Car Insurance Companies: Who They Are & What They Do

Fran
Lucy Lazarony
January 15, 2021

Car insurance companies do a lot of things. First and foremost, they provide auto insurance coverage to drivers. They also handle claims, offer discounts and manage customer payments. And because auto insurance is required in most states, you’ll need to purchase auto insurance from one of the many car insurance companies doing business in your state.

Your state plays a big role in the auto insurance policies that you’ll need because each state sets its own insurance requirements for drivers. So there will be some auto insurance coverages that you have to buy because it is required by law in your state.

Let’s look at how car insurance works, which companies offer the cheapest rates, auto insurance coverages offered by car insurance companies and all the other services that car insurance companies offer customers.

How Car Insurance Works. You purchase insurance coverage from your auto insurance company so that if you get into an accident with your car, you can make a claim with your car insurance company. The car insurance company will then pay the claim based on your insurance coverage. How much you pay for insurance depends on the coverage that you choose, the type of car you drive, your driving history, your age, your neighborhood, your marital status, whether you are a homeowner and in most states your credit history. Car insurance companies use all this information to derive rates for drivers. But each company rates this information differently. Two car insurance companies can look at the same driver and offer very car insurance rates. So it is important to shop around for the best price. Where can you find cheap car insurance rates? According to a 2020 study by U.S. News, the five cheapest car insurance companies are USAA, Geico, State Farm, Travelers and Progressive.

Types of Auto Insurance Coverage

Here is a look at the different kinds of auto insurance offered by car insurance companies.

Liability. If you ever cause a car crash, liability insurance pays for other people’s injuries and property damage up to your liability limit. Most states have minimum liability requirements for their drivers. Insurance experts encourage people to go well beyond these minimum standards when choosing liability coverage. The minimum requirements are quite low and may not protect you fully in the case of a serious accident. How much liability coverage should you get? The Insurance Information Institute recommends $100,000 bodily injury liability coverage per person, $300,000 bodily injury liability coverage per accident and $100,000 property damage liability coverage per accident.

Uninsured Motorist and Underinsured Motorist Coverages. Uninsured Motorist coverage helps pay for damages caused by a driver who doesn’t have insurance. Underinsured Motorist coverage protects you in the event of an accident where the other party is at fault and doesn’t carry enough insurance. Many states require coverage for Uninsured and Underinsured Motorists.

Personal Injury Protection (PIP). Also known as no-fault insurance, this coverage pays the cost of your lost wages and medical bills up to the PIP policy limit. No-fault insurance will cover these expenses regardless of who is responsible for the accident. PIP coverage is required in some states.

Collision. Collision insurance is coverage that helps to repair or replace your car if it is damaged in an accident with another vehicle or object such as a fence, tree or guardrail. If you are financing your car, your lender may require you to carry collision insurance for the length of the loan.

Comprehensive. Comprehensive auto insurance covers events that aren’t covered by collision insurance. These events include fire, theft, vandalism and damages from weather such as a hailstorm, a windstorm, a hurricane and a tornado. If you have a loan on your car, your lender may require you to carry comprehensive insurance for the duration of the loan. Both collision and comprehensive insurance coverages require deductibles. A deductible is the amount you need to pay before a car insurance company begins to pay for damages to your car or losses. Choosing a higher deductible, such as $1,000, is one way to save money on your car insurance premium.

Gap Coverage. If your car is a total loss after an accident, this coverage pays the difference between the actual cash value and what you owe on the lease or loan.

Roadside Assistance. With this coverage, you’ll get emergency road assistance for things like a tire change, jumpstart or needing fuel or a tow.

New Car Replacement. This kind of insurance covers the cost to replace your car with a new one of the same make and model. This coverage is available when your new car is totaled in the first one or two years of owning the car. Different car insurance companies have different policies for New Car Replacement so check the details with your car insurance company.

Accident Forgiveness. This coverage keeps your auto insurance premium from going up because of an accident. Different car insurance companies have different policies regarding this policy as well. So be sure to ask about the details for Accident Forgiveness.

Loss of Use. This type of coverage provides a flat sum for transportation while your car is repaired. It can be used for public transit, car rentals, taxis and rideshare services

Personal Umbrella. This insurance provides additional liability coverage above the limits of an auto insurance policy. A personal umbrella policy helps protect your assets from lawsuits.

Discounts from Car Insurance Companies

Here is a roundup of the different kinds of discounts that car insurance companies offer customers.

Be a Homeowner. Some car insurance companies will offer you a discount if you own your home.

Bundle Policies. Combine your auto insurance policy with another insurance policy such as home insurance, condo, renters, life or umbrella policy and save money on your auto insurance premium.

Young Drivers Training. Some car insurance companies offer discounts for drivers under the age of 21 who complete an accredited driver training program.

Good Student. This discount is for full-time high school or college students who maintain a “B” average or higher. So if you have a driver who is a good student be sure to reach out for a discount.

Student Away at School. You qualify for this discount if you have a full-time student included on your policy who is away at school and without a car.

Anti-Theft. Get a discount for keeping your car safe with anti-theft devices such as car alarms and GPS tracking systems.

Pay in Full. You’ll get a discount from many car insurance companies if you pay the entire balance of your premium upfront.

Automate Payments. Choose to automate your car insurance payments and you’ll save money with a discount on your car insurance premium.

Go Paperless. You’ll get a discount when you choose to go paperless with your car insurance documents.

Be Accident-Free. Go accident-free for a number of years and be rewarded with discounts from your car insurance company. This is another instance where the details vary between car insurance companies so reach out to your company for details.

Take a Defensive Driving Course. Earn a discount when you take a defensive driving course, which will teach you how to navigate weather and traffic situations and how to avoid accidents.

Insure Multiple Cars. Got two or more cars to insure? Insure them with the same car insurance company and you’ll receive a discount.

Military Discount. Active, retired and reserved members of the U.S. Armed Forces receive discounts on their car insurance.

Alternative Energy Discount. If your car is a hybrid or an electric car, you’ll get a discount from your car insurance company.

Auto Insurance Claims

When it is time to file an accident claim, car insurance companies are there to help. You’ll meet with a claims adjuster to go through your side of the accident. Once fault is determined, your claims adjuster will negotiate with the other party to determine who pays damages and injuries for the accident.

Payment Options from Car Insurance Companies

You can pay car insurance companies in a lot of different ways. You can pay online, over the phone and even by snail mail. You also can pay via the car insurance company’s app. Automating your payments or paying your premium in full will earn you discounts. So pick a payment strategy that works for you and if you can earn a discount for doing so all the better.

Get a Free Auto Insurance Quote Online Now.

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