Father and son wash the family car together.

How Does Car Insurance Work?

Updated December 3, 2019 . AmFam Team

Auto insurance offers benefits such as financial protection in the event of an accident. Learn about what car insurance is & how it works from American Family.

If you own a car, you probably understand the importance of protecting it with auto insurance, whether it’s just the minimum required by your state or a more robust policy designed to protect against a wide range of situations. But even if you’ve got car insurance, you might still find the policy information complicated or frustrating to understand. That's why we’re here with all the details to help you break down the specifics of auto insurance and help you gain confidence in your coverage.

Navigate to:

What Is Car Insurance?

Why Do You Need Car Insurance?

What Are the Benefits of Having Car Insurance?

What Are the Different Types of Car Insurance?

What Does Auto Insurance Cover?

How Does Car Insurance Work?

How Are Car Insurance Premiums Calculated?

What Causes Car Insurance Rate Increases?

How to Get Car Insurance

Car Insurance Discounts

What Is Car Insurance?

Car insurance is the agreement between you and an insurer that protects you from financial repercussions as a result of a collision. In other words, it keeps you off the hook for potentially costly expenses as a result of an accident.

Back to top


Why Do You Need Car Insurance?

Insurance is a way of transferring risk. For example, if you make a big purchase, like a new car or home, and you take out a loan, your lender wants to be sure that your vehicle or home is financially protected from potential damage.

How do they make sure of this? They protect their investment by requiring you to purchase insurance. The cost of a potential loss is placed into the hands of an insurance company in exchange for a premium that you pay. The insurance company will invest your premium payment funds and pay you in the event you file a claim — subject to the terms and conditions of your policy.

You get a ticket

How a ticket affects your car insurance depends on what type of ticket it is. For example, an operating while intoxicated ticket will have a much more serious impact on your insurance than a minor speeding ticket.

You’re in an accident

Depending on the number and types of car accidents you have, you might see a rise in your insurance premium.

You’re arrested for driving under the influence

If you're arrested for driving under the influence, you may be placed into a higher risk category or with a higher risk auto insurance company, which will likely raise your rates or even cause your insurance to be canceled altogether.

Back to top

How to Get Car Insurance

Getting car insurance with American Family is simple. Here are a few ways we make the process convenient for you.

Back to top

Car Insurance Discounts

While some of life’s big changes could earn you some discounts, consider whether these other car insurance discounts can work for you. The best approach is to connect with your American Family Insurance agent and discuss your personal situation to find out what discounts apply.

Bundle and multi-car discounts

It pays to keep your insurance under one roof. It’s also a lot easier to manage your policies when you have one insurance company, which is why American Family Insurance rewards you for your loyalty with discounts for multiple cars or bundling policies. Get a bundled insurance quote and see how much you can save.

Discounts for young drivers

Whether your young driver is a good student, enrolled in the Teen Safe Driver Program, away at school, a generous volunteer or just a generational customer, we’ve got a young driver discount for them. 

Good driver discounts

Sometimes it feels like doing the right thing goes unnoticed. That’s why we reward our good drivers with discounts. Ask your agent if you qualify for the good driver discount, the defensive driver discount or the auto safety discount. You deserve it!

Hopefully, you’re feeling more confident in your knowledge of car insurance! If you still have questions, your American Family Insurance agent (Opens in a new tab) is always happy to help. They’ll also help you review your policy to make sure you have all the protection you need and that you’re getting all the discounts you qualify for.

Are you an American Family customer? Make sure you’re taking advantage of the MyAmFam app to get the most out of your insurance. Download the app today for easy access to your proof of insurance, streamlined billing and the convenience of tracking your claims anywhere, anytime.

Back to top

Get it on Google Play (Opens in a new tab)  Download on the App Store (Opens in a new tab)

Related Articles

Related article test
  • Family sitting on couch looking at tablet to learn why bundle insurance.
    Family sitting on couch looking at tablet to learn why bundle insurance.
    Why Bundle Your Insurance?

    Having insurance is an easy decision — after all, it protects the things you work so hard for in life. Another easy decision? Bundling your insurance. From your car, home and even your family's financial well-being, you have a lot to protect. Make things simple and take control what you pay for by making the smart choice to bundle.

    How Much Do You Save By Bundling Insurance?

    At American Family Insurance, there are many ways you can save by bundling insurance, including:

    Home and auto insurance bundle

    Our most common insurance bundle, combining your home and auto coverage can save you up to 23% on both policies together.*

    Auto and renters insurance bundle

    Protecting your valuables and your car can lead to big savings. When bundling, you can save up to 5% on your auto and renters policy.**

    Car and motorcycle insurance bundle

    You can score steep discounts when you bundle insurance for your different vehicles. Learn more by checking out our auto insurance and motorcycle insurance pages.

    Take a look at what it means to bundle and all the benefits you’ll enjoy when you bundle your insurance with American Family Insurance.

  • Family with dog playing in the woods.
    Family with dog playing in the woods.
    What Is Umbrella Insurance?

    Umbrella coverage offers additional financial protection over and above the personal liability limits of other currently active insurance policies you have. Think of umbrella insurance as a powerful financial shield that can help protect your savings and future earnings under certain situations.

    Whether you’re found at fault for a multi-vehicle crash on the interstate, or a guest slips and falls down the icy steps outside your home — the added coverage in an umbrella policy can kick in and help cover any remaining costs should the liability limits on your underlying car or homeowners max out.

    And umbrella insurance coverage doesn’t stop there. Liability lawsuits can come in many forms and the hefty financial judgements that frequently accompany them can also drain your savings. Today, let’s take a closer look at umbrella insurance to help you understand how this coverage can help protect your financial dreams and everything you’ve worked so hard for.

  • Purse on bench with woman stealing wallet for tax identity theft.
    Purse on bench with woman stealing wallet for tax identity theft.
    Tax Identity Theft

    You’ve probably heard the saying, “the early bird gets the worm.” But what does that mean for Americans who file their tax returns early?

    To most of us, it usually means quicker refunds. But early filing could also mean significantly reducing your chances of falling victim to a growing trend in identity theft. It’s called tax return identity theft and it’s affecting Americans at an alarming rate. In fact, per the Taxpayer Advocate Service (TAS), an independent organization within the IRS, 5.2 million tax returns were tagged as fraudulent in 2020. Not to fret! We’ll help you understand tax related identity theft, the signs to look out for, and what to do if it happens to you.

    What Is Tax Identity Theft?

    Tax return identity theft is the act of filing a return using a stolen identity and taking the victim’s refund.

    Equipped with three simple ingredients — a name, birthdate and Social Security number — the thief can commit tax fraud resulting in delayed or stolen refunds. And while a swiped refund may seem like a worst-case scenario, thieves may also use your stolen identity to obtain employment, an act with even greater impact.

    When an identity thief uses your SSN for employment, all the income they earn under your identity must be reported. Meaning that when you go to file your taxes and the earned income numbers don’t match, the IRS will flag your return as suspicious. This can have significant financial impacts if taxes on the unclaimed earnings are imposed and can lead to prolonged stress with a request to audit your taxes.

    The victims of fraudulent tax return identity theft can face stressful obstacles on their path to recovering from a stolen tax return and identity theft. One of the most significant steps in protecting your financial future from being compromised is education and understanding how this type of theft occurs, and what to do if you find yourself in this situation.

  • Two dogs running in the water with their homeowner.
    Two dogs running in the water with their homeowner.
    Dog Liability Insurance for Homeowners

    Whether you raised him from a pup or adopted her later in life, you don’t just view your dog as a pet: you consider them a member of your family. According to a survey by the American Pet Products Association, almost 90 million dogs are owned as pets in the United States — and while your dog offers a whole lot of love and laughter, they can also be a potential liability. Luckily, we offer dog-friendly homeowners insurance.

    At American Family Insurance, we love pets and understand that they’re part of your household. That’s why we want to make sure you understand exactly how your dog affects your homeowners insurance and ensure that you have the proper protection in place not only for your home, but for your dog, too.

    Is My Dog Covered by My Homeowners Insurance?

    Whether or not your dog is covered by your homeowners insurance depends on who you have as an insurance provider. With American Family, your home, renters, manufactured home or condo policy will provide dog liability coverage — a form of financial protection against liability claims, including lawsuits for accidental bodily injury or damage to someone’s property. This includes paying for medical expenses if your dog injures someone or helping cover costs if your dog destroys someone else’s property.

    It's important to note that your homeowners insurance won’t cover damage done by your pets to your own home, such as if your dog chews a hole in your sofa or scratches your doors or woodwork. And, keep in mind, your homeowners policy doesn’t cover injuries to you and the residents of your household. It only pays for injuries to others.

    Need insurance for your dog? Consider pet insurance from an American Family Insurance agent to help you care for your pet through all stages of its life.

    We also offer a special add-on pet coverage that provides up to $1,000 for veterinarian services, final expenses (like burial or disposal fees) or the cost to replace your dog if death occurs. This coverage is applicable after a covered property loss.

    Does Homeowners Insurance Cover Dog Bites?

    Whether you’re walking your dog through the park or at home playing in the yard, the liability portion of your homeowners insurance policy will help cover you if your dog bites someone or if they bite another dog.

    Remember, a dog can bite out of fear, to protect their territory, to correct another dog’s behavior or for several other reasons. Because dog bites occur for a variety of reasons, keep these tips in mind to prevent your favorite family pet from biting:

    • Keep your dog on a leash.
    • Don’t leave your dog unattended with strangers or children.
    • Make sure people respect your dog’s space.
    • Spay or neuter your dog — this helps reduce their desire to roam and fight with other dogs. According to the National Canine Research Foundation, neutered dogs are three times less likely to bite.
    • Socialize your dog. Introduce your dog to many people and situations so it isn’t nervous or frightened under normal social circumstances.
    • Enroll your pooch in a dog training class. Not only does it help your pet learn better behaviors, but it teaches you to be a good pet owner, too.

    And it’s not just bites that cause liability incidents — if your overly excited pup jumps on someone, knocks them over and breaks their wrist, you’ll be able to cover their medical expenses with the help of your liability coverage.

    How Much Coverage Do I Need for My Dog?

    Your homeowners policy has a liability “limit” that, in the event of a loss, will cover up to a certain dollar amount. Your liability limit is the amount available to cover anything from a dog bite to your neighbor slipping and falling on your icy steps. To understand your potential pet liability cost and the amount of coverage you need, think about the amount it may cost for medical expenses and if someone were to sue you. Sometimes this number is well into the six figures! For instance, if your liability amount is $300,000 but your dog bit someone and medical expenses and legal fees came to $500,000, you’ll be responsible to pay the remaining $200,000.

    If you want to ensure you have adequate coverage in place, an umbrella policy is an added layer of protection which provides a much higher level of coverage to financially protect you from unexpected incidents with your dog.

    Homeowners Insurance Dog Breed Restrictions

    Unfortunately, not all dogs will meet the criteria to be included under a policy. While most dog breeds won’t impact your eligibility for homeowners coverage, there are some breeds that require additional considerations, such as whether your yard is fully and securely fenced. You must also provide certain documentation to be considered eligible, like evidence of up-to-date annual vaccines and proof that your dog has been spayed or neutered.

    It’s also important to note that, depending on your dog’s prior history (e.g. history of biting, if they were trained or used as an attack or guard dog), they might be subject to a dangerous dog liability limit that reduces their liability coverage for losses to $25,000.

    Your American Family Insurance agent can help you determine the specific requirements for insurability based on the breed of your dog.

    At American Family, we want to help protect all the things that matter most to you. Connect with your agent and gain peace of mind that you have the right coverage in place for your four-legged friend.

    This article is for informational purposes only and includes information widely available through different sources.