You need car insurance: it’s illegal to drive without it in every state. Unfortunately, car insurance is expensive. The average annual cost of car insurance in the US is $1,416 and it can be considerably more expensive if you’re young or if you have some blemishes on your driving record.
People who actively shop for car insurance consistently get better deals than people who take the first deal they are offered. You can get the best possible deal by understanding the different types of insurance, knowing your state’s minimum requirements, assessing your needs above those requirements and comparing offers from several companies.
What Does Car Insurance Cover?
A typical car insurance policy has multiple components. The policy may provide different amounts of coverage for each component. It’s important to understand these components so you can assess how much coverage you need in each department:
- Liability coverage. In most states liability coverage is mandatory at minimum. This insurance pays for injuries to other people or damage to other people’s property that you cause while driving.
- Uninsured and underinsured motorist coverage. If you’re involved in an accident caused by another driver who is uninsured or doesn’t have enough insurance, this will cover the cost of damage to your vehicle and injuries to you or your passengers. It is mandatory in some states and optional in others.
- Comprehensive coverage pays for things like theft, fire, vandalism or damage caused by sources not covered by other insurance. It is optional in many states but is often required by lenders and leasing companies.
- Collision coverage covers damage caused by impact with another vehicle or hitting a stationary object. It may help to repair or replace your car, though there may be a deductible that you will have to cover. Collision coverage is also optional in many states but frequently required by lenders and leasing companies.
- Medical payments coverage covers medical costs for injuries to you or your passengers. It is optional in many states.
- Personal injury protection is not available in all states. It can pay for injury expenses and may also cover other expenses that can be caused by an accident, like lost income or childcare. It is mandatory in some states and optional in others.
Some of these may be required in minimum amounts by your state’s laws, others may be required by your vehicle’s leaseholder or by the lender that holds your car loan. Different policies may offer different amounts of coverage in each category.
Insurers also offer forms of specialty insurance. If you’re underwater on your car loan you might consider gap coverage, which covers the difference between the value of your car and the balance of your loan or new car replacement coverage, which will replace your car if it is lost or destroyed. Some policies will cover rental and transportation expenses and towing and labor if your car breaks down.
The more coverage you have, the more expensive your policy will be. You’ll have to determine what coverage you need and how much coverage you need in each category.
What Determines the Price of Your Policy?
Insurance companies use several factors to determine the cost of your policy:
- Your driving record. You’ll pay more if you have accidents or serious violations on your record or if you’re a new driver with no track record. If a new driver or a young driver will be using your car your insurance cost may go up.
- Your age and gender. Older drivers have fewer accidents than younger drivers. Women tend to have fewer and less serious accidents than men. That will be reflected in your insurance costs.
- Your location. City drivers have more accidents and are more likely to face theft or vandalism. That makes insurance more expensive in urban areas.
- Your car. Expensive cars are more expensive to insure. Cars with poor safety records may also cost more to insure.
- Your credit. Credit reporting companies use a credit-based insurance score to predict the probability that you’ll have an accident.
- The type and amount of coverage you need. If you have more coverage and higher coverage in each category your insurance will cost more.
Companies do not reveal the specific formulas they use to calculate prices, but most companies will use these criteria.
How to Shop For a New Policy
If you’re new to driving or you’re not happy with your current insurance, follow these steps to get the insurance you need at the best possible price:
- Determine the minimum insurance requirements of your state. If you still owe money on your car or if your car is leased your lender or leasing company may have additional requirements.
- Review your driving record. In many states violations or “points” on your license drop off your record after a certain number of years. If you have problems that are about to drop off your record, wait to get a quote if you can. A bad driving record will increase your insurance cost.
- Check your coverage and the amount you are paying. If you already have car insurance and you’re shopping for a new policy, note what types of coverage you have and how much coverage you have in each category. You’ll need this information for comparison shopping.
- Decide how much coverage you need. This can be a complex process. You will need the minimum coverage required by your state’s laws and your lender or leasing company, but you may need more in some categories. If your health insurance is limited or you often drive with passengers, you may need more injury coverage. If you have assets that could be targeted in a lawsuit you may need more coverage. If you live or work in an area with high theft risk, you may need more comprehensive coverage.
- Ask several insurance companies for quotes. Comparison shopping may seem tedious, but it can save you hundreds of dollars. Always get at least three quotes from different companies.
- Check the quotes against your existing policy to see if you are being offered a better deal. If you already have a policy you may want to stay with it, unless you find one that offers significantly better terms.
- Call the companies to clarify any questions you may have. Always ask for a discount. Ask the agent you speak to send a final quote by email. Be sure to have your license and vehicle registration information at hand when you call.
- Review the new policy and check the company’s reliability. Check the fine print in the policy and do online searches for complaints and issues with the company.
- Close a deal and cancel your old policy. Always be sure to cancel your previous policy. Remember to get an insurance card or other proof of insurance to keep in your vehicle.
You have two goals in this process. You want to be sure that you have adequate coverage and you want to be sure that you aren’t paying more than you need to pay. Reviewing your other insurance policies can help you avoid duplicate or overlapping coverage. For example, if you usually drive alone and you have a good health insurance policy you may be able to reduce your personal injury or medical payment coverage.
Where to Shop for Car Insurance
Different companies may charge very different prices for similar coverage. Accordingly, comparison shopping can save you hundreds of dollars every year. Consider these options:
- Direct auto insurance. You can contact insurance companies directly, online or over the phone. This is convenient and can give you a quick quote, but you’ll have limited opportunity for comparison. This is a good method if you have a basic understanding of insurance and you know what you need.
- Insurance from a captive agent. Captive agents work exclusively for one company. They offer a face-to-face buying experience and can usually offer multiple policies and advice on what types of insurance you need. You’ll need to visit several of them to get competing quotes, but that’s also an opportunity to find an agent you’re comfortable working with.
- Insurance from an independent agent or broker. Independent agents or brokers represent several insurance companies and can offer you several different policies. They are usually very familiar with the details of different policies and with legal requirements in your state. You may have to visit several independents to find the one you’re most comfortable working with.
- Insurance from a specialty agency. Some agencies specialize in finding policies for new drivers or drivers with problematic driving records. If that sounds like you, run searches for specialized agencies in your area or agencies that offer online service.
You may not want to solicit bids from all of these types, but always be sure to ask for quotes from several suppliers.
Car insurance is a legal requirement and a practical necessity. Accidents do happen and their consequences can be expensive, so insurance is your first line of defense. Car insurance is also a significant expense. Understanding how car insurance works, selecting the coverage you need, and careful comparison shopping can get you the coverage you need at a price you can afford.