How does car insurance work? The basics explained.

Group 1 - Car insurance is a legally binding contract between the policyholder and the insurance company, providing specific coverage in exchange for premium payments [2][3] - The primary function of car insurance is to act as a financial safety net, covering costs associated with accidents or specified losses [3][4] - Premiums are influenced by various risk factors, including the driver's record, age, and credit history, with higher premiums for those deemed at greater risk [5][21] Group 2 - Liability coverage is typically mandated by states and includes bodily injury liability and property damage liability, covering expenses related to injuries or damages caused by the policyholder [8][9] - Full coverage car insurance includes additional protections for the policyholder's own vehicle, covering repairs or replacements due to accidents, theft, or vandalism [9][10] - Optional coverages such as collision, comprehensive, and personal injury protection (PIP) provide further financial protection in various scenarios [11][12][13] Group 3 - The cost of car insurance varies significantly based on factors such as the insurer, vehicle, location, and driver, with average liability-only insurance ranging from $88 to $165 per month [21] - Car insurance deductibles determine the out-of-pocket costs before coverage applies, with higher deductibles typically resulting in lower premiums [22][23] - The claims process involves reporting the accident, gathering documentation, and contacting the insurance company to initiate the claim [26][27]