policy.

Many car insurance companies will provide protection to drivers not named under your insurance policy, as long as they have your permission to drive your car. This is applicable if you have out-of-state relatives visiting. But they are likely to extend minimal coverage to these drivers and in case of an accident; your premium is likely to go up. So make sure you are allowing a conscientious person with a good driving record to use your car.

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Upgrading for Special Occasions

If you are expecting an upsurge in driving by drivers not named in your policy, such as a road trip in your car with your extended family, or a major tailgating party, talk to your insurance agent about upgrading your car insurance or adding a rider to it for further protection.

Some insurance companies will allow you to get extra insurance for additional drivers. If you can afford it, it might make sense to get insurance for stolen or lost personal property from the car too.

If you have comprehensive and collision coverage, in most cases, as long as the person driving your car has your permission to do so, any accident is likely to be covered by your car insurance company. Nevertheless, make sure you read all the terms and conditions of your automobile insurance policy.

It’s better to spend a few minutes reading through the dense jargon of your insurance policy and rectify any gaps than realize after the fact that you did not have enough coverage or that your policy did not cover a non-named driver!

How to Buy the Right Insurance

Rising living costs amidst a weak economy and gloomy future forecasts are leading many to tighten their purse strings. Even insurance companies are raising their rates to cover rising repair and replacement costs. A 2008 New York Times article, stated that insurance companies in the United States are raising insurance premiums across the board.

Whether you are comfortable with your premiums or are finding them prohibitively expensive, a small amount of your time invested in comprehending the inner workings of the insurance industry can save you hundreds of dollars per year.

With Internet-based companies leading the charge, consumers can now surf through multiple insurance websites to get umpteen attractive quotes within minutes of filling out an application form. As long as you can provide your driver’s license number and vehicle registration number, you don’t have to step out of your house to buy insurance!

But to get the best numbers possible for the maximum coverage you can get, it is necessary to follow certain steps.

Understand how auto insurance work. Look at the different kinds of auto insurance policies available, what it covers, and the state mandated levels of insurance required. Most experts will tell you to buy more than the required minimum.

Once you have decided on the type and amount of car insurance you need, it is time to get some competitive quotes. Collect all the driver and vehicle information of your household, as well as driving records, declarations page of your current insurance policy and the total mileage per car per year.

When you ask for quotes from the company, make sure you get information about all available discounts that can help trim your insurance cost.

Once you get quotes from various sources, check the financial standing of each company besides looking at customer reviews to see how well the companies work with them when the rubber hits the road!

Based on this information, you can compare and reject insurance companies to get to the final quote that meets all your coverage and budgetary needs. Keeping your passengers, yourself, and your financial well-being safe is worth all the effort required to get the best car insurance policy around.

For a range of insurance quotes that will protect you and your passengers, click here and type in your ZIP code into the FREE toolbox provided!