Accidents happen. When they do, car insurance helps protect your finances and cover the resulting bills. But how much it can help depends on choices you made when you bought your policy. That might sound like a lot of pressure to put on a decision—which is why this guide aims to demystify car insurance so you can choose the best coverage for your needs.
First, we’ll explore the types of car insurance available and how to decide which ones you need. Then we’ll review how to buy car insurance, including what it might cost—and how to save money. Finally, we’ll look at how to file a claim with your car insurance company in the event of an accident or other damage, and we’ll cover some frequently asked questions.
- Car insurance is designed to financially protect you if you’re involved in an accident or if your vehicle is damaged.
- Some types of car insurance are required by state law, while others are optional.
- Almost every state requires some type of liability coverage for drivers.
- Shopping around is important for finding the best deal on car insurance rates.
- The cost of car insurance depends on factors like your location, age, driving record, vehicle type, and more.
What Is Car Insurance?
Like other types of insurance, car insurance helps protect you against financial losses that occur as a result of accidents, theft, and weather-related events. A car insurance policy is basically a contract between you and an insurance company that says you will pay premiums to the company, and in return, the company agrees to cover the costs of medical bills, vehicle repairs, and other property damage. The wording of that contract spells out exactly what is covered by your insurance policy.
How Much Car Insurance Do You Need?
The biggest factor in determining how much insurance you need is where you live. Each state (and the District of Columbia) legally requires certain types and amounts of car insurance coverage. There are two exceptions:
- New Hampshire doesn’t require car insurance at all.
- Virginia lets drivers opt out of buying car insurance by paying a $500 fee.
However, both states have financial responsibility laws that mean you could be held liable for damages if you cause an accident. Without insurance, you will also be on your own to cover medical costs and repair bills.
In addition to the state requirements, you may also need to consider lender requirements if you have a car loan or lease. Because the lender has an interest in the car, it may require you to have certain types or amounts of coverage.
Even if you own your car outright, you may want to consider a policy that goes beyond your state minimums. For example, a higher coverage amount might cost more, but would provide more protection in the event of an accident, and optional coverages could help cover major repair bills that you might not be able to pay out of pocket.
Types of Car Insurance
A car insurance policy is typically a bundle of multiple types of coverage. The composition of your policy depends on your state requirements, as well as your own preferences about optional coverages. Understanding the types of car insurance will make it easier for you to put together a policy that fits your needs.
Almost every state requires minimum amounts of liability insurance, which covers other people’s expenses related to an accident you cause. It comes in two types:
- Bodily injury liability covers costs associated with injuries, like medical expenses and lost wages. It’s required in the District of Columbia and 49 states, including in New Hampshire and Virginia if you choose to buy car insurance. The only state that doesn’t require bodily injury liability coverage is Florida.
- Property damage liability covers costs to repair or replace damaged vehicles and property, such as a fence or mailbox.
Both can protect you financially from personal lawsuits stemming from accidents.
Medical Payments (MedPay) or Personal Injury Protection (PIP) Coverage
PIP is also sometimes called “no-fault insurance” because it pays for medical claims no matter who was at fault for the accident.
Uninsured/Underinsured Motorists Coverage
An Insurance Research Council study released in 2021 suggested that as many as one in eight at-fault drivers on the road are uninsured. This equated to roughly 12.6% of the driving public in the United States. Total damage paid by uninsured motorists in 2016 amounted to $13 billion.
The lesson here is that you should trust other drivers and don’t take for granted that they will have as good coverage as you do. Though it can be hard to digest that you must pay a premium and the deductible for someone else’s mistake, it’s better than forgoing this coverage and risking losing your vehicle.
Collision and Comprehensive Coverage
You should never neglect the worst-case scenario when you choose your insurance coverage. What if your car is totaled and needs to be replaced? If the accident is not your fault, the other driver’s insurance (or your uninsured motorist coverage) will pay for the vehicle.
But there are other situations and natural calamities that can also destroy your vehicle. In those cases, you can only rely on your own insurance. In case such a situation arises, it is better to have enough coverage to fully repair or replace your vehicle. This includes collision and comprehensive coverage:
- Collision coverage can help pay for damages stemming from an accident
- Comprehensive coverage can help pay for damages related to things other than accidents, so your coverage should kick in if a tree branch falls on your car or a hailstorm leads to damage
Other Types of Coverage
- Roadside assistance
- Gap insurance
- Rental car reimbursement coverage
- Rideshare insurance
- Glass coverage
- Accident forgiveness
- Original equipment manufacturer (OEM) coverage
- Custom equipment coverage: stereo, custom paint, off-road equipment
- Non-owner insurance
- Classic car insurance
The Cost of Car Insurance
what factors affect the cost?
gender: cite study? where this isn’t allowed
vehicle make, model, and age
credit, where allowed
coverages and limits
discounts: consider driving history, bundling, affiliations like military or alumni associations
As mentioned earlier, car insurance is a necessary expense. But it’s important to consider just what you’re paying for when your insurance company collects your premiums. Paying more money for car insurance doesn’t necessarily mean you have a better policy. Likewise, paying less for car insurance doesn’t guarantee that you have the coverage you need. As you consider how to buy car insurance, keep the following in mind.
Car insurance can come with a hefty price tag, especially if you live in certain states. If you’re a younger driver, it will cost you more too. But don’t make the mistake of opting out just to save the extra money because leaving it up to fate may cost you more if you end up in a car crash or have damage to your vehicle that isn’t your fault. driving without in surance consequences
Deductible vs. Premium
Many insurance companies automatically recommend certain coverage for particular drivers. For example, if you have a teen driver at home, it is better to have good personal liability coverage with a lower deductible because new drivers are prone to making mistakes. On top of that, rates to cover teen drivers will automatically be higher because of their lack of driving experience. Try not to let the higher rates prevent you from getting ample coverage.
Even experienced drivers with past mistakes, such as moving violations or accidents, may also have to pay higher premiums. Defensive driving courses help to offset some of the cost (but not all of it) so drive carefully and consciously to avoid paying higher premiums.
Driving Records and Insurance Rates
The insurance deductible is inversely proportional to the premium amount. If the deductible goes up, the premium goes down and vice versa. This relationship reflects whether you prefer to pay more or less from your own pocket before stretching out your hand to the insurer. Whichever option you choose, make sure you can afford it. Some people are better off paying a higher monthly premium in exchange for a lower deductible to avoid any large payments after an accident.
When comparing car insurance options be sure to ask about safe driver or good student discounts that might be useful for lowering your premiums.
How to Buy Car Insurance
Choosing the right coverage is the first step to buying car insurance. The next is selecting a good insurance company. This can ensure that you’re able to get the coverage you need at the rates you want while maximizing the chances that your claims will be paid.
Here are a few things to look out for when you’re comparing the best car insurance companies:
- Reliable and Reasonable: Insurance companies should be reliable and offer reasonable coverage for the prices they charge. There isn’t much difference in price among insurance companies because of mandates in some states. But companies will quote different prices for similar coverage in other states.
- Covers the Vehicle at all Times: Many small insurance companies offer low rates compared to bigger companies because of their lower overhead costs. But when there is an accident and an insurance claim is filed, these small companies may become difficult or uncooperative and tell you certain things aren’t covered under your policy. That’s not what you want to hear when you really need them after paying your premiums for months. And be sure you don’t sign up with a company that doesn’t cover out-of-state accidents.
Getting quotes from multiple companies can give you a basis for comparison. From there, you can decide which insurer is the best fit in terms of coverage, deductibles, and premiums.
How to Save Money on Car Insurance
shop around: CR national survey showed how many people switched and saved https://www.consumerreports.org/money/car-insurance/buying-guide/
review your policy if things change–you change vehicles, change relationships (and need to remove an ex and their vehicle), buy a house (and get home insurance), add a teen to your policy, or change jobs (and have a different commute)
consider adjusting deductible (maybe move that section down?)
consider dropping collision and comprehensive on older cars. CR recommends when annual premiums are 10% of car’s value https://www.consumerreports.org/money/car-insurance/buying-guide/
drop extra coverages, like roadside assistance if AAA is a better deal, or rental reimbursement if you could use another car or take transit while your car is repaired
look for discounts
improve credit and driving record
if you don’t drive much, consider usage-based or mileage-based policies? look up if these are still options
How to File a Claim on Car Insurance
depends what type, take photos, etc.
What Car Insurance Do You Need?
BI, PD, states that require etc.
What Is the Best Car Insurance Coverage to Have?
mandatory, plus the rest depends on your situation
What Happens If You Don’t Have Car Insurance?
illegal in most states
if you’re named on a policy, you might be ok, or if you’re borrowing a friend’s car occasionally. But otherwise… examples of state consequences
What Isn’t Covered By Car Insurance?
It depends on your policy, so you’ll need to read the fine print. Typically, personal car insurance doesn’t cover commercial driving, racing, or using your car for illegal activities. Car insurance also doesn’t cover repairs needed due to wear and tear.
The Bottom Line
Having ample and reliable insurance coverage is a very important component of auto ownership: You don’t want to experience money problems when you are already going through the trauma of an accident. Be a smart buyer, do the proper research, compare quotes, and create a package that suits both your coverage needs and your budget.