UPDATED: SEPTEMBER 23, 2022 | 2 MIN READ
Auto Insurance Basics Buyer’s Guide
We understand if you’ve never bought auto insurance or are just confused by the process. There are many moving parts to the auto insurance game. It can be difficult to determine the best fit for your needs for the right price. After reading this quick and easy auto insurance guide, you’ll be equipped with the necessary tools.
What You Need to Know About Buying Auto Insurance
When it comes to auto insurance, you need to know three basic things:
- What you’re buying
- Who you’re buying it for
- Any additional factors which may increase the price
All these things together will determine what sort of insurance you need, how much you should expect it to cost, and which variables you can tweak in your favor to get a better price.
Let’s start by looking closely at what you should expect from your auto insurance policy.
What Are You Buying When You Purchase Auto Insurance?
Each state has its own unique minimum auto insurance requirements. The best way to determine the requirements in your state is to check with your local Department of Insurance.
The vast majority of states will require at least liability coverage. Some form of medical payments or personal injury protection. Other types of coverage, which may or may not be required in your state, are listed in greater detail below.
It’s also important to mention that you aren’t just paying for the type. You’re also paying for the amount of insurance coverage.
The less coverage you purchase, the lower your monthly premiums will be. But suppose you don’t purchase high enough coverage limits.
In that case, you may be financially liable for out-of-pocket expenses if your insurance isn’t enough to pay the total cost for repairs, replacements, medical bills, or funeral expenses in an accident.
Some insurance companies only require $10k of coverage. Even when most auto accidents can easily cost 3x-10x after all is said and done.
Auto Insurance Basics: Liability
You will most likely be required by state law to purchase two different types of liability coverage:
- Bodily injury
- Property damage
Bodily injury liability pays out on claims if the accident is deemed your fault and the injured parties have medical expenses and funeral costs associated with the accident.
Property damage liability pays out claims if the accident is deemed your fault and the injured parties experience property damage due to the accident.
Most auto insurance companies recommend purchasing $100k/$300k (per person/accident, respectively) of total coverage if you can afford it. The coverage limit means that that dollar amount is the maximum amount of money your insurance company will pay out in claims.
If the total costs of the accident are more than that, and you’re deemed liable, you could be sued, and your assets could be liquidated to pay the remaining debt.
Auto Insurance Basics: Collision
Collision insurance helps repair or replace your vehicle if it’s damaged in an accident and there is no other liable party at fault.
If there is another party at fault, their property damage liability coverage is what pays for the repairs. When you file a claim against your collision coverage, you must first pay a deductible to your insurance company. Then they will get the ball rolling on the repairs.
Most deductibles are between $250 and $1,000. State laws usually don’t require collision coverage. However, if you’re leasing your vehicle or purchasing a relatively new car, the dealership or loan lender may require you to purchase it.
Auto Insurance Basics: Comprehensive
If some out-of-the-ordinary damage happens to your vehicles – such as vandalism, fire damage, theft, or flood damage, to name a few – your comprehensive coverage is the coverage you will file a claim against to get the damages repaired or the vehicle replaced.
Comprehensive coverage is usually not required by law. But you may want to look closely at the fine print to ensure that your policy covers disasters common in your area.
Auto Insurance Basics: Uninsured/Underinsured Motorist Coverage
Uninsured motorist coverage is required by law in some states, but not all. Uninsured motorist coverage is the coverage you file a claim against if you get involved in a hit-and-run accident that’s not your fault, and the at-fault party is never caught.
It’s also the coverage you file claims against if the other driver is found at fault but does not carry insurance or does not carry high enough insurance limits to pay out what they owe.
Auto Insurance Basics: Medical Payments
Medical payment coverage is not required by law in all states and may not be available in some states. But in the states where it’s available, it helps pay for medical expenses for you and another passenger in your vehicle. Usually up to $5,000.
This is more of a supplemental form of coverage to help get you back on your feet quickly.
Who (and What) Your Policy is Covering
Your auto policy, for the most part, follows your vehicle. However, your circumstances as a driver of the vehicle you’re insuring also weigh heavily over your total costs. All of these things will help your insurance company calculate your total risk.
The lower your risk of getting into an accident, the less expensive it will be for your insurance company to pay out claims.
Factors that influence your total costs based on you as a driver include:
Age
Younger drivers are at a higher risk than older drivers. Even elderly drivers get better deals than motorists under the age of 25. Their lack of experience behind the wheel makes them more statistically likely to get into an accident.
Financial responsibility
having a good credit score, owning your own home, full-time employment, and the like make you a more appealing customer because you’ll be more likely to pay your premiums on time and in full when they are due. Being responsible financially is also closely associated with being a less risky driver.
Family status
Married drivers sometimes get better discounts than singles. Bundling onto the same auto policy with your spouse or a family policy with your adolescent children can get you discounts.
A driving record
A clean, accident- and ticket-free driving record are best for the lowest premium. The more tickets and accidents you have under your belt, especially within your most recent 3-5 years of driving history, your coverage will be expensive.
Factors That Influence Your Total Costs
Vehicle age
Older vehicles typically don’t have as many coverage requirements as new vehicles straight from the dealership or leased vehicles.
They also cost less to repair and replace, so you don’t need such high coverage limits or extras like Collision/Comprehensive coverage.
Make/Model your vehicle
In addition to the age and actual cash value of your vehicle, the make/model of the vehicle you’re insuring is important because you could be eligible for discounts related to safety features and other factors.
The number of vehicles on the policy
The more vehicles you insure, the more your coverage will cost. But bundling multiple vehicles on the same policy can also help you get discounts.
Mileage
The fewer miles you drive each year, the fewer opportunities you have to get into an accident. You can get discounts for having fewer miles under your belt and temporarily driving with a tracking device plugged into your vehicle to prove that you are usually off the roads during high-risk hours of the day.
So, How Can You Get the Best Deal?
Your first step should be to find a reliable, accurate car insurance quote comparison resource so that you can shop around between different auto insurance companies in your zip code.
You could contact each company individually and ask for quotes, but this can be time-consuming and tedious for most people.
While shopping around and talking to different auto insurance agencies, you might also want to try one or more of the following strategies.
Asking for Discounts
Be sure to ask for as many discounts as you can get. There may even be hidden discounts you’ve never thought of, such as getting a discount for being in the military or a new customer.
You might even get a better price on your policy if you can prove to your auto insurance company that you were willing to take steps to mitigate your risk, such as taking a defensive driving course.
Tweaking Your Policy to Fit Your Needs
You probably won’t need extra coverage like comprehensive/collision if you drive around in a 1995 Toyota Camry.
Ask your insurance agent questions to ensure that you’re buying exactly the coverage you need, at the limits you need it, and that you aren’t accidentally buying extra bells and whistles that you’ll end up wasting money on in higher monthly premiums.
Clean up Your Record
If you’re in a bad situation and need to improve your risk profile, the only thing you can do is be patient and wait.
fI you have a bad driving record or a poor credit score, do what you can to show that you want to adopt safer driving habits and get on top of your financial situation.
The longer you can go without an accident or a poor mark on your credit history, the easier it will be to unlock discounts and lower rates shortly.
How To Get Help With Auto Insurance Basics
We hope that this guide was helpful and easy to understand. Buying auto insurance can be daunting, but it doesn’t have to be. Armed with the right knowledge, you can get quotes online in no time and find the best policy for your needs.
