In simple terms, car insurance is a contract that you have with an auto insurance company where you pay them a periodic fee in exchange for monetary coverage in the event of an accident. The auto insurance company will cover medical fees and vehicle repair damages up to the amount in the insurance policy that you’ve signed up for.
No one ever plans to be in an accident, but there are around 16 million auto accidents in the United States every year. According to the Centers for Disease Control and Prevention, more drivers die in car crashes in the United States than any other high-income country. What does this mean for you? This just comes to show why car insurance is a necessity, especially in the US.
In most parts of the United States, having car insurance is mandatory and required by law in order to drive. Minimum coverage auto insurance is required in almost every state except Virginia, New Hampshire and Mississippi. Minimum coverage is determined by the state and vary from state to state. Auto Insurance typically covers medical fees, vehicle repair damages, bodily damage, legal fees and property damages.
Shopping for and comparing your auto insurance quotes every 6-12 months can save you thousands of dollars over your lifetime.
How do I meet my state’s car insurance requirements?
Most states have minimum car insurance requirements for drivers. What type of insurance you need depends on where you live. However, you’re likely to need the following types of insurance:
- Liability insurance.
When drivers talk about auto insurance, they’re usually referring to liability coverage. This is the insurance that covers you if you’re at fault in an accident and need to pay for the resulting costs. All states except New Hampshire and Virginia require you to have at least liability insurance.
- Personal injury insurance.
If you’re involved in a car accident, PIP pays for the medical services you may need afterward including ambulance rides, nursing care, prosthetics, lost income, childcare and funeral services. PIP will apply regardless of who’s at fault in an accident.
- Uninsured motorist coverage.
If another driver doesn’t have insurance, you won’t have to liaise with them to receive compensation. Instead, your own insurance will cover your expenses. You can choose to have bodily injury (UMBI) or property damage (UMPD) coverage.
View your state’s minimum car insurance requirements and laws
Optional insurance coverages you might want to consider…
Unlike liability, personal injury protection, and uninsured motorist coverage (explained here) which are required by most states, the following coverage types are all optional. They offer extra protection and cover against all the other mishaps that might happen to you or your car.
Insures against damages that aren’t within your control, such as natural disasters, terrorism, explosions and fire, glass damage, falling objects, vandalism, damage from animals and theft. Unlike liability insurance, you’re not required to have comprehensive coverage regardless of the state you live in.
- Medical payments
Helps you with your medical costs resulting from a car accident — no matter who’s at fault.It covers you and your passengers can pay for such expenses as ambulance fees, surgery, funerals, dental care, prosthetic limbs and hospital visits. Medical payments coverage doesn’t only apply to auto accidents. It can also protect you outside of your vehicle, such as when you’re walking or riding your bike.
If you’re at fault in an accident, your liability insurance kicks in and pays for the other driver’s costs. For your own vehicle repairs, you’ll need collision coverage. Collision coverage pays for costs if your vehicle is damaged.
You’re the first party, and your insurer is the second party. Everyone else on the road is the third party. To cover any claims other drivers make against you, you’ll need third-party auto insurance. The various types of third-party coverage include renters insurance, homeowners insurance and business owners policies. For auto insurance, there are two types of third-party coverage: bodily injury liability and property damage liability.
- Property damage liability.
Will help you pay costs that result from any damages you cause to someone else’s property. These costs may include vehicle repairs, repairs for damage to buildings, houses or fences, lost income from business closures, legal fees from property damage claims. Property damage liability doesn’t pay for your own car repair costs. For that, you’ll need collision coverage.
- Gap Insurance.
When you buy a car, it immediately starts depreciating. Here’s the issue: If your car is stolen or totaled, your insurer will pay only what the vehicle is worth. Meanwhile, you’re still stuck paying back your entire loan. This creates a gap between how much money you receive from your insurer and what you still owe to your bank.
- Bodily injury liability.
Your insurer will help you pay costs that result from any injuries you cause to another person. These may include immediate medical aid, legal help, health care, funerals and pain and suffering. Bodily injury liability coverage doesn’t pay for your own medical costs. For that, you’ll use your own health insurance, medical payments coverage or personal injury protection.
Protects you beyond the coverage offered by your basic insurance. It’s especially recommended for individuals with significant assets — those who stand to lose a lot from getting sued. It will pay for what you owe beyond what’s covered by your home, auto or renters insurance.
|Accident type or cause||Am I covered?|
|Another driver crashed into me / I was not at-fault||Yes, only if you have liability coverage|
|I crashed into another driver / I was at-fault||Yes, only if you have collision coverage|
|I damaged someone’s property||Yes, only if you have property liability coverage.|
|A natural disaster (hurricane, hail, fire, animal etc.) destroyed my vehicle.||Yes, only if you have comprehensive coverage.|
If you’re a young driver under 25, it can be hard to find the best value car insurance. Due to inexperience, these groups are at higher risk of having accidents.
If you’re in this demographic you will be hit with higher costs, but there are still some things you can do to reduce your premiums. These include:
- Choosing a car that’s cheaper to insure. Remember that a more expensive car not only costs more straight off the bat, but will also cost more for as long as you use it.
- If you’re a young driver, it’s worth buying cheap.
- Taking a defensive driving course, often provided by local DMVs.
- Having a safe driving record, which will gradually decrease your premiums over time.
- Being a nominated driver on your parents’ insurance (although this will likely increase their premium).
- Increasing your deductible to an amount that’s high but affordable.
Tips for saving money when adding a teenager to a car insurance policy
- Don’t assume there’s one company that’s cheap for everyone. Different people can pay drastically different prices for car insurance at the same company. Look for a company that can offer you the best deal for you individually, not across the board.
- Hunt for discounts. Some insurers offer discounts to drivers for a variety of reasons such as having a clean record, paying an annual premium all at once or insuring multiple cars under one policy.
- Bundle policies. You can usually get a discount if you bundling your car and home insurance policies.
- Pay attention to local insurers. Local insurance companies tend to have higher customer satisfaction rates than their big-name counterparts — and could potentially have lower rates.
- Don’t get collision or comprehensive coverage for an old car. The value of your car determines your maximum payout if it’s stolen or totaled, meaning that these policies are not very useful for older vehicles.
- Raise your deductible. When buying collision insurance, one quick way to get lower rates is to raise the amount you pay before the insurance company picks up the tab in the event of an accident.
- Look into pay-per-mile insurance. If you only use your car for occasional short trips, you can sign up for a usage-based insurance program that determines your rates based on how much you drive.
- Pay your bills on time. In most states, your credit score is a major determining factor for your insurance premium.
- Avoid accidents and tickets. These two are surefire ways to make your premium go through the roof.
- Get married. Married people often have cheaper car insurance because they tend to file less claims. It’s one more reason to tie the knot — if you were already going to do it, that is.
No one wants to overpay for car insurance. Here are seven ways to pay less than your state’s average driver.
- If you haven’t purchased a car yet, do your due diligence and compare insurance prices for each car model that you’re interested in. The price differences might surprise you.
- Increase your deductibles. A higher deductible means lower premiums. What’s a deductible and what’s a premium? The deductible is the amount that you have to pay out of pocket before your car insurance covers the rest. So for example, if you have a $500 deductible on a $2,000 accident, then you would have to pay $500 out of your own pocket before your insurance company covers the other $1,500. The premium is basically the price that your insurance company is charging you for the policy plan. However this means that if you ever do actually get into an accident, you will have to pay more than if your deductibles were lower.
- Check and maintain your credit history. Most auto insurance companies take your credit history into account for your pricing. The reasoning behind it? Research actually shows that people with a higher credit score tend to make fewer claims.
- Low mileage discount. If you drive under a certain amount of miles every year, you can tell your insurance company and possibly qualify for a low mileage discount. This is a common discount that many drivers actually qualify for but are not aware of. Discount and mileage amount varies based on insurance company.
- Group discount. If the insurance company you’re with offers more than just auto insurance, consider getting all your insurance through them. Most companies offer a group discount, even if it’s just for more than 1 car. For example, common insurance policies to bundle together are home and car insurance.
- Adjust your coverage. Do you really need all that coverage for that 1990 Toyota Camry? Make sure you are getting the appropriate coverage for the car that you’ve driving. In the 1990 Toyota Camry example, you might skip out on comprehensive coverage for example.
- Compare insurance providers. In a study done in New York, the average driver can save up to $625 by switching car insurances. Insurance prices differ for all individuals based on age, driving history, credit history, car model etc. so it is best to always check with at least 2 or 3 providers before committing to a company.