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How Does Car Insurance Work? A Guide for Beginners

There’s no freedom quite like the open road. Since the invention of the automobile, cars have revolutionized the way that we operate as a society.
From our daily journey to work or school, how we transport goods across the country, and even our ability to travel all have been impacted by our access to cars.
Unfortunately, though, accidents happen. And car insurance is mandatory in order to legally operate a vehicle.
But, how does car insurance work, exactly? How is it that your monthly pay-in allows you to cover some incredibly steep expenses?
We’re going to break down the details of car insurance, compare some of the most common types of insurance, and give you the information you need to get on the road. Let’s jump right in!

Why is Car Insurance Mandatory?

Car insurance can be pretty expensive. Especially if you are young, new to driving, or have more than one vehicle to insure.
This leads many to wonder why they are required to have it? If they are willing to take the risk, shouldn’t they be allowed?
Well, not exactly.
See, the reason has to do with liability. If you cause damage to property other than your own, it’s your responsibility to cover. If it were only damage to your own vehicle, you could choose to leave it alone and not pay for it.
When it comes to someone else’s property, however, you are absolutely required to pay for the damage you cause.
If you don’t have insurance to cover it, you could be responsible for thousands of dollars, or even more if someone is injured.
Not having insurance to help cover those expenses could bankrupt you instantly. And, unfortunately, some people choose to run away from the debt they accrue. This leaves those who were affected by your own mistakes empty-handed.
Therefore, insurance isn’t required to protect your own assets, but to hold you accountable for others in the case that you injure or damage other’s property.

How Does Car Insurance Work?

Car insurance is designed to protect you from the financial burden of accidental damage to you or another’s vehicle or person(s).
The way it works is pretty simple; you pay a monthly premium to your insurance company based on the level of coverage you wish to receive. If you get into an accident, your insurance will step in to take care of the costs of the damage.
All you have to do is call your insurance company and file a claim.
Now, this isn’t free for you. It requires that you pay a deductible, similar to what you pay when you visit the doctor. The amount of deductible depends on the level of insurance you have.
You have the option to pay a lower monthly premium and a higher deductible or a lower monthly premium and a more affordable deductible. On average, people pay between $500 and $1000 for deductibles, but they can be as low as $250.
Now, if you get into an accident that is caused by someone else, you go through their insurance. You are not required to pay a copay in that case.
There are different components of coverage that you can add to your plan. We’re going to take a closer look at what each of them is and what they mean.

Liability Insurance

This is the portion of your car insurance that deals with accidents you cause. For example, if you are following someone too close and when they have to get on the brakes suddenly, you run into the back of them.
At this point, you are going to be responsible for the damage to their car and any injury that may have occurred. That’s where your insurance steps in.
This component of insurance is required, as it is what will hold you accountable for any cost that comes with the accident afflicted on another.
Now, if the accident is not your fault and the other party’s vehicle is damaged or they sustain an injury, that is not your liability and your insurance will not be responsible.
Which leads us into the next part…

Liability Insurance Requirements

There are several liability insurance requirements in Georgia. The State of Georgia Department of Revenue provides details of the insurance requirement laws. All motor vehicle owners and lessees must maintain continuous liability insurance coverage on vehicles that have active registrations. There are three distinct types of liability insurance that are required in Georgia. These include:

  • Bodily injury liability for one person in an accident
  • Bodily injury liability for multiple people in an accident
  • Property damage liability

The law sets specific minimum insurance requirements for each type of liability insurance. The minimum liability insurance requirements are 25/50/25. This equates to:

  • $25,000 bodily injury liability for one person in one accident
  • $50,000 bodily injury liability for all persons in one accident
  • $25,000 property damage liability in one accident

You must have insurance on your vehicle before you can take it on the road. If the police stop you for a traffic violation or if you are in an accident, the police will verify your insurance through the Georgia Electronic Insurance Compliance System (GEICS). It is important to know that if you go without a valid insurance policy for longer than 10 days, the Georgia Department of Revenue will suspend your vehicle’s registration and you will not be allowed to drive the vehicle until valid insurance policy is in effect.  
Additionally, the vehicle may be impounded and you could be charged with a misdemeanor if you drive without valid insurance. Once the registration is suspended, you will need to pay a reinstatement fee. If you have several or more instances when your insurance lapses you may not be allowed to reinstate insurance on the vehicle for 90 days to six months.

Personal Injury Protection

PIP is another very important part of your insurance that you need if you plan on operating a vehicle legally.
This part of the insurance is designed to pay out to you or any of your passengers who may have been injured in an accident.
PIP is a no-fault level of insurance, meaning that you and your passengers will be covered regardless of who was driving so long as it is your vehicle.
Medical expenses after an accident can be astronomical. Personal injury protection can mean the difference between bankruptcy and healing for someone who sustains significant bodily harm.

Collision Damage

Now, what about your car after an accident? That’s where collision damage comes into play. This part of insurance is not mandatory but is important for keeping your wallet safe after an accident.
If you choose to arm yourself with collision damage coverage, you will be able to get your vehicle repaired of any damage after an accident that you cause. Again, if it is caused by someone else, their insurance is responsible.
This will require a deductible but can save you a significant amount of money.
Most autobody shops charge a fortune to repair the damage, especially if your frame or chassis is compromised at all.
If your car sustains damage that exceeds the value of your vehicle, your insurance will “total” the car and usually will pay you a portion or all of the value of your car so you can replace it.

Utilizing Your Own Insurance

You have your own medical insurance policy that protects you and gives you the care you need for any type of injury. It is common for you to use your own insurance coverage when you visit the doctor following a car accident. You will be required to pay the deductible for your insurance. Keep a record of the deductible you paid, when you paid, it and to whom.

Personal Injury Protection (PIP)

Some states require drivers to include personal injury protection (PIP) or medical payments coverage (medpay) as part of their vehicle insurance coverage. Georgia is not one of those states. Therefore, you may not have PIP as part of your vehicle policy. However, you may have added PIP to your policy. If so, this insurance will be able to cover your medical expenses following an accident, even if the accident was someone else’s fault. Once your car insurance medical limits are reached, you will need to pay for your medical expenses through other means.

Repayment of Medical Insurance in Georgia

Georgia law (O.C.G.A. §§ 44-14-470-476) allows for insurance companies to be reimbursed for any medical costs if you receive compensation through a claim. This can limit the amount of money that you could get from your claim. For example, if your medical insurance covered medical costs of $100,000, they could file a lien that allows them to receive payment in this amount from you if you collect in a lawsuit.

What if You Don’t Have Medical Insurance?

If you don’t have medical insurance, you could be facing a difficult financial situation. You certainly can’t wait until you get paid from the insurance company to seek medical treatment. You will likely need to pay for the medical costs out-of-pocket. Some medical facilities will work with you to set up a payment plan. Sometimes the costs for treatment can be extremely high, especially in cases where the injuries are life-threatening or disabling. Keep in mind that you will be able to recover these expenses once the case has been settled and the negligent party has been brought to justice.
Car accident cases are very complicated. As you can see, medical treatment can cause concerns for your personal injury case.

Drive Safe and Keep Your Pockets Safe

The best way to avoid having to deal with insurance is to keep yourself safe on the road. However, accidents do happen, and that’s why insurance exists.
So how does car insurance work? You pay a little now to save thousands later.
Have you been injured in an auto accident? You may be able to receive additional funds to get yourself through the healing process. Click here to find out how you can file a car accident lawsuit!

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