Why do I need auto insurance?
Every state (and the District of Columbia) requires you carry some amount of vehicle insurance coverage when you own a car, but the minimums and required coverages vary from state to state. This handy guide will help you when you begin to compare car insurance quotes.
In general, the mandated minimums are designed to make sure that you have enough basic liability coverage to reimburse another driver or your own passengers if you are at fault in an accident for things like damage to the other person’s vehicle, repairs to any other property such as fences or buildings that you may hit, medical payments for injuries other people sustain in the accident, their loss of income, legal expenses, and even funeral expenses. (Note: A liability policy will not cover your expenses if you are found to be at fault in the accident. For policies that provide this coverage, see personal injury protection below.) You must be careful, choosing a cheap insurance policy is not always the best way to go.
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If you get caught driving without the required levels of car insurance the penalties you may face range from a ticket and/or fine up to a year in jail – depending on your state’s laws and your own driving history.
Some states also require car owners to have uninsured motorist coverage in case you are in an accident with someone who is illegally driving without insurance.
In addition to the mandated coverage in your state, you may want to buy additional car insurance protection. It is wise to consider the options carefully before seeking auto insurance quotes. There are three basic types of optional auto insurance:
- Collision coverage protects you if you hit (or are hit by) another car or if your car rolls over.
- Comprehensive coverage provides protection from other kinds of damages your vehicle might encounter, such as hitting an animal, fire, flood, theft, etc. (Note: Comprehensive coverage does not cover normal wear and tear or maintenance and repairs.)
- Personal injury protection (also called medical payments) coverage will pay for your medical costs, loss of income, etc., if you are in an accident that is determined to be your fault.
No state requires you to carry collision or comprehensive coverage, but depending on your driving habits, you may choose to purchase either higher amounts of coverage (for example, your state requires $20k in liability coverage, but you purchase a policy with $50k in coverage) or by purchasing collision or comprehensive coverage. Talk to your auto insurance company to decide which policy is right for you.
Generally, with a newer, more expensive car, it makes more sense to carry collision and/or comprehensive car insurance. If you lease your car or have a car loan, you will probably be required to carry a collision policy by your lender. That protects the lender and you – if the car is totaled, you would still need to pay off any loan or lease attached to it, while also presumably paying for a replacement car.
On the other hand, if your car is older and has a lower book value, it may not make sense to pay the additional premiums because if your car is damaged or totaled, your payout would be relatively small and possibly not much more than the premium you paid. To see if it makes sense to keep this coverage or if you can get lower-cost car insurance by dropping it, look up your car’s blue book value and compare it to the car insurance quotes you’ve received.
Other auto insurance options
A basic car insurance policy works for most drivers/car owners, but if certain conditions apply to you, there are additional types of coverage you can purchase in addition to your regular car insurance policy.
Classic or collectible car insurance: If you own a car that is vintage, rare or otherwise of especially high value, you may want to consider a policy designed specifically for these vehicles. Details vary by carrier, but these policies may offer better coverage limits and options that are particularly useful if your car needs a specialist to make repairs or if it’s difficult to find replacement parts.
Commercial auto insurance: If you use your car for any business purpose you may need to get a commercial policy. Note: Your car doesn’t have to be a company car or used exclusively for business to qualify for a commercial policy. For example, if you sometimes use your car to transport items you sell, for sales or other business services, or even if you occasionally use the car to work with ride-sharing apps like Lyft or Uber, you may need a commercial policy to make sure you are fully protected. Commercial policies typically provide higher limits on their coverage than individual policies do, but they also cost a bit more. To make sure you are getting the right car insurance policy for you when getting your car insurance quotes be sure to fully explain how you use your car so the carrier can provide the most appropriate policy and for you.
Gap insurance: If you lease or have a loan on your car, you may want to consider gap insurance. It protects you in case the car is totaled and the policy only pays out the actual cash value of the vehicle – which may be significantly less than what you still owe on the car. In lieu of gap insurance, some auto insurance companies offer policies that provide replacement cost coverage – but those policies also cost a bit more than the standard actual replacement cost policies.
Non-owner policies: If you don’t own a car but drive regularly, you can purchase a non-owner policy. Non-owner policies typically provide basic liability coverage. You buy it the same way you buy any other auto insurance policy. Read the policy carefully to make sure it fits your needs. For example, if you frequently rent cars, you’ll want to double-check the car insurance you are getting a quote for covers rentals – not all do. A non-owner policy usually only costs $200-300 per year, but it can be more depending on certain factors, such as whether you are considered a high-risk driver based on a history of prior accidents.
Umbrella coverage: For people with a high net worth or income, an umbrella policy provides additional protection against higher than typical liability claims. Here’s how it works: Let’s say you are found to be at fault in a particularly bad accident that results in medical expenses or property damage that far exceeds the basic $50k liability policy your state requires. The third parties who incurred those costs (or sometimes their insurers) can sue you for whatever expenses they have which were not covered by your insurance. With an umbrella policy, you have additional coverage (usually starting at $1 million) is available so that you don’t have to worry about dipping into your personal assets or even having your wages garnished to cover those expenses.
Special situations: Teen drivers
If you are putting a teenager on your auto insurance, be aware that it will dramatically increase your total premiums. That’s because teenage drivers are statistically more likely to be in accidents.
To get lower car insurance rates for your teen driver, consider taking advantage of driver’s education courses and good student discounts that many carriers offer. If your teenager has good grades (generally considered maintaining a B average or better) and/or has successfully completed a comprehensive driver’s ed course, ask your agent or broker to look for policies that will reward that with a discounted rate.
What is the best auto insurance policy for me?
There is no one “best” car insurance policy. To find the best policy for you, you first need to determine what types of coverage you need (and what you don’t need) and then find the policy that most closely matches that list. Factors you should consider include:
- What kind of car you have (make & model, age, condition) and whether you own it outright or are leasing or financing
- What kind of driving you do – number of miles driven, whether it tends to be in high-traffic areas, if it’s for business purposes or if you often have passengers
- What, if any, security and safety features you use to protect the car (alarm system, garage parking, etc.) or its occupants (air bags, anti-lock brakes, rear-view camera, etc.)
- If you’re willing to take a higher deductible and pay for some damages out of pocket.
What does auto insurance cost?
Car insurance costs vary depending on several factors including where you live, your age and whether you are married, your driving habits and history, the amount and type of coverage you select, the type/age/condition of car you drive, and of course, which insurance carrier you choose.
Depending on those factors, you can generally assume collision coverage will cost you between $200-$500 per year and comprehensive is between $100-200 per year. Personal liability/medical payments coverage averages about $500 per year.
If you purchase other types of coverage, such as umbrella or gap insurance, that will also increase the cost of your policy – how much it increases your premiums will vary from nominal amounts to several hundred dollars each year, depending on your specific selections.
How can I get cheap auto insurance?
To some degree, the cost of your auto insurance will be determined by how much and the kinds of coverage you select. But there are things you can do to lower the cost of your insurance.
Most carriers will offer multi-policy (or multiline) discounts if you have more than one policy with them. So, for example, if you have a house or renters insurance policy with the same company that provides your car or auto insurance, you can get as much as a 10% discount on both policies by bundling them with the same carrier.
Most insurers also offer lower cost insurance if you take certain safety precautions such as security systems or if you park in a garage instead of on the street. If you have a very clean driving record (no accidents or tickets) that can also earn you a lower insurance cost – or sometimes a rebate if you continue to maintain that safety record. You can lower your insurance costs by asking your agent or broker about any discounts of this nature and telling them about any you appear to qualify for.
You may also be able to get additional discounts by paying your yearly premium up front instead of in monthly installments or by using electronic transfers to pay instead of a check or credit card. Some insurance carriers do a better job of promoting these features than others, so be sure to ask about them when comparing quotes.
Another way you can lower the cost of your car insurance is by selecting a higher deductible. The deductible is the amount you have to pay yourself before your insurance coverage kicks in. For example, if your policy has a $1,000 deductible and your car’s damages will cost $5,000 to repair, your insurer would pay out $4,000. If you selected a policy with a $5,000 deductible, you would get nothing.
A high deductible provides a little less coverage, but it lowers your overall insurance premium. Low- and high-deductibles have their purpose – which one will work for you depends on your circumstances and your comfort with risk. In general, high-deductible policies work well for people who have enough savings to cover an unexpected expense from a loss and are comfortable taking on slightly more risk. Low-deductible policies are a good choice for people with little savings who would have trouble covering a large, up-front expense. If you fall somewhere in between or aren’t sure what to do, the mid-level deductible generally works for most people.
Some insurers will offer total replacement cost coverage for your car. (See section on gap insurance above.) Actual cash value coverage costs less in premiums, but they also provide lower payouts in the event your car is stolen or totaled. A policy that offers replacement cost will reimburse you for the cost to purchase a new car of similar make to the one you lost – but that added protection will also increase your policy’s cost.
How do I compare auto insurance quotes?
Once you know what kind (basic liability, collision, etc.) and how much ($20k, $50k or $2 million) car insurance you need, you can start the process of getting car insurance quotes.
It’s a good idea to get quotes from several carriers. While insurance carriers use roughly the same data for underwriting, they all use slightly different criteria for how they assess any specific person’s risk. The lower your perceived risk of making a claim, the lower your car or auto insurance premiums will be. The same person, providing the same information to several carriers, may get very different car insurance quotes from different carriers, so it makes sense to shop around. To make sure you are paying the lowest possible rate, you’ll want to make sure you are comparing similar types of quotes. If one carrier’s quote seems particularly high or low – or if you have several quotes that span a large range – first make sure that they all offer similar types of coverage and similar limits on those coverages.
You should also always double check to ensure the carrier’s quotes included any discounts that may apply to you. Some car insurance carriers offer multi-policy discounts or discounts for a variety of factors including military service, being a senior citizen, having not made an insurance claim for a defined period of time, and more. Each carrier can provide more detail on which options they offer and whether you qualify for them. Keep this in mind when comparing car insurance quotes.
Major auto insurance carriers
Auto insurance policies are available from virtually every insurer, but these five carriers are among the best known and were the highest rated by J.D. Power for their auto insurance offerings.
- Erie – snagged top ratings for overall purchase experience and pricing, along with good ratings in many other categories such as policy offerings and accessibility of a local agent
- Liberty Mutual –scored highest marks for overall experience and policy offerings, with good ratings for prices, but the web site isn’t quite as useful according to customers
- USAA – earned the highest marks for policy offerings, pricing and its website
- The Hartford – although it only earned fair ratings for its local agents and call center reps, this carrier was given top marks for policy offerings, its website and pricing
- American Family – a smaller insurer than some of the others, this company earned good ratings from customers for its overall purchase experience, policy offerings and pricing
Actual cash value – a policy that covers only the value of a damaged or destroyed item at the time of the event
Adjuster – a professional who examines the damage to the apartment, rental home or personal property to establish the financial loss from a covered event
Auto insurance – a general term for an insurance policy that covers various costs related to the insured person’s car, which may include liability, collision, medical payments, or comprehensive coverage among other types of protection
Auto liability coverage – insurance for costs incurred by a third party that were caused by the insured driver’s own actions or negligence
Carrier – the company underwriting your insurance policy
Classic or collectible car insurance – a policy designed to provide protection specifically for rare and/or high-value cars such as vintage or collectors’ vehicles
Collision coverage – a policy that protects you if your car collides with another object
Commercial auto insurance – a policy that covers an automobile that is used for commercial or business use
Coverage caps – a limit on the amount of insurance benefit provided for certain items or expenses
Covered event – incidents including theft, fire, and water damage that are included in the coverage of a specific insurance policy
Deductible – the amount of a covered claim that must be paid by the insured person
Exclusions – items or types of damage not covered by an insurance policy
Gap insurance – coverage purchased at additional cost that protects the insured in case a leased or financed car is declared a total loss
Insurance agent or broker – the individual or agency from whom you buy your policy. They may be independent and sell policies from many different companies, or they may work solely with one insurer.
Non-owner policies – an insurance policy that provides coverage for a person who drives regularly but does not own their own vehicle
Personal injury protection policy – also sometimes called “medical payments” this type of policy provides coverage for medical and related expenses the insured person incurs as a result of a car accident which is determined to be his or her fault
Replacement cost – a policy that covers that cost of replacing a damaged or destroyed item with a similar new item
Riders – additional coverage for specific benefits over and above what the standard policy offers, purchased at additional cost
Umbrella coverage – additional coverage that provides excess liability coverage, purchased at an extra cost