Car insurance can be complicated. It’s easy to figure out what you need to buy, but not always so easy to figure out what you should buy. Every consumer has a different budget and unique needs. Every state has different minimum coverage requirements, and the amount you pay will vary wildly. Some people drive a lot more than others, and some barely use their car.
But accidents happen, and it’s important that you understand car insurance to the best of your ability in order to determine what you think you’ll need in a policy, as well as what to expect when shopping around. Use our comprehensive guide to learn more, whether you’re a first-time buyer or looking for something better than what you have currently.
There are many types of car insurance coverage. Certain coverages are required by state law, so determining what’s required in your state is the first step to choosing your plan. After you’ve met the minimum legal requirement, then you can increase your coverage limits for greater reimbursement potential. Let’s take a look at the different coverage options available and go into greater detail about each.
Liability Insurance: Liability insurance pays for injuries and property damage of the other party if you were the cause of the accident. It does not cover your own injuries or property. Most states have a minimum requirement for the amount of liability insurance drivers need. However, if you can afford it, it’s generally a good idea to have liability that is above the minimum to ensure sufficient coverage.
Personal Injury Protection (PIP): Also known as “no-fault coverage”, this type of coverage is only available in no-fault states, meaning blame is not placed on either driver in particular during an accident. PIP pays for your injuries without regard to fault, and generally pays your medical expenses until your benefits limits are exhausted. At that point, any health insurance you have would kick in to cover the rest.
Collision: Property damage liability does not cover your vehicle in any way. For accident damages to your vehicle to be covered, collision coverage is needed. With this coverage, your vehicle is insured for any physical damage that your car sustains when it hits or is hit by another vehicle, as well as when you hit another object. Keep in mind that collision coverage doesn’t cover all damage, so read your policy to see what falls under the terms of coverage.
Uninsured/Underinsured Motorist: If you are in an accident with an uninsured driver and you don’t have PIP or collision coverage, you would have to pay your own medical and repair bills out of pocket. This is where uninsured motorist coverage comes into play, because it covers those expenses in the event that the other party has insufficient or no insurance. This type of coverage is also required in many states.
Comprehensive: Comprehensive insurance covers damages and losses from incidents other than a collision. Normally this includes coverage from theft, vandalism, glass damage (broken windshield, side mirror, etc.), damage sustained from an animal or falling object, fire, and more. Only covered perils listed in your policy will be paid for, so make sure you know what’s in the policy before signing a contract.
The benefits limits of all these coverage types are determined by a combination of state law and the cash value of your vehicle. If any damages exceed your benefit limits, you would be responsible for paying those expenses beyond the cap. All states have different requirements, but as an example your state may impose insurance limits of 25/50/10. This means the policy would pay up to $25,000 for a single person’s injuries in an accident you cause, $50,000 for bodily injury for all occupant’s injuries, and up to $10,000 for damage to the other driver’s property. That would be the minimum coverage, and the ceiling is dependent upon the value of your vehicle.
Beyond the broad coverage types listed above, there are additional add-ons for insurance policies that are not required by law, but can be a good choice for some consumers. Every insurance company has different add-ons available, but some of them are common across the board. One option is called personal umbrella coverage. Umbrella insurance provides an additional layer of personal liability protection. In the event of a severe accident with damages in excess of your base liability coverage, the umbrella protection kicks in after your liability limits are exhausted. This is more of a “peace of mind” add-on that ensures maximum and thorough protection on you and your vehicle.
Many companies also have accident forgiveness, which means your premium would not be affected in the event you’re in a car accident. Restrictions apply, so be sure to read the fine print on this coverage. Other common add-ons include rental car coverage, new car replacement (if your car is totaled, your insurance will pay for a replacement), better car replacement (similar to the former, but you can get a car that’s better than your previous one), mechanical breakdown coverage, and interior car coverage. Again, these add-ons are never required, but they allow you to customize your insurance policy to meet all of your needs.
Stellar customer service is incredibly important when it comes to car insurance. Anyone who has ever filed a claim can tell you that it is sometimes (okay, always) a painful process. Car insurance is a major expense for many people, so your insurance company should be committed to flexibility and positive consumer experiences. There’s usually a dedicated customer service page on most insurance websites, making it easy to compare and contrast the various services that agencies offer.
Most of our Top 10 car insurance providers offer 24/7 claim reporting, which means they are always available when you need them. How you submit claims is made easier or harder by customer service as well. You can always file a claim by phone, but the most popular option nowadays is to file using an online portal. You can file a claim, view open claims, and refer to previous claims all with the touch of a button. These portals also allow you to purchase additional coverage if you need it, and you can quickly get in touch with a customer service representative using their mail client or live chat support. Almost everyone offers instant online quotes as well, which makes shopping around simple.
There are other customer service perks to consider, such as roadside assistance, towing/repairs, local insurance agents, and much more. Research all of these factors so you can find an insurance agency that is going to meet all of your needs. If you need to have it, you might as well make the process as easy and stress-free as possible.
In 2012, the average annual cost to insure a car in the United States was $815 a year. If you already have car insurance that number may seem outrageous, either because you pay way more or way less than $815 every year. That’s because insurance companies have access to an enormous amount of data they use to figure out which individuals are more or less likely to file a claim. Some factors are mostly out of your control, while others can be changed to affect whether your rate improves or worsens. If you’ve yet to receive any quotes, or you’re interested in knowing about the different variables that can affect your car insurance premiums, read on for a sampling of factors that insurance companies use to determine your rate.
Location: Location has a major impact on your insurance rates. State laws vary across the board, and these laws affect minimum coverage as well as benefit limits. You’ll also pay more if you live in a densely populated area, or somewhere prone to natural disasters. If you live in the city but park your car in a secure structure, you will pay less in premiums than somebody who parks on the street.
Gender: In general, women pay less for car insurance. Statistics show that men drive more often, and are more likely to be in an accident or receive a DUI.
Age: Drivers under 25 years old and over 65 years old pay higher rates than individuals who fall somewhere in between that age range. Keep in mind that marital status also affects your rate. Married couples pay less than single individuals.
Type of Vehicle: Simply put, the faster your car can go, the more you’ll pay for insurance. An expensive high-performance sports car is going to cost WAY more to insure than a sensible family car.
Driving History: This is the big one, and probably the most obvious factor affecting your car insurance rates. As you accumulate tickets and violations, your rates will climb. The severity of the infractions on your record is also important, because a speeding ticket(s) will increase your rate a lot less than a DUI or reckless driving charge. You can’t rewrite the past, but attempting to be a safer driver moving forward can have a positive effect on your premiums.
Credit Score: Yep, even your credit score affects how much you pay. Insurance companies cite data that shows the higher your credit score, the less likely you are to file a claim. Some states have actually banned this practice, but unless you live in California, Hawaii or Massachusetts, your credit will factor into your premiums.
The other expense involved in car insurance is your deductible. The deductible is the amount you’re responsible for paying before the insurance company kicks in for the cost of repairs. If your car requires $5,000 in repairs and your deductible is $500, the insurer would pay $4,500. If your car only requires $450 in repairs, you would be responsible for all of it. Deductibles typically apply to the collision and comprehensive coverages within your policy.
When choosing a plan, you are usually responsible for setting the deductible amount, so keep in mind lower deductibles means higher premiums, and vice-versa. Think about what you could realistically afford in the event of an accident, and not just how much you want to pay in premiums. Having a low premium is nice in the sense that your car insurance costs less on a month-to-month basis, but if paying your entire deductible would cripple you financially (let’s say your deductible is $1,000 and you have no money in savings), that could hurt you way more in the long run. Try to strike the right balance between the two.
The list goes on and on. An easy way to save is to inquire about discounts. Many companies offer student discounts, multiple vehicle discounts, good driver discounts, and more. Obviously the type and amount of coverage you purchase will also change your premiums, but you control how much or how little you have (besides state minimum coverage requirements). Car insurance is highly personalized, and therefore you won’t really know how much you’ll pay until you get quotes from a bunch of insurance companies. The best way to save on car insurance is simple comparison shopping. Our Top 10 companies are a great place to start!
As a consumer, you have plenty of options to choose from when it comes to car insurance. Sometimes making the final decision between a handful of insurance options can be difficult. One of the best ways to tip the scales is to read reviews from other consumers who have first-hand experience with these insurance companies. Here are some things to look for when reading reviews about car insurance.
Other Reviews: Allstate Auto Insurance • Nationwide Auto Insurance • Select My Policy • Best Quotes • The Hartford • Liberty Mutual Auto Insurance • Farmers Auto Insurance • 21st Century Insurance • USAA Auto Insurance • MetLife Auto Insurance • American Family Auto Insurance • Travelers Car Insurance • Safeco Auto Insurance • Safe Auto Insurance