In our ultimate guide to car insurance, we’ll explain everything you need to know about buying car insurance.
What Is Car Insurance?
Car insurance is an umbrella term that includes several different types of auto-related insurance policies. When you buy car insurance, you’re usually buying multiple policies bundled together.
These might include liability policies that cover the cost of any damage you cause if you’re responsible for an accident. They also include policies that cover harm to you or damage to your vehicle if someone else is responsible for an accident but doesn’t have the ability to pay.
What many people think of when they think of car insurance—a policy that pays for damage to your car after an accident—is known as collision insurance. This is often an add-on policy that costs extra rather than the main coverage provided by car insurance.
Do I Need Car Insurance?
To comply with local laws, yes. Every state requires a minimum level of insurance coverage for every driver. The requirements vary by state, but they can be broken down into four categories.
- Property damage liability insurance is required in every state except New Hampshire. This type of policy pays for any property damage that you cause with your vehicle. The amount of coverage required varies by state from $5,000 to $25,000 per accident.
- Bodily injury liability insurance is required in every state except New Hampshire and Florida. This type of insurance pays for medical expenses for injuries that your passengers and people in another vehicle suffer during an accident. Minimum coverage amounts vary by state but are typically $25,000 per person and $50,000 per accident.
- Uninsured and underinsured motorist insurance pays for medical bills for you and your passengers and for damage to your vehicle if another driver is responsible for an accident, but doesn’t have insurance or has insufficient insurance to cover the costs. It’s required in 22 states with a variety of minimum coverage amounts.
- Personal injury protection insurance pays for your medical expenses in the event of an accident for which you’re liable. It’s only required in eight states, and the minimum coverage varies from $5,000 to $25,000 per accident.
Optional Car Insurance
Other types of car insurance coverage are optional. Some popular coverage types include the following.
- Comprehensive insurance covers damage caused by theft, vandalism, fire, and hail. It usually has a deductible, which you have to pay before the insurance policy kicks in.
- Collision insurance covers damage to your vehicle that results from an accident. Remember that property damage liability insurance only covers damage to other peoples’ vehicles, not your own. Collision insurance usually has a deductible.
Whether you need optional comprehensive or collision insurance depends on your financial situation and the value of your vehicle. If you have a new vehicle that’s worth a lot of money, these coverage options might make a lot of sense. If you have an older vehicle with mechanical issues, it might not be financially worthwhile to pay for collision insurance.
If you lease your vehicle or purchased your vehicle with an auto loan, your lien holder may require you to purchase some level of comprehensive or collision coverage.
How Much Does Car Insurance Cost?
In 2023, the average cost of the minimum required car insurance policy is $693 per year. Full coverage, including comprehensive and collision insurance, costs an average of $1,630 per year.
The amount you’ll pay for car insurance depends on the types of coverage you want, the maximum coverage for your policy, and your deductible if you add comprehensive or collision insurance. In general, car insurance with higher coverage limits or lower deductibles will cost more.
However, car insurance providers can charge very different premiums, even for individuals seeking the same level of coverage. Other than the coverage you choose, there are a few key factors that will impact your car insurance rates.
- Age: Drivers under 25 and over 65 typically pay more than drivers in their 30s, 40s, and 50s.
- Gender: On average, male drivers have higher rates of accidents than female drivers and pay higher auto insurance rates.
- Driving history: Drivers who have a history of accidents or moving violations often pay higher rates for car insurance.
- Credit score: Drivers who have poor credit may be quoted higher rates. However, in several states, including Massachusetts, California, Hawaii, and Michigan, auto insurance providers are not allowed to take your credit into account for policy pricing.
- Your car: Even for the same level of coverage, you’re likely to pay higher insurance rates for a more expensive vehicle. Damage to a brand-new sports car is likely to be a lot more expensive to repair than damage to a 20-year-old commuter car, which means your insurance could end up paying out more in the event of an accident.
- Where you live: Drivers in some states tend to pay higher car insurance rates than others. That can be because a state has a higher frequency of accidents or because the cost for car insurance companies to do business in that state is higher.
- Annual mileage: The more miles you drive each year, the higher your car insurance rates are likely to be. Low-mileage drivers may be eligible for pay-as-you-go car insurance policies, which charge a flat monthly fee plus a per-mile rate.
There’s not much you can do to change your age, gender, or where you live. Improving your credit score is possible, but it takes time. Driving safely or reducing the amount you drive are among the best ways to reduce your car insurance premiums.
Many auto insurance companies offer discounts for customers who meet certain criteria. You may be able to get a discount for being a good student, for never having been in an accident, for being a military veteran, or even for being a AAA member. The variety of discounts is enormous, so be sure to check which ones you qualify for when shopping for insurance.
Should I Bundle My Car Insurance with Other Insurance?
Many auto insurance providers also offer other types of insurance, such as homeowners insurance, renters insurance, and boat or motorcycle insurance. Buying multiple insurance policies from the same provider, known as bundling, has several benefits.
Most significantly, bundling can save you a lot of money on your car insurance. Most car insurance providers offer a multi-policy discount, and you could get as much as 25% off each of the policies you purchase. The best discounts are usually reserved for auto and home insurance bundles.
Bundling also has some convenience benefits. If you get all your insurance from one company, you have a single point of contact for all your insurance questions. You can also pay for all of your policies at the same time and skip the lengthy process of creating accounts with multiple insurance companies.
How to Buy Car Insurance
You can buy car insurance online, over the phone, or in person. There are options to suit every type of shopper.
Most car insurance companies have online quote tools that allow you to quickly customize your coverage and see how much your premiums will be. Alternatively, comparison sites allow you to view quotes from multiple auto insurance companies at once and compare rates.
If you want more assistance, you can use an insurance agent or broker. Most car insurance companies and insurance comparison sites also offer phone support to help you choose a policy.
One of the best tricks to get the most affordable car insurance rates is to shop around. You might be surprised at how different the rates can be between providers, even for nearly identical insurance policies. Shopping around has the potential to save you hundreds of dollars per year.
Once you buy insurance, be sure to compare rates from other providers at least once per year. The vast majority of drivers save money when switching insurance, even if their insurance coverage doesn’t change.
Keep in mind that there’s more than just price and coverage to consider when choosing a car insurance policy. Look for providers that pay out the majority of claims their customers make and providers that make it easy to file claims. It’s also a good idea to check customer reviews and a provider’s financial stability score from ratings agencies like AM Best.
Car insurance can pay for damage to your vehicle or another person’s property as well as help pay medical expenses for you, your passengers, or other drivers. Some form of car insurance is required for drivers in every state except New Hampshire, although the exact coverage requirements vary from state to state.
When choosing car insurance, be sure to shop around to get the best rates. You may also be able to get more affordable car insurance with auto and home insurance bundles. Car insurance prices in the US were on the rise in 2022, and, with inflation, the trend is likely to continue in 2023, so it’s important to stay on top of all your options and find the best deal possible.