Guide to car insurance
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Car insurance is an important purchase, but it doesn’t have to be intimidating. Bankrate’s insurance editorial team — which includes licensed agents — is here to help you feel more confident about getting quotes and buying car insurance. After reading this guide, you’ll better understand the parts of a car insurance policy, the coverage you might need and the process of comparing quotes.
- Car insurance is a financial product designed to protect your finances from the fallout of auto accidents and injuries.
- Auto insurance policies consist of numerous different coverage types.
- Comparing car insurance quotes from different companies can help you find the right policy for your needs.
- Many factors affect your car insurance rates, including your age and gender (in most states), the type of vehicle you drive, your driving history and the specific coverage you buy.
What is car insurance?
Car insurance can help pay unexpected costs associated with covered auto accidents. Depending on the coverage you choose, your car insurance policy might pay for damages and injuries you sustain, as well as damages and injuries that you cause to others. Insurance is a financial product. Car insurance does not protect your car; it protects your finances. This means that choosing the right company, coverage types and coverage levels for your needs is important for your overall financial health.
You might choose to purchase liability-only coverage, which protects your finances if you damage someone else’s vehicle or property or if the other party sustains personal injuries. You could also choose full coverage, which adds financial protection for damage to your car. Insurance operates like a pool. Everyone pitches in a little money — your premium amount — so that if and when an accident happens, everyone loses a little bit, but no one loses everything.
How much car insurance do I need?
How much car insurance you need will depend on your individual circumstances. You’ll have to purchase at least the required minimum coverage types and limits in your state to drive legally. However, most car insurance experts recommend purchasing higher liability limits, even if you opt for a liability-only policy. You’ll pay more for coverage, but you’ll also likely have lower out-of-pocket expenses if you cause an accident and the damages exceed your insurance coverage limits.
If you have a loan or lease on your car, your financial institution will likely require you to have a full coverage policy. But even if you own your car outright, you might want to consider purchasing full coverage — especially if your vehicle is newer, relatively expensive or you do not have the funds to repair or replace it yourself after an accident.
Types of car insurance coverage
An auto insurance policy is a package of several coverage types. The kinds and amounts of coverage you choose will depend on your specific situation. Experts recommend speaking with an agent who can help you design a policy that best suits your circumstances.
Some common coverage types are:
The core coverage on car insurance policies are the liability coverage types. These are generally required by law and protect your finances from damages you cause to others.
- Bodily injury liability: This is designed to cover the cost of injuries that you cause to another party in an accident.
- Property damage liability: This pays for the damage you cause to someone else’s property in an at-fault accident, like damage to another vehicle, a building or personal property.
Some parts of a car insurance policy are designed to financially protect you and your passengers from the expense of injuries.
- Uninsured motorist coverage and underinsured motorist coverage: These coverage types can pay for your damages and injuries if you are hit by a motorist who does not have any insurance or does not have enough insurance to cover your expenses.
- Medical payments coverage: This pays for your and your passengers’ medical bills stemming from an accident, regardless of fault. Depending on where you live, it may be mandatory, optional or not available.
- Personal injury protection (PIP): This coverage is similar to medical payments but also covers lost wages and the cost to hire someone to do household tasks if you or a passenger is unable to complete them. It is required in no-fault states, may be optional in other states or, like medical payments, may not be available depending on where you live.
If you choose certain coverage types, your car insurance policy could protect your finances from damage that your vehicle sustains.
- Collision: This covers the damages to your car caused by colliding with another vehicle or object.
- Comprehensive: Often called “other-than-collision” coverage, this pays for damages to your car caused by various scenarios, including theft, vandalism, weather damage and hitting an animal. Adding comprehensive and collision to your policy means you are purchasing “full coverage.”
- Gap insurance: If you have a loan or lease on your vehicle, this coverage pays the difference between your loan amount and the depreciated value of your new car if it is totaled or stolen and not recovered.
- Rental car coverage: If your vehicle is not driveable due to a covered loss, this optional endorsement could help pay for the cost of a rental car.
- Roadside assistance: This optional coverage can help cover the costs of service calls, like tows, locksmith services and battery jumps.
How to compare car insurance rates
Average car insurance rates vary by company, vehicle and driver. So shopping around can help you find a policy that fits your needs for the most affordable price. When requesting car insurance quotes, make sure to ask each provider for the same coverage types and policy limits (or as close as possible). That way, you’ll be comparing apples to apples.
Factors that affect car insurance rates
Your car insurance premium is not just based on which company you choose. There are numerous other factors that can impact how much you pay for auto insurance, including:
- Age: Young drivers and those who have just earned their license are more prone to accidents and risky driving behavior compared to other groups. This typically equates to higher-cost car insurance premiums. In all states except California, Hawaii and Massachusetts, your age impacts your car insurance premium, with teens paying the most. As you age into your 20s and 30s, car insurance rates generally begin to drop. However, rates may slightly increase again once you reach 70 years of age.
- Gender: Males tend to pay higher rates than females due to an increased likelihood of getting into more accidents and more severe accidents. California, Hawaii, Massachusetts, Montana, North Carolina and Pennsylvania do not allow insurance companies to use gender as a factor to calculate your premium.
- Vehicle type: The vehicle you drive is another big factor in how much you will pay. Some vehicles are cheaper to insure than others.
- Credit rating: It may be surprising, but your credit score may impact your car insurance premium. Drivers with low credit scores tend to file more claims than drivers with higher scores, so insurance companies charge higher premiums to compensate for the increased risk. Not all states allow credit to be used in determining your rate.
- Driving record: If you have accidents, tickets or DUI convictions on your motor vehicle record, you will likely pay more for insurance.
- Insurance history: Drivers with continuous insurance tend to pay less than drivers with lapses in coverage or no insurance history.
- Coverage type and limits: Your premium will vary depending on the coverage type and limits you select. Generally, the more extensive the policy, the more you’ll pay.
- Discounts: If you qualify for one or more car insurance discounts, you may be able to lower your premium. You may also save money on car insurance if you are married. And if you are a member of the military or a veteran, you could find specialized discounts or less expensive coverage options.
Car insurance rates by company
When shopping for car insurance, you’ll need to decide which car insurance companies to request quotes from. Different companies have different ways of rating policies so prices will vary even for the same coverage.
First, you may want to consider what factors matter most to you. Are you looking for the lowest price possible or certain features like a mobile app or high customer satisfaction scores? By deciding what you want from an insurance company, you may be able to narrow down which companies to approach for quotes.
Car insurance rates by state
In addition to the factors listed above, your state has one of the biggest impacts on your car insurance premium. Your state’s minimum coverage laws, the likelihood of getting into an accident, the average severity of accidents and the percentage of uninsured motorists can all impact the average car insurance cost in your state.
Car insurance rates by age
As previously mentioned, your age plays a significant role in how much your car insurance costs due to the risk of accidents and claims associated with different driver age groups. Younger drivers usually pay higher rates due to an increased risk of accidents, while older drivers pay lower rates since they have more experience behind the wheel.
Tips for shopping for car insurance
The process of shopping for car insurance takes a bit of legwork, but it’s generally the same from company to company. Whether you shop online or work with an agent, you’ll be asked to provide some information about yourself and answer a few questions.
Here are some tips that could help:
- Compare quotes accurately. This may be the most important part of the car insurance shopping process. When you receive quotes back from each carrier, make sure that the coverage types, limits and deductible amounts are identical. Without checking for this, you may mistake one carrier as being cheaper without realizing it’s giving you less coverage.
- Understand your deductible. If you have comprehensive and collision coverage on your car insurance policy, you will have a deductible for each. The deductible refers to the amount that you are responsible to pay out of pocket in the event of a covered claim, while your car insurance company covers the rest. A higher deductible might result in a cheaper policy, but make sure the deductible amount is something you could easily pay if you need to file a claim.
- Shop after life events. Buying a new car, getting married, adding a child to your policy — all of these could impact your car insurance rate. Because of that, these and other life events may be a good opportunity to reevaluate your car insurance coverage and premium.
Frequently asked questions
A car insurance claim is a request for reimbursement from the insurance company. How the claim works depends on the situation. If you hit another vehicle or cause damage to someone’s property, you will likely need to file a claim with your car insurance company, which can usually be done in an app, online or by phone. A claims adjuster will evaluate the damage, take statements from you and the other party or parties involved, and send payments as needed.
If another vehicle hits you, you may have your damage taken care of by their liability coverage. Still, you’ll need to contact your auto insurance provider to notify them of the accident. They might advise you to reach out to the at-fault party’s insurance at that time, or they may do it for you. If the other driver did not have coverage or does not have enough coverage to pay for your damage, you could potentially use your uninsured or underinsured motorist coverage.
In the vast majority of states, driving without car insurance is illegal. You must purchase at least the minimum required types and levels of coverage in your state; if you don’t, you could be fined and have your license suspended. If you cause an accident and don’t have insurance, you’ll be personally responsible for the costs of the damages and injuries you cause. Even if your budget is tight, purchasing car insurance is an important step in your financial planning. If your bill is too high, you may be able to lower your premium by taking advantage of discounts, shopping around and evaluating your coverage.
“No-fault insurance” is an insurance term that’s often misunderstood. It refers to personal injury protection (PIP), which is typically a required coverage in no-fault states. This coverage helps pay for your accident-related injuries and the injuries of any passengers you have in your car, regardless of fault. PIP may also pay for other qualifying expenses. However, fault is still a factor in car accidents, even in no-fault states. If you cause damage to another party’s vehicle or other property, you’re still expected to pay. Additionally, while PIP may pay for injuries initially, you could still be found liable and your bodily injury liability coverage could pay. If your bodily injury limit is lower than the cost of the injuries, you’ll be responsible for the rest out of pocket.
Unfortunately, yes. Based on Bankrate’s analysis of data from Quadrant Information Services, average car insurance rates are increasing. Car insurance companies take numerous factors into account when pricing policies. Inflation has driven up the cost of claims as auto parts, mechanic’s labor and medical care steadily increase in price. Furthermore, the severity and frequency of auto accidents continue to rise. Consequently, auto insurance companies are raising rates to ensure they have enough money to pay out claims.
Bankrate conducted extensive research to identify the best insurance providers for 2023. Based on their findings, Geico, Amica, USAA, Safeco, Auto-Owners, State Farm, Progressive, NJM, Liberty Mutual and Travelers provided the most value to drivers. To determine which provider is best for your individual needs, review several companies’ coverage types, policy features, discounts and premiums to make an informed decision. You can also use Bankrate’s interactive map to browse average premiums in your state. Doing so may help determine if the quotes you receive are competitive.