Insurance companies take expert underwriting advice together with past experience to work out the chances and costs associated with any risk that they cover. These calculations give a 'premium' for each individual customer based on the likelihood that they will make a claim. If the claims happen, the insurance company pays out the amount of money they agreed to pay when they issued the insurance policy.
Primarily car insurance exists to protect drivers against liability in case you cause an accident and either injure another person or damage their property.
Most policies also offer additional cover such as accidental damage to your own car, fire damage or theft of your car or damage to your windscreen.
For some customers, your car insurance premium will be higher than the value of your car. This is because the primary part of your insurance cover is to pay for injury or loss to other people if you cause it, and this is very likely to be more expensive than replacing or fixing your vehicle.