Car insurance works like a safety net. The safety net in a car accident is car insurance, which helps to restore a person or persons to where they were before the accident. This restoration may include everything from replacing the entire car, to providing a rental car, to reimbursing towing costs to the garage, to paying medical bills, to simply providing a touch-up after that shopping cart dented your car.

To secure insurance, you should shop around. Note that each quote you receive for auto insurance will include a premium. Premiums are the basic cost of the insurance policy and represent the insurer’s risk of you being involved in an accident. Certain factors will influence the rate of your premium, such as if you drive certain vehicles, (like sports cars), have a poor driving history, or have poor credit. The risk to insurance agencies increases with these factors, and the result is higher premiums to you. In the event of an accident, a policy will pay out a certain amount depending on the type of insurance policy.

Limits exist with every policy so that insurance companies can stay in business. The first limit is a deductible, which is the amount of money you are required to pay out before the car insurance policy will honor the terms of the policy. A low deductible means less risk to you, and a higher deductible means less risk to the insurance company. So make sure you have enough cash on hand to cover deductibles. Another limit is coverage, and there are often several types of coverage: liability, collision, uninsured motorist, etc. These limits mean that the car insurance company will pay out until the limit is reached. So a policy that has $100,000 of liability coverage will cover repair costs to another driver’s car in the event of an accident, but if the accident is with a Ferrari and the repair costs are over $100,000, you are liable for the remainder of the bill.

Car insurance does provide a very valuable safety net for drivers, but it is important to stay informed about the coverage details and to know what benefits your car insurance will provide in the event of an accident.