What car insurance companies do and why you need them
A car insurance company takes your monthly or annual payment and agrees to pay for damage, injuries, or legal costs if you cause an accident or your car is damaged or stolen. The company does not own your car — you do — but they cover the financial risk of driving it. In most states, you must carry at least liability insurance (which pays for damage you cause to someone else) before you can legally drive.
Insurance companies make money by collecting premiums from many drivers and paying out claims from only some of them. They employ adjusters who inspect damage, underwriters who decide what price to charge you based on your driving history and the car you own, and claims processors who handle the paperwork when something goes wrong. Understanding how these pieces work helps you know what to expect when you call with a claim or shop for a new policy.
Key Takeaways
- Most states require liability insurance at minimum, which covers damage or injuries you cause to others, but not damage to your own car.
- Collision and comprehensive coverage protect your own vehicle but cost extra and come with a deductible — the amount you pay out of pocket before insurance kicks in.
- Your rate depends on your driving record, age, the car you drive, where you live, and how much coverage you choose.
- When you file a claim, an adjuster inspects the damage and the insurance company decides what they will pay based on your policy terms.
- Shopping between companies every one to three years usually saves money, because insurers offer different rates to new customers than to people who stay.
The types of coverage car insurance companies offer
Liability coverage is what the law requires. It pays for medical bills, lost wages, and property damage if you cause an accident and injure someone or damage their car or property. It does not cover your own injuries or your own car. Most states set a minimum amount you must carry — often $25,000 per person and $50,000 per accident — but you can buy more.
Collision coverage pays to repair or replace your car if you hit another vehicle, a pole, a tree, or any object. It does not cover theft or weather damage. You choose a deductible (usually $250, $500, $1,000, or higher), and you pay that amount out of pocket when you file a claim. The insurance company pays the rest, up to the car's actual cash value.
Comprehensive coverage pays for damage from theft, weather, vandalism, hitting an animal, or glass breakage. Like collision, it comes with a deductible. Many people choose a lower deductible for comprehensive (like $250) because these claims happen less often than collision claims.
Uninsured and underinsured motorist coverage protects you if someone without insurance or with too little insurance hits you. It pays your medical bills and car damage up to the limit you choose. This coverage is required in some states and optional in others, but financial advisors often recommend it because uninsured drivers are common.
How insurance companies set your rate
When you get a quote, the insurance company's underwriting team looks at several factors. Your driving record is the biggest one — accidents and traffic violations raise your rate, sometimes for three to five years. Your age matters because drivers under 25 and over 75 have more accidents on average. The car you drive affects the rate because some cars cost more to repair and some are stolen more often.
Your location changes the rate because some areas have more accidents, theft, or weather damage. Your credit score can affect your rate in most states (though not all), because research shows people with lower credit scores file more claims. The coverage limits you choose and your deductible also change the price — higher deductibles and lower coverage limits mean lower premiums.
Insurance companies also offer discounts for things like bundling home and car policies, taking a defensive driving course, having safety features on your car, or going a certain number of years without an accident. Ask about discounts when you shop, because they can lower your rate by 10 to 30 percent depending on the company and what you may have access to for.
What happens when you file a claim
When you have an accident or your car is damaged, you call your insurance company's claims line or file a claim online. You will need the date, time, and location of the incident, the other driver's information (if applicable), and photos of the damage. The insurance company assigns an adjuster to your case.
The adjuster inspects the damage in person or reviews photos you submit, estimates the repair cost, and checks whether the damage is covered under your policy. If it is covered, the company pays the repair shop directly or reimburses you, minus your deductible. If the damage is not covered — for example, you file a collision claim but you only have liability coverage — the company denies the claim and you pay for repairs yourself.
The claims process usually takes one to four weeks from the time you file until the money is paid out, though it can be faster for straightforward claims. If you disagree with the adjuster's estimate, you can get a second estimate from a repair shop and submit it to the insurance company for review.
How to compare insurance companies
Insurance rates vary widely between companies for the same driver and car. Getting quotes from at least three companies takes 15 to 30 minutes and can save you hundreds of dollars a year. Most companies let you quote online without giving your phone number, so you can compare in private.
When you compare, use the same coverage limits and deductibles across all quotes so you are comparing the same thing. A quote with $100,000 liability coverage is not the same as one with $25,000 liability coverage. Write down the premium, the deductible, and any discounts each company offers.
Large national companies like State Farm, Geico, Progressive, and Allstate are well-known, but regional companies and online-only insurers often have lower rates for certain drivers. If you have a poor driving record or are young, some companies specialize in higher-risk drivers and may offer better rates than mainstream insurers. Check customer service ratings and claims satisfaction scores on the National Association of Insurance Commissioners website or J.D. Power before you decide.
When to shop for a new insurance company
Insurance companies offer their lowest rates to new customers. If you have been with the same company for more than two or three years, you are probably paying more than someone new would pay for the same coverage. Shopping every year or two, even if you just switch back to your current company with a new customer discount, can save money.
You should also shop if your life changes — you turn 25 (rates often drop), you move to a new state, you get married, you buy a different car, or your driving record improves after an accident falls off. Any of these changes can shift which company offers the best rate for you.
When you switch, make sure your new policy starts before your old one ends so you never drive without coverage. Most companies let you choose your start date when you buy the policy. If you are canceling an old policy early, check whether there is a cancellation fee — most companies do not charge one, but it is worth confirming.
What insurance companies will not cover
Insurance covers accidents and damage, but not routine maintenance or wear and tear. If your brakes fail because you never changed the pads, that is your responsibility. If you cause an accident while driving drunk or without a valid license, the insurance company may deny your claim or cancel your policy.
Damage from normal weather like rain is covered under comprehensive, but some policies exclude certain types of damage — for example, some exclude damage from flooding in high-risk areas. Read your policy documents or ask your agent what is and is not covered before you need to file a claim. If something seems unclear, ask for a written explanation.
Frequently Asked Questions
Do I have to buy collision and comprehensive coverage?
No, but if you have a car loan or lease, your lender or leasing company will require it. If you own your car outright, it is your choice. Many people drop collision and comprehensive on older cars when the repair cost would be close to the car's value, since the insurance company will only pay up to what the car is worth.
Why did my rate go up if I did not have an accident?
Insurance companies raise rates for many reasons: you turned a year older, you moved to a higher-risk area, your driving record had a violation added, the company raised rates across the board, or you lost a discount you were getting. Ask your insurance company why your rate changed — they are required to tell you.
What is an insurance adjuster and do I have to use the one the company sends?
An adjuster is an employee or contractor who inspects damage and estimates repair costs. You do not have to use the company's adjuster — you can hire an independent adjuster at your own cost if you think the insurance company's estimate is too low. For major claims, this sometimes pays for itself.
Can I get insurance if I have a bad driving record?
Yes. Some insurance companies specialize in drivers with accidents, tickets, or suspensions. You will pay more than someone with a clean record, but you can still get coverage. Shop around because rates vary widely — one company might charge double what another charges for the same driving history.
What should I do if an insurance company denies my claim?
Ask the company in writing why they denied it and request a copy of the specific policy language they are using. If you disagree, you can file a complaint with your state's insurance commissioner's office, which investigates disputes for free. You can also hire an attorney, though this is usually only worth it for large claims.