Car Insurance Buyers Guide

Buying a car is exciting. More so if it’s your first or the car you’ve been dreaming of for a long time. However, before you head off for that road trip to serenade your new prized possession, there’s one key thing you ought to do, buy car insurance.

Whereas it’s not the most exciting part of car ownership, it’s essential and mandatory. This is because you may be involved in a motor vehicle accident resulting in injuries to you or other parties or damage to property. When such events occur, they’re followed by medical expenses, repair costs, and lost earning potential.

With the right insurance policy, you can safeguard yourself from such risks. But there are a lot of things that come into play when buying car insurance. These range from the best policy for you to the insurance company to go for, making the process seem a bit daunting.

In this guide, you’ll learn about everything you need to know when buying car insurance.

What Is It?

By definition, car insurance is a contract between an insurance company and a car owner. The basis of the agreement is that the insurance company (insurer) protects the car owner (insured) against financial losses that may come after an accident or other types of damage. In exchange, the policy taker pays premiums during the duration of the insurance coverage.

Your car insurance policy will cover you and your family, anyone you authorize to drive your car, and passengers.

Auto insurance offers protection against:

• Damage to your vehicle and that of other drivers
• Your liability for injuries to other people and property damage
• Medical costs for treating injuries, rehabilitation

Depending on the type of cover you take, it may also offer protection against lost wages and funeral expenses.

Who Is It For?

Obtaining car insurance is a mandatory and essential part of car ownership. In each state, car owners are required to have car insurance that meets minimum state requirements. Such minimum requirements vary from one state to the next. Should you desire additional protection, car insurance companies offer a wide range of packages.

Who Is it Not For?

All road users, regardless of whether they are car owners or drivers, face similar risks. However, if you are not a car owner, you are not required to obtain auto insurance. This is because the car owner’s policy also covers passengers and other road users who may be affected by an accident.

However, it’s important to note that insurance companies may deny car owners an auto insurance policy under unique circumstances. These include:

• Having too many at-fault violations
• Having too many moving violations
• Being too young or too old (only applicable in states where age-based insurance decisions are permitted)
• You have a very fast or expensive car
• If you have a poor CBI (Cambridge Behavioral Inventory) score
• If you live outside the insurer’s coverage area

What Does It Cost?

One of the key concerns you may have when searching for a car insurance company is the cost of a policy. In this regard, it’s important to understand that there is no standard charge for policies. It varies from one state and provider to another, the level of coverage you want, and how much of a risk the company deems you.

Some of the factors that influence car insurance costs include:

• Driving record- The first thing that your insurance provider will consider is how much of a risk you are as the car owner. They’ll take a look at your driving record for things such as speeding tickets, reckless driving, and DUIs. Such incidences can cause your premium to go up for 3-7 years, depending on your state.

• Driving experience- Despite the previous point, don’t get too excited if you are a new driver. Your premiums will be higher since you are at a higher risk of an accident as a new driver.

• Credit score- Whereas it may not seem like a factor, a higher credit score often translates to lower premiums and vice versa. However, states such as California have banned using a driver’s credit score to determine premiums.

• Age- In line with experience, younger drivers also pay higher premiums. Moreover, young male drivers pay higher premiums than their female counterparts.

• Location- Even if factors such as age, driving record, and experience are in your favor, you will pay a higher premium if you live in a location where claims are common. For instance, insurance premiums in the US can be as low as $ 408 in states such as Iowa and exceed $ 5,000 in Michigan.

• Mileage- The more you drive, the higher the odds of being involved in an accident. As such, your annual mileage greatly influences your insurance costs.

• Claims history- If you have a history of filing insurance claims, more so in the past few years, your premiums can go up.

• Type of vehicle- Compared to more common vehicle models, you’ll pay a higher premium for sports and luxury vehicles.

• Previous auto insurance cover- If you’ve had gaps in coverage over the years, insurance companies will charge you a higher premium.
• Geography- Since the landscape has a significant bearing on the likelihood of accidents occurring, geography will influence the cost of your cover.

How Does It Work?

Although car owners must have insurance, you must understand how it works to get adequate protection.

First and foremost, regardless of how careful you are, there is always a risk of being involved in an accident while on the road. This may be due to factors such as bad weather, reckless drivers, car trouble, bad roads, or an animal or passerby suddenly crossing the road.

Depending on the nature of the accident, your car may be damaged, and you or other people may sustain injuries. If you are at fault for the accident, such liabilities will fall squarely on your lap.

This is where insurance companies come in. They use a ‘pooling of risks’ approach to offer car owners protection from such risks. Despite making monthly contributions for their premium, not all insured parties will be involved in an accident. So, the insurance company can use the pooled funds to assist those in an accident in catering to their liabilities.

In essence, it reduces your risk at the cost of the premium. Also, from such contributions, the insurance company makes money to meet its running expenses and pay shareholders.

What You Should Know?

As you prepare to purchase car insurance, there are some things that you should know. These will help you make the right choice and get the most out of your coverage.

1. Understand the Various Types of Car Insurance

Depending on your state, car insurance requirements may vary. However, even before you go to the particulars for your state, you must know the different types of car insurance covers.

Necessary Coverage

In this section, you’ll find the liability covers that are required in almost every state:

• Body injury liability insurance- This coverage ensures that the injuries or death resulting from an accident you cause are catered for.
• Property damage liability insurance- With this coverage, the vehicle, building, and property damage costs will be covered.

Commonly Required Coverage

Although not mandatory in some states, this section features insurance coverages that are necessary for many states:

• Uninsured motorist coverage- This policy covers damages when the motorist who causes an accident is uninsured or for hit-and-run cases.

• Underinsured motorist coverage- This coverage comes into play when the motorist who causes an accident does not have sufficient coverage to cater to the damages.
• Medial payments (Medpay)/ personal injury protection (PIP)- With this cover, you and your passengers will be reimbursed for any medical expenses. It also covers costs such as lost wages.

Optional Add-On Coverage

Due to the nature and risks involved with car ownership, you may want protection beyond the state minimum requirements. Some of the options you can consider include:

• Comprehensive coverage- Beyond collisions with other vehicles, your car is also susceptible to other forms of damage. Such risks include fire, hail, falling trees, vandalism, flood, etc. If you purchase a car using a loan, the lender may insist you have this cover.
• Collision coverage- Should you collide with an object other than a vehicle while driving, this cover will take care of the costs. If you purchase a car using a loan, the lender may insist you have this cover.
• Rental car reimbursement- Should you be involved in an accident, this coverage will cover the costs of renting a vehicle during the period your car is in the repair shop.
• Roadside assistance- Covers costs such as towing, flat tire changes, gas delivery, jump-starts, and lockout services.
• Accident forgiveness insurance- If you are at fault during an accident, this cover protects you from an increase in your insurance premium.

2. A Personal Auto Insurance Does Not Cover Using Your Vehicle for Business

When taking out a policy, it’s essential to indicate whether you’ll be using the vehicle for personal use or business. A cover for business use will cost more as there are more risks as the vehicle will be on the road longer.

Therefore, if you plan to offer delivery or ride-share services or even do a side gig with your car, inform your insurance agent. Should they find out you are doing such work under personal auto insurance, they’ll cancel your policy.

3. Expensive Vehicles Do Not Necessarily Cost More

The type and price of the vehicle have a significant bearing on the cost of premiums. However, it does not automatically mean that the premiums for a vehicle will be lower because it’s cheaper. Other factors can come into play, increasing your monthly premium. As such, it’s important to consider the car model when shopping for a vehicle.

For instance, if a particular low-priced car has high claim rates for thefts or accidents, insuring it may cost more than an expensive SUV with lower claim rates.

How to Choose the Best Options?

Ideally, when purchasing car insurance, you’ll have two primary options; third party and comprehensive coverage. As the name suggests, a third-party cover will cater to costs associated with damage to other vehicles and property. In addition to the benefits of a third-party cover, a comprehensive plan will also protect your vehicle.

Before you even begin searching for an auto insurance provider, you should determine your insurance needs. This will ensure you do not pay more than you should and that you are also not underinsured. For this, you should:

• Compare the vehicle’s value with the insurance premium and excess. This will help you determine the premium you should pay to get the perfect blend of value and cover.
• Whether you can afford to repair your vehicle when it’s damaged

With all these in mind, you can choose your coverage based on:

• Lowest price- If you want to pay low premiums, third-party insurance is the best option. However, this is only ideal if you can afford the cost of damage to your vehicle or if paying for a comprehensive cover does not offer as much value as protection.

• Most Popular- Whereas covering the costs of repairs may seem manageable, replacing a stolen car may be too costly. With this in mind, you can choose a third-party plan that includes fire and theft cover.
• Most comprehensive- If you desire to have the highest level of protection, a comprehensive cover is suitable. It’s especially good if the value of the vehicle justifies the cost of the premiums.

How to Get the Best Deal?

Regardless of the type of cover you choose, you want to get as much value as possible from the premiums you pay. For this, there are some things you should know.

Where to Look?

Whereas you can visit several insurance companies to get quotes, it’s not the most effective method. Begin your search online, where you can find multiple options to choose from. Better yet, use an independent insurance agency to get access to several companies and discounts.

What to Look For?

Once you receive the quotes, don’t just jump to the cheapest offer, consider elements such as:

• Company ratings and reviews
• Features of the policy
• Available discounts
• Coverage terms
• Claims process

What You Should Not Do?

If you make a mistake during the insurance application process, it may affect your coverage or result in your policy being canceled. According to MarketWatch, some of the mistakes you should avoid include:

• Not knowing your insurance needs
• Failing to compare offers from different companies
• Lying in your application
• Failing to seek clarification where necessary

What You Should Do?

To ensure you get the best value for money, ensure that you know the different types of plans you can get and your needs. This should be followed up by doing extensive research on the insurance providers available to you. During the process, ensure that the details you provide are accurate.

Steps

Some of the steps you should follow when buying car insurance include:

• Learn about the different types of auto insurance policies
• Know the level of coverage you need
• Do research on the options available
• Choose a provider and buy the cover you need

Frequently Asked Questions

As you prepare to purchase car insurance, you may not be clear with some things. To help, here are some frequently asked questions.

1. How much will I pay for car insurance?

There are a lot of factors that come into play when calculating car insurance premiums. They range from your age, driving record and experience, location, etc. As such, there is no standard charge, and it varies from one applicant to the next. The only way to find out is to fill out application forms and receive quotes.

2. What are add-on insurance covers?

In each state, there are minimum car insurance requirements. These protect you, your passengers, and other parties from the most common accident outcomes. Should you desire additional protection, you can apply for add-on covers. These cover things such as collisions with objects, extreme weather conditions, and vandalism.

3. Can I combine insurance covers?

If you want to take a cover for an additional car, or you have other forms of coverage such as renters cover, you bundle them together to receive discounts on your premiums.

Key Takeaways

When buying a car, insurance is arguably the most important step. Getting it wrong will put your investment at risk and leave you exposed to liabilities. As such, you have to take the necessary steps to ensure that you are adequately protected.

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Frequently Asked Questions

What does car insurance cover?

Car insurance covers six main areas: (1) liability for bodily injury and property damage you cause to others, (2) collision damage to your own vehicle in an accident, (3) comprehensive damage (theft, vandalism, weather, animal strikes), (4) personal injury protection or medical payments for your medical bills, (5) uninsured/underinsured motorist coverage if you are hit by a driver without enough insurance, and (6) optional add-ons like rental reimbursement, roadside assistance, and gap insurance.

How much car insurance do I need?

At minimum, you need the liability limits required by your state (which average 25/50/25, meaning $25,000 per person bodily injury, $50,000 per accident bodily injury, and $25,000 property damage). For most drivers we recommend 100/300/100 limits as the floor, with full coverage (collision + comprehensive) if your vehicle is worth more than $4,000. According to the Insurance Information Institute, state minimums are typically inadequate for a serious accident.

How much does car insurance cost?

The average U.S. driver pays $1,895 per year for full coverage and $635 per year for state-minimum coverage as of 2024, per the NAIC. Premiums vary dramatically by state (highest: Louisiana, Florida, Michigan; lowest: Vermont, Maine, Idaho), age (drivers under 25 pay 50 to 200 percent more), driving record (one at-fault accident raises rates 40 to 60 percent), and credit score (poor credit can double premiums in states that allow credit-based rating).

What is liability insurance for cars?

Liability insurance pays for injuries and property damage you cause to others in an accident. It does NOT pay for your own injuries or your own vehicle damage. Liability has two components: bodily injury (BI) and property damage (PD). Limits are written as three numbers: e.g., 100/300/100 means $100K per-person BI, $300K per-accident BI, $100K property damage. Liability is required in 49 of 50 states.

Is full coverage car insurance worth it?

Full coverage (liability + collision + comprehensive) is generally worth it if your vehicle is worth more than 10 times your annual premium for the coverage. For a $20,000 vehicle, if collision + comprehensive cost $1,200 per year, that is typically a good investment for the first 7 to 10 years of vehicle life. For vehicles worth less than $4,000, dropping to liability-only is usually the right call because the maximum payout is too small to justify the extra premium.

What is comprehensive car insurance?

Comprehensive insurance covers damage to your vehicle from causes OTHER than collision: theft, vandalism, fire, hail, falling objects, animal strikes (deer, raccoons), flooding, windshield damage, and natural disasters. Comprehensive is typically required if you have a vehicle loan or lease. Premiums for comprehensive average $185 per year as of 2024, far cheaper than collision because the average claim is smaller.

How can I lower my car insurance?

The most effective ways to lower car insurance: (1) shop around every 12 months (rates vary 30 to 50 percent across carriers for the same coverage), (2) raise your collision/comprehensive deductible from $500 to $1,000 (saves 10 to 15 percent), (3) bundle with home or renters insurance (saves 5 to 20 percent), (4) take a defensive driving course, (5) ask about good-student, low-mileage, and telematics-based discounts, (6) maintain good credit in states that allow credit-based rating, (7) drop collision/comprehensive on older vehicles worth under $4,000.

Does car insurance follow the car or the driver?

Generally car insurance follows the CAR, not the driver. If you let a friend borrow your car and they cause an accident, your policy is the primary coverage. The friend's own insurance is secondary. However, certain exclusions apply: if the driver is excluded on your policy, lives in your household but is not listed, or is uninsured, coverage can be denied. Check with your carrier before lending your vehicle, especially for extended periods.

What is uninsured motorist coverage?

Uninsured motorist (UM) coverage pays for your injuries and damages if you are hit by a driver who has no insurance. Underinsured motorist (UIM) pays the difference if you are hit by a driver whose coverage limits are too low. Both are critical because about 1 in 8 U.S. drivers is uninsured, per the Insurance Research Council. UM/UIM are required in 22 states and strongly recommended in the other 28.

How long does an accident affect my car insurance?

A single at-fault accident typically stays on your insurance record for 3 to 5 years (state-dependent), during which premiums are 40 to 60 percent higher than your baseline. A DUI conviction stays on your insurance record for 5 to 10 years and can triple premiums. Tickets typically stay on for 3 years. After the surcharge period ends, premiums return to baseline if your record is otherwise clean.

Do I need car insurance for a leased or financed vehicle?

Yes. Lenders and lessors require full coverage (liability + collision + comprehensive) at specific minimum limits, typically 100/300/100 liability plus a maximum collision deductible (often $500 or $1,000). Gap insurance is also strongly recommended on leased vehicles because it covers the difference between the vehicle's actual cash value and the lease payoff if the vehicle is totaled.

What is the best car insurance company?

The best car insurance carrier depends on driver profile. For competitive rates and strong claims service: GEICO, Progressive, and USAA (military-affiliated). For full-service customer satisfaction: State Farm, Erie, and Auto-Owners (regional). For high-risk drivers or DUI history: Progressive, The General, and Direct Auto. For drivers seeking digital experience: Lemonade and Root. Always compare 3 to 5 quotes when shopping; rates vary widely across carriers for the same risk profile.