Car insurance can be overwhelming. Requirements vary from state to state and a single policy can contain many different types of coverages with different limits for each type. But if you know what to look for, getting car insurance is simple.
Whether you want to buy your first car insurance policy or you just want to make sense of one you already have, this guide will cover the car insurance essentials, including:
- How To Get Car Insurance
- What Car Insurance Covers
- Frequently Asked Questions (FAQs):
How To Get Car Insurance
Thousands of companies sell car insurance across the United States. But no matter where you live or what company you choose for insurance, the process for getting a policy is pretty standard.
There are a few things you should know and have ready before shopping for car insurance. Then, collect quotes from at least two or three companies before finally choosing the one that best meets your needs.
What To Know Before You Buy Car Insurance
A car insurance policy is a contract between a driver (also known as a policyholder or insured member) and an insurance company (also called the insurer). This contract basically says that in exchange for you paying monthly or annual fees (your premium), the insurance company will compensate you up to an agreed upon amount (your coverage limits) in the event of a covered event (like a car accident).
Insurance companies determine how much your premiums are based on information about you, your car(s), your driving history and how much protection (or coverage) you want them to offer.
So, before you buy insurance, here are some things you’ll need to know and be ready to share with potential insurers:
- Personal information: Name, date of birth, address, driver’s license number, education level, marital status
- Vehicle information: Make, model, trim, vehicle identification number (VIN), current mileage (odometer reading), estimated average mileage driven, vehicle ownership (do you own it full out or is it being financed, leased, etc.)
You will also need to know what types of coverage you need, how much of each type of coverage you want and how much you can afford to pay out-of-pocket towards any losses before your insurer picks up the tab (this is your deductible).
I explain the different types of coverage available for auto insurance policies below. Depending on where you live, your state may have minimum requirements for coverage. For example, I live in Georgia. Here, there’s a $25,000 minimum coverage requirement for property damage liability per accident. This means my car insurance policy must include at least $25,000 for property damage. But my policy includes more than that. And I explain why state minimums can put you at risk of being underinsured and how to figure out how much insurance you need here.
How To Comparison Shop for Car Insurance
Once you know what coverage you need and you’ve got all your car documents together, you’re ready to compare car insurance quotes. Comparing quotes is when you give multiple insurance companies information (about you, your car and coverage needs), and the companies tell you how much it’ll cost you to get insurance with them.
To figure out which company is offering the best rates, be sure to get quotes for the same amounts of coverage from each insurer. If you get a quote for $100,000 property damage from Company A, your quote from Companies B and C should also be for $100,000 of property damage protection.
You can get quotes by shopping online, calling insurance companies, or working with your insurance agent/broker if you have one. Here are some tips for shopping around:
You Can Shop Online.
There are two main ways to shop online: through individual company sites or on comparison sites. Sites with comparison shopping tools – such as The Zebra or Insurify – generate quotes for multiple insurers at once and you can learn about companies you might not have otherwise considered. This is a great option if you want to see quotes for several companies at once.
But you still have to call the company you’re interested in or go directly to that company’s site to buy coverage. And you’ll sometimes find that the quote you get directly from the company is different from the comparison site’s quote for them.
You Can Call Insurance Companies.
It can be more time consuming to call individual companies, but you’ll likely get the most accurate quotes this way. There are often discounts or other considerations specific to a company that a comparison site doesn’t have the capability to capture.
If you don’t know what companies to start with, check out our list of some of the best car insurance companies. Choose a few from the list and call them to get a quote.
You Can Work with an Agent/Broker.
There are two different types of insurance agents: captive and independent.
A captive agent sells insurance for one insurance company. This type of agent can’t help you compare quotes from multiple companies because they only work for a single insurer. But captive agents can still be very helpful. If — for example — you’re shopping around and need to call a company back, working with the same person can make the process more seamless. Or, if you’ve chosen an insurer who uses captive agents, it’s nice to have a primary or sole contact when you need support.
An independent agent works with multiple insurance companies to sell insurance. This is the type of agent to find if you want help shopping around. If you don’t already have an agent, there are a few ways to find one. You can start by asking people you know for recommendations. Your friends, family, neighbors or coworkers might be able to point you towards someone they trust.
Another way to find an agent is by searching online for licensed independent insurance agents near you. Depending on where you live, there might be a state association for independent agents that you can get a list of agents from as well. You can also use insurance marketing sites like Trusted Choice, which help consumers find independent agents to meet their insurance needs.
No matter how you find an agent, always make sure they’re licensed. Look for reviews when possible as well, and don’t be afraid to ask questions before committing to working with someone. You want to be sure the agent has expertise and is a good fit for your needs.
You Should Review Company Ratings.
In addition to comparing prices, here at Team Clark, we always recommend reviewing the customer satisfaction of any company you’re considering. When prices are comparable between companies, see if you can learn more about which company will treat you better if you need them.
“Sometimes you’re better off paying a little more to be with a quality insurer who will be there when the chips are down.”
How To Buy Car Insurance
Once you decide what company to go with, buying car insurance is simple. If you already spoke with an agent or generated an online quote with the company, you might have a reference number. You can use this so your quoted policy is immediately accessible without starting over again. But quotes expire. If too much time passes between getting the quote and buying coverage, you’ll need to get a new quote.
If that happens, you’ll just verify your needs again with a company agent to get a new quote. Then, pay for your policy and you’re insured! The company agent will give you details about how to access your policy information and you can always review and make changes if your needs change.
What Car Insurance Covers
There are six common coverages that you can purchase as part of your auto insurance policy. Each type of coverage offers financial protection against specific types of losses, which are known as covered events. The maximum amount of protection your insurer will pay after a covered event is known as the coverage limit.
Take a look at the six most common types of coverages:
|Type of Coverage|
|Liability: pays for damages, losses and/or injuries to others and their vehicles resulting from an accident you caused|
|Comprehensive: pays for damages to your vehicle caused by events other than an accident (example: you hit an animal or your car is damaged by a weather-related event)|
|Collision: pays for damages to your vehicle after an accident, regardless of who’s at fault|
|Personal Injury Protection: pays for your medical-related expenses and certain financial losses after an accident, regardless of who’s at fault (example: medical bills and lost wages)|
|Uninsured/Underinsured Motorist: pays for damages, losses and/or injuries to you and your vehicle resulting from an accident caused by an uninsured or underinsured driver|
|Medical Payments: pays medical expenses for you and your passengers after an accident, regardless of who’s at fault|
Of the six common coverages, the three you’ll likely hear about most are liability, comprehensive and collision. That’s because liability is required in just about every state. And if you finance or lease a car, most lenders require you to maintain comprehensive and collision coverage.
Keep reading for more details on each type of coverage and when it’s typically required.
Every state has financial responsibility laws in place for drivers. So, if you cause an accident, you are responsible for the cost of resulting injuries, property damages and loss experienced by whoever you hit. Liability coverage is what offers you financial protection when you’re at fault for an accident.
When it comes to an auto insurance policy, liability coverage is split into three categories — each with their own coverage limit — including:
- Bodily injury (BI) liability per person: total amount your insurance will pay per person involved in an accident you cause
- Bodily injury (BI) liability per accident: total amount your insurance will pay for all individuals involved in a single accident you cause
- Property damage (PD) liability per accident: total amount your insurance will pay towards property damage sustained in a single accident you cause
When getting a quote, you might see something like 100/300/100 or hear an agent say, “one hundred, three hundred, one hundred in liability.” Each number represents a liability coverage limit. The first number represents bodily injury per person, the second represents bodily injury per accident and the third is for property damage. So, if a policyholder has 100/300/100 liability, their coverage limits include $100,000 for bodily injuries per person, only up to $300,000 total for bodily injuries per accident, and up to $100,000 for property damage per accident.
It’s important to note that liability coverage will not pay towards bodily injuries or property damages that you or your passengers sustain. To cover costs of injuries, damages or loss on your side, you’ll need full-coverage insurance.
Full-coverage insurance simply refers to how — in addition to liability — you can purchase a combination of other types of coverage. This makes sure that if you’re in an accident, you are also financially protected, regardless of who is at fault.
Comprehensive coverage protects your vehicle in the event of damage or loss caused by events other than car accidents (or collisions). Coverage includes — but isn’t limited to — things like:
- Falling objects
- Weather events (ex: hail, tornado, storm-related water damages, etc.)
You will need to pay out-of-pocket to meet your deductible before your insurance will pay towards a comprehensive coverage claim. So, let’s say a car sustains $1,200 worth of damages in a hailstorm. Now imagine the policyholder has an unmet $1,000 deductible. In this case, the most the insurance company would pay is $200, and it’s not worth it for the policyholder to file a claim. You can read more tips about when to file a car insurance claim here.
Collision coverage protects your vehicle in the event of damages or loss caused by collisions (or accidents). This can include — but isn’t limited to — events such as:
- Collisions with other vehicles
- Collisions with objects (ex: mailbox, fence, street light, etc.)
Collision coverage is usually purchased along with comprehensive coverage. That’s because both coverages are generally required by lenders when a car is being financed or leased. And once the cost of comprehensive and collision coverage exceeds 10% of a car’s value, it’s typically not worth it to maintain these coverages. So comprehensive and collision are usually dropped at the same time too.
Personal Injury Protection (PIP) Coverage
Personal injury protection coverage pays your medical expenses – and any passengers you were driving – in the event of an accident, regardless of who’s at fault.
PIP coverage offers coverage for more than just your medical expenses, though. You may also receive compensation for lost wages or other expenses resulting from your accident.
Twelve states currently have minimum requirements for PIP, including: Delaware, Florida, Hawaii, Kansas, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Oregon and Utah.
Uninsured/Underinsured (UM/UIM) Coverage
If you’re in an accident with another driver who doesn’t have insurance or doesn’t have enough insurance, uninsured and underinsured motorist coverage offers you financial protection. UM coverage also protects you if you’re the victim of a hit-and-run. Both coverages typically apply towards medical expenses, but in some states the coverage can extend towards property damages too.
There are currently 20 states with minimum requirements for uninsured and/or underinsured motorist coverage. These states include Connecticut, Illinois, Kansas, Maine, Maryland, Massachusetts, Minnesota, Missouri, Nebraska, New Hampshire, New York, North Carolina, North Dakota, Oregon, South Carolina, South Dakota, Vermont, Virginia, West Virginia, and Wisconsin. Washington, D.C. also has a minimum coverage requirement.
Around one in eight drivers is uninsured, according to data from the Insurance Information Institute (III). So, consider adding this coverage to your auto insurance policy. Read why money expert Clark Howard is a big fan of uninsured motorist coverage.
Medical Payments (MedPay) Coverage
Medical payments coverage, or MedPay, covers the costs of your medical payments (and your passengers) after an accident. Like PIP, this coverage is paid regardless of who is at fault for an accident. Unlike PIP, however, MedPay will only cover the costs of medical expenses directly resulting from an accident. Currently, only Maine and New Hampshire have minimum requirements for MedPay.
Car Insurance FAQs
What Is Car Insurance?
Car insurance provides financial protection in the event of an accident that results in injuries, damages, and/or losses to the people or property involved. This includes collision events (car accidents) and non-collision events (ex: weather-related damages, stolen or vandalized property).
When you sign up for car insurance, you’re entering a contract with an insurance company. Your insurance company (the insurer) agrees to take on the financial risks associated with you (the policyholder), your driving, and your car(s). In exchange, you pay monthly or annual fees (your premiums) for protection (or coverage).
Car insurance includes different types of coverages. That’s because insurance companies plan and prepare for as many unexpected events as possible. Different types of events fall into different categories, and you can most likely choose whether or not you want protection against those events. Some states do have requirements for certain coverages.
You can also most likely choose your coverage limits, or the maximum amount that you want your insurer to be responsible for in the event of an accident. Again, some states have minimum requirements for coverage limits. Typically, the more coverage you buy, the more you will pay in premiums.
What States Require Car Insurance?
Most states require some level of car insurance. In fact, only two states — New Hampshire and Virginia — do not require you to have a car insurance policy. But every state (including New Hampshire and Virginia) has financial responsibility laws for drivers, which come down to this: if you’re driving and cause an accident, you’re responsible for the cost of any resulting injuries, damages or losses.
In every single state, you must be able to prove that you can pay for the costs of injuries, damages, or losses resulting from an accident you cause. According to the Insurance Information Institute, “In most states auto insurance is mandatory as proof of this responsibility.”
How Much Car Insurance Do I Need?
The amount of car insurance you need depends on several factors. First, most states have minimum coverage requirements. You can see your state’s minimum insurance requirements here.
But the minimum coverage amounts for many states are so low that you might not have enough insurance to fully cover the costs if you cause a serious accident.
Being underinsured is risky, especially if you have any savings or assets. Because after your insurer pays up to your coverage limit, you’ll have to come out-of-pocket for the difference. And the costs of an accident can quickly wipe out your savings or assets. So don’t risk it. Make sure you’re getting enough liability coverage to protect yourself and your assets.
For coverages that will pay for injuries, damages and/or loss to you and your property, here are some things to consider while determining how much insurance you need:
- Your car’s value
- The amount — if any — you owe on your car
- The amount you can afford to pay out-of-pocket to repair and/or replace your car
- The amount you can afford to pay in monthly and/or annual premiums
- The distance and time you spend on the road
- Any other health benefits/insurance you have aside from an auto policy
Also, consider if you regularly have passengers when driving. Think about the potential financial needs for any of your regular passengers who might be with you in the event of an accident. Read more in-depth info on how much car insurance you need here.
How Much Is Car Insurance?
According to ValuePenguin’s 2023 State of Auto Insurance report, “the average cost of full coverage car insurance across the U.S. is $1,780 per year.”
But there are several factors that impact what you pay for car insurance. So, if you pay more or less than the national average, you’re not alone. For example, the average annual cost is $4,788 in Michigan, while drivers in Vermont are averaging $1,104.
Some factors that can impact the cost of car insurance include:
- Where you live
- Your driving history (accidents, tickets, etc.)
- Your gender and age
- What you drive
- How much coverage you have
- Your credit score
To get a better idea of the cost of car insurance by state, check out this article on the most and least expensive states for car insurance.
It’s easy to sign up for car insurance, but there’s a lot to consider before you buy a policy. Take time to figure out how much coverage you need and shop around to make sure you’re getting the best rate. Here at Team Clark, we’ve put together a list of some of the best car insurance companies to get you started.
Once you have insurance, know that you can always review and update your coverage as your needs change. And don’t be afraid to re-shop your insurance regularly to keep the best rate.