Who needs car insurance?

You are correct. No, I mean it. With the exception of two states, all drivers are required to have auto insurance. (Virginia allows drivers to pay an uninsured motorist fee, and New Hampshire allows drivers to demonstrate that they can afford the costs of an accident if they want to avoid purchasing insurance, which is typically done by posting cash or a bond.)

How does car insurance work?

If you keep your car insurance current by making timely payments, you will have continuous protection against both the consequences of various perils to you and your liabilities while driving. Here's everything you need to know about insurance coverage and how to collect on it.

Fault varies by state

The norm is that blame is assigned for accidents and other automotive mishaps, with who pays the resulting costs based on who is found to be at fault. However, no-fault insurance is available in about a dozen states. This alternative system alters many aspects of car insurance, including deductibles. In no-fault states, no blame is assigned for accidents, and each driver involved in an accident is responsible for their own liabilities and other accident costs.

Making a car-insurance claim

If you are involved in an accident or your vehicle is damaged in any way that your insurance covers, notify your insurance company as soon as possible. This starts the process of filing your claim, which you can frequently do now from your mobile phone. The insurance company then gathers (or has you gather) other data as needed, such as repair cost estimates, through one of its insurance adjusters.

The insurance company then negotiates with the other driver's insurance company to determine who is to blame for the accident (assuming it happened in a state that assigns fault).

Regardless of how that responsibility is divided, your insurance company handles your claim and its reimbursement, and negotiates with the other driver's insurer as needed to recover some or all of your payout.

Understanding deductibles

Expenses such as medical bills or damage to others' property that are covered by the policy's liability coverage are usually fully reimbursed. However, you may be required to pay a deductible before you are financially compensated for the cost of damage you cause to your own vehicle. If you have collision and comprehensive (C&C) coverage on your policy, that expense is covered.

You must have enough money to pay your C&C deductible in advance. However, in most states, if you are found not to be at fault for the accident, your insurer will reimburse your deductible later and then reclaim the sum from the insurance of the other (at-fault) driver.

Because no formal fault is assigned in a no-fault state, you must pay your own deductible in the event of a claim, and there is no possibility of the other driver in an accident being held responsible for paying it.

Choose your car insurance coverage

Car insurance includes several types of coverage, some of which are optional and some of which you can tailor to your specific needs. You must also decide on the deductible amount that best fits your budget.

Here are some guidelines to help you decide how much insurance to purchase.

Understand the bare minimum of liability that you must carry.

Your state's regulators specify the types and amounts of liability coverage you must carry by law. These requirements for your state will be known to insurers.

Liability coverage, which includes bodily injury liability per person and per accident, is required in nearly all states. Property damage liability per accident is also included in liability coverage. (Bodily injury coverage is not required in no-fault states, but you must carry personal injury protection to pay for your own injuries.) A third requirement is usually for property damage liability coverage.

Liability insurance is typically summarized in three figures; for example, 25/50/25 would denote coverage of $25,000 per person injured, up to a maximum of $50,000 per accident, plus $25,000 in property damage coverage.

If you can afford it, buy more than the liability minimums.

State-mandated liability coverage limits for bodily injury per person can be as low as $15,000. If someone is injured in an accident, medical payments can be far more expensive than this, and the injured party may sue you to make up the difference if your liability coverage is insufficient.

The same is true for insurance requirements for property damage. In California, for example, the bare minimum is $5,000. If you get into a fender bender, this minimum may suffice, but if you total someone's luxury car, destroy property such as a phone pole or fire hydrant, or cause serious damage to a building, you could be looking at some astronomical bills.

The bottom line is that, while adhering to your state's bare minimum of insurance coverage may appear to be a wise way to save money, it can backfire by leaving you personally liable for some of the cost of injuries and property damage if you cause an accident.

Experts typically recommend 100/300/100 coverage. That is, $100,000 in bodily injury liability per person and $300,000 in accident liability, as well as $100,000 in property damage liability per accident.

Weigh your need for supplementary medical coverage

Personal injury protection (PIP) coverage, which is required in no-fault states (sometimes simply referred to as “no-fault insurance”), is usually available as a policy add-on in other states. It pays for medical expenses for you and your passengers, as well as lost wages and other expenses related to your injuries, such as hiring someone to do household chores while you recover.

In at-fault states, you may have the option to purchase medical payments coverage (or MedPay), which covers medical expenses but not ancillary expenses such as wage loss.

You probably don't need MedPay if you and your passengers have adequate health insurance. Even those who are well-insured may want to consider getting optional PIP coverage because it will cover loss of income due to an accident, up to a certain monetary limit.

Consider purchasing uninsured/underinsured motorist coverage.

This protects you if you are involved in an accident with someone who does not have — or does not have enough — insurance coverage. This coverage is required in the majority of states. Even if it isn't required, as in Florida, you should think about adding this coverage.

This is especially true if the percentage of drivers on the road in your area is significantly higher than the national average of about 12%, as is the case in Florida, where the proportion of uninsured drivers is typically about double the national figure.

Get collision/comprehensive coverage, unless your car is old

Collision and comprehensive coverage are frequently combined in insurance policy descriptions, but they are not the same: Collision coverage pays for damage to your car if it collides with or is collided with another vehicle or some other obstacle while you're driving. Comprehensive insurance covers everything that can go wrong with your car while you're not driving it: theft, vandalism, fire or storm damage, and so on.

If your vehicle is more than ten years old, you may no longer require collision coverage. The average insurance claim payout for collision damages is more than $4,000, according to the most recent data available from the National Association of Insurance Commissioners. Look up the value of your car on an independent site like Edmunds.com or KBB.com — if it's close to the average, you're probably better off dropping that coverage and just saving a little more to cover any damage you might incur in an accident.

Other options for coverage include reimbursement for costs such as roadside assistance or windshield replacement.

Buying a new car? Consider gap coverage

Vehicle depreciation means that the value of your new car drops the moment you drive it off the lot, so if you hit a phone pole a week after signing the contract and total your car, the amount your insurance company will reimburse you could be less than the amount you agreed to pay your lender.

The difference is covered by gap coverage. This is not for everyone, but it can protect you if you borrow money to buy or lease a new car, especially if you put little or no money down on a luxury vehicle or one with a lot of options.

This car insurance coverage is also recommended for people who choose a long financing term (more than five years is the general rule, but you should do the calculations for your specific circumstances if you're putting little or no money down).

Choose a deductible.

Lower deductibles, on average, raise the policy's premium. Some insurers provide “no deductible” features or policies with similar language, but the price is usually much higher premiums. You'd be better off getting a policy with a deductible and putting money away in case you ever need to pay it.

Deductibles typically range between a few hundred and a few thousand dollars. For example, if you have a $500 deductible and your vehicle is damaged in an accident that costs $2,000, your insurance company will pay $1,500 toward the repairs.

Gathering car insurance quotes and getting the best price

There are a number of reasons why the best car insurance for you isn't always the cheapest option, such as the risk of being underinsured. However, there are some tried-and-true methods for lowering your car insurance premium.

Shop around, including online

If you're looking for car insurance online, most carriers have tools that allow you to adjust your coverage levels if you're looking for a way to reduce your car insurance premium. You'll need a few pieces of information to get car insurance, including your driver's license number and the vehicle identification number.

You can purchase car insurance in person or online, and you can do so directly from the insurance company, through an independent agent, or through an online platform that sells policies from multiple insurance companies — including InsuredCircle's own comparison tool.

If this is your first time purchasing car insurance, third-party sites or apps can be helpful. However, be aware that if you use one of these platforms to get auto insurance quotes, those prices may be generated based on assumptions about your driving record and coverage preferences that may not reflect your actual needs.

Look for bundle discounts.

Experts advise contacting your insurance agent to see if you can get a better deal and comparing quotes from other insurance carriers every few years or when you have a significant life change. You can also often save money on car insurance if you combine multiple vehicles into a single policy or get your homeowners and auto insurance from the same company.

Consider trying usage-based insurance

This emerging insurance option necessitates agreeing to have your driving ability or distance monitored by an app or on-board device, and having that data affect your premium. The programs are provided by both “insurtech” startups and large insurance companies, as well as a few automobile manufacturers. Pay-as-you-drive programs monitor your mileage and pay-as-you-drive behaviors such as speeding, swerving, or slamming on the brakes, and reward safe drivers with lower rates.

Take a driving course

If you have a history of traffic violations, such as multiple speeding tickets or a D.U.I., taking a defensive driving course may help you lower your car insurance rates. While an in-person class may be required to qualify for an insurance discount, online courses may also be eligible.

When should I start thinking about auto insurance?

Begin looking into car insurance as soon as you decide to buy a car. Car insurance is a significant expense that should be factored into your overall vehicle budget. Indeed, the premiums you will pay will vary greatly depending not only on the cost of the car you are purchasing, but also on other factors about it, such as the frequency of claims and repair costs compared to other vehicles.

If you buy a car from a dealership, you must provide proof of insurance before you can drive it away. This is true whether you are purchasing a new or used car.

If you are getting a car loan or leasing your vehicle, the lease or loan contract with the seller may require you to have collision and comprehensive insurance, as well as possibly gap insurance.

If you haven't looked into car insurance pricing in a few years, it's a good idea to do so, especially if you've recently gone through a major life change, such as getting married or moving to a new location, both of which can affect your premiums. If you have acquired a second vehicle, you should also compare the offerings of various car insurance companies.

What is the cost of car insurance?

The average cost of car insurance in the United States is $1,732 per year, or about $144 per month. Of course, if you have collision and comprehensive coverage, or if you have chosen higher liability coverage limits, your cost will be higher. Indeed, a variety of factors influence how much you will pay, ranging from your driving record to the car you drive to where you live. (See the section below titled "What Factors Influence Car Insurance Premiums?" for more information.)

What determines car insurance premiums?

Aside from the deductible and coverage levels you select, there are numerous other factors that influence the cost of auto insurance.

The vehicle itself

A newer vehicle, in general, means a higher insurance premium. Airbags, collision-alert sensors, and automatic braking are just a few of the features in new cars that are designed to keep you safe. These features can help you avoid accidents and keep you from being seriously injured if you are in one, but they also make vehicles much more expensive to repair.

In addition, some car categories are more expensive to insure than others. Last year, the average cost to insure a personal vehicle ranged from $1,087 for a small SUV to $1,342 for a small sedan (the cheapest and most expensive classes of cars, according to AAA's analysis).

Where you live

Where you live and work can have a significant impact on your pay. You can expect to pay more if your commute is congested or you park in an area with a high rate of theft. State-level regulations governing how much coverage you must carry can also have an impact on your premium.

How much you drive

In general, the more you drive, the higher your risk of an accident and the higher your car insurance premium. Because so many Americans spent the majority of 2020 working from home due to the COVID-19 pandemic, major insurance companies such as Allstate, Geico, and State Farm issued refunds to drivers to account for the decrease in miles driven. Consumer advocacy groups, on the other hand, argue that they should have reimbursed drivers much more, and some states are requiring companies to do so.

Your driving history

If you have a history of traffic tickets, at-fault accidents, or more serious infractions such as a D.U.I., you can expect to pay more for car insurance. Young drivers, who are more likely to be involved in accidents, pay higher car insurance rates — though teens can often benefit from being added to a parent's policy.

Your credit score

People with good or better credit are more likely to be eligible for the best rates because poor credit is associated with a higher rate of claims. Some consumer advocates are outraged by this policy, and some insurers have pledged to eliminate credit scores as a factor in car insurance pricing.

Key Takeaways About Car Insurance

Shop, and shop again as needed

Your insurance premiums are heavily influenced by where you live and how much you drive: After a major life change, such as a move or a new job, do some comparison shopping or contact your insurance agent.

Don’t be underinsured

Although it may cost a few dollars less, not having enough coverage can cost you in the long run. And your state's minimum coverage requirements aren't always a good indicator of your coverage needs.

Embrace new technologies

Give some new ways to track how (or how far) you drive a try, because these new usage-based tracking tools can save you money if your mileage is low or you're a careful driver. Installing your auto insurance company app will also allow you to file claims more quickly, which will allow you to be reimbursed more quickly.