What to know about auto insurance
You need car insurance. It’s the law almost everywhere, and it provides financial protection if you’re in an accident. But beyond that, many people don’t understand their coverage or what they need.
Shopping for car insurance is easier when you know what you want and why you need it. That means understanding what affects rates, what coverage is more costly and why, and how to avoid mistakes leading to overpaying.
Here are eight facts about auto insurance that you need to know.
1. The most helpful coverage can be the cheapest
Full coverage insurance, which includes comprehensive coverageComprehensive coverage helps pay for damage to your car caused by events other than a collision, such as theft, fire, vandalism, or natural disasters. It is subject to a deductible. and collision coverageCollision coverage helps pay for repairs or replacement of your car if it's damaged in an accident, regardless of who is at fault and is subject to a deductible. often doesn’t cost a lot more than liability insurance. That’s because the most an insurance company will have to pay out on a comprehensive or collision claimAn insurance claim is a request you make to your insurance company for coverage after your car is damaged or you have an accident. You can file a claim online, by phone, or in writing. is the value of your car, which it will pay out in actual cash valueActual Cash Value (ACV) is the current market value of your car, considering depreciation. It's the amount your insurance will pay if your car is totaled or stolen. (depreciated value) and not what the car cost new. It's well worth adding if you have a newer car or can't afford to replace your car.
Uninsured motorist coverage is generally very affordable as well, and protects you in an accident where the other driver is uninsured. And if you live in a no-fault state, you might want to consider increasing your personal injury protection and medical expenses coverage. It's generally cheap and adds a lot of extra protection.
The coverage you are required by law to buy in nearly every state, liability insurance, is typically the most expensive part of your coverage, especially for younger, less experienced drivers who are more likely to cause an accident. It's worth noting, however, that there usually isn't a big increase in rates if to increase your liability limits, which cover you for both bodily injury and property damage liability.
2. There are a lot of factors that affect car insurance rates
Auto insurance companies use many different criteria when evaluating an insurance application during a process called underwriting. Each car insurance company has guidelines for which drivers it will accept and what rates it will charge. But the factors remain the same for most insurers.
You probably know that your age and driving history, along with your location and the car you drive affect what you pay. You may not realize, however, that your credit history can also affect rates in most states. So can theft and accident rates in your area.
3. It's important to find the company with the best car insurance rates for you
Car insurance rates differ significantly from one insurance company to another. That's because each insurance company uses its own formula to assess risk and decide what you pay for coverage. They may use the same factors above, but they don’t weigh them the same way. This means no two insurers will have identical prices for the same policy. Often, the difference is hundreds of dollars. So, if you don't compare rates, you can overpay.
"Auto insurance is a highly competitive business and one of the most effective ways to reduce insurance costs is simply to shop around," says Jeanne Salvatore, senior vice president of the Insurance Information Institute. "Drivers should look for an insurance company that will provide a good price along with excellent service."
The best plan is to decide what coverages and options you need and comparison shop so you can find cheap auto insurance that still provides sufficient coverage.
4. If you let your policy lapse, you'll pay more in the long run
Most insurance companies view drivers who are licensed but don't have insurance as risky or irresponsible. Because of this, if you let your policy lapse, you'll probably pay more when buying car insurance.
To avoid this, if you don't want to pay for insurance or are planning to let your policy expire because you want to switch car insurance companies, get new coverage first. If you won’t be driving for a while, consider keeping some coverage in place to prevent a lapse.
5. Higher deductibles can lower your premium
If you agree to pay for a larger portion of your own damages by raising your deductibles, your car insurance company sees that as you being willing to share the risk a little more.
Because of this, they will usually give you a lower premium. If you decide to raise your deductibles to save money, be sure you can afford to pay the deductible if you have to make a claim.
6. Car insurance discounts can make a big difference
Most insurance companies offer auto insurance discounts for things like a safe driving record, car safety features, anti-theft devices, electronic payments and payment in full. Make sure you're getting all of the discounts you qualify for; they can result in savings of 30% or more.
7. You should carry only the car insurance coverage you need to save money
There's no reason to pay for coverage you don't need. For example, if you have an older car that isn't worth much and you own it outright, you probably don't need comprehensive and collision coverage. If you have a second car, you may not need to carry rental reimbursement coverage. And if you are a AAA member, you don't need to pay for roadside assistance on your car insurance policy.
A car insurance coverage calculator can help you decide what coverage you really need and what you can safely drop.
8. The car you drive will affect your auto insurance rates
The Highway Loss Data Institute compiles insurance accident statistics for most types of cars. Many insurance companies use data like this when setting prices on your insurance.
For example, if the car you drive is expensive to repair, the company will have to pay more if you get in an accident. Conversely, if your car is extremely safe and protects occupants well, the risk of serious injuries is reduced. If your car model is generally less likely to be stolen, your car insurance company is less likely to have to pay to replace it.
These car-related factors can raise or lower the auto insurance quotes you receive, so it makes sense to keep insurance in mind when purchasing a car. Of course, since rates are based on much more than just the car you drive, your overall rate may be more or less than someone driving the same car.
Why is it important to have car insurance?
You need car insurance because, in all states but New Hampshire, it's the law. But beyond that, it's important to have car insurance to protect yourself financially. If you cause an accident, you are responsible for the cost of injuries and damage (even in New Hampshire), and without insurance you will have to pay for everything out of pocket.
And unless you can afford to replace or repair your car, you need full coverage to protect that investment. Furthermore, your lender will required it.
Helpful auto insurance tools and calculators
