When you buy a new car, you most likely spend a fair amount of time comparing options to find the best ride at a fair price. Buying car insurance should work the same way. Unfortunately, too many car owners skip this crucial step and end up spending more money than they should.
Car insurance prices can vary widely by company for the exact same coverage. If you want to find the best car insurance for a reasonable price, here’s how to do it.
Determine How Much Car Insurance You Need
Before you buy a car insurance policy, the first step is to figure out how much car insurance you need. If you buy too little coverage, you could be woefully underinsured. But if you buy too much, you’ll be overpaying.
Here are some common coverage types you’ll want to consider.
Liability Car Insurance
If you cause a car accident, liability car insurance pays for property damage and injuries to others, such as their car repair bills and medical expenses. It also covers legal expenses if someone sues you because of an accident.
Most states (except New Hampshire and Virginia) require you to carry a minimum amount of liability car insurance. For example, in New York, all drivers must carry minimum liability limits of 25/50/10, which means:
- $25,000 for bodily injury of one person ($50,000 for death)
- $50,000 for bodily injury for two or more people ($100,000 for death)
- $10,000 for property damage
But here’s the problem: The minimum required amounts of liability insurance required by states are generally inadequate. For example, if you bought the minimum amount in New York and caused a car crash that resulted in multiple injuries and more than $50,000 in medical bills, you’d be on the hook for the amount above $50,000.
A good rule of thumb is to buy enough liability insurance to cover what you could lose in a lawsuit.
Uninsured Motorist Coverage
Not every driver buys liability insurance, even if they are required to do so. And some drivers have liability insurance but not enough to cover an expensive car accident. So what happens if an uninsured or underinsured driver crashes into you?
Uninsured motorist insurance (UM) and underinsured motorist insurance (UIM) pay for your medical bills and other expenses, such as lost wages, funeral expenses, and pain and suffering.
Some states require UM. Other states offer UM as an optional coverage (you can reject coverage in writing). Even if UM is not required in your state, this is generally a good coverage to have if it is available to you.
Collision and Comprehensive Insurance
If you want coverage for car repair bills for your own vehicle, you’ll want to buy collision and comprehensive insurance. While these coverage types are often sold together, they cover two different groups of problems:
- Collision insurance helps cover your car repair bills for accidents such as crashing into another car or backing into a pole. If someone else crashes into you and is responsible for your car repairs, you could make a claim on their liability insurance rather than using your own collision coverage.
- Comprehensive insurance pays your car’s value if it is stolen and helps pay for car repair bills for problems such as falling objects, collisions with animals, fires, floods, hail, vandalism and theft.
If you have a car loan or lease, your lender or leasing company will likely require that you carry both collision and comprehensive insurance.
Personal Injury Protection
If you are hurt in a car accident, personal injury protection (PIP) pays for you and your passengers medical bills and other expenses no matter who caused the accident. PIP is required in 15 states as part of “no-fault” insurance laws. PIP is optional in four states and the District of Columbia.
PIP generally covers:
- Medical bills
- Lost wages if you can’t work due to accident injuries
- Rehabilitation costs
- Replacement services for tasks you can’t perform due to injuries, such as child care and house cleaning
- Funeral expenses
Medical Payments Coverage
Sometimes called “MedPay,” this coverage type pays for medical bills for you and your passengers, regardless of who is at fault for the car accident. MedPay is generally sold in small amounts between $1,000 and $5,000. MedPay is not available in every state.
Optional Coverage Types
In addition to the standard auto insurance options, you may want to buy extra coverage to ensure you’re fully protected:
- Rental reimbursement insurance. If your vehicle is out of commission because of a problem covered by your policy, rental reimbursement insurance pays for your extra transportation costs, such as a rental car or subway fare.
- Gap insurance. If you have a loan or lease, gap insurance pays the “gap” between what you owe on the car loan and the depreciated value of the vehicle if it is totaled by a problem covered by your policy (such as a car crash or fire).
- Roadside assistance insurance. If your car breaks down or gets a flat on the side of the road, roadside assistance insurance pays for services such as a tow truck, jump-start or locksmith.
Compare Car Insurance Quotes
When you have determined how much car insurance you need, the next step is to compare car insurance quotes from multiple insurance companies. Car insurance rates can vary a lot from insurer to insurer for the exact same coverage, so don’t skip this vital step.
You can get free quotes:
- Online. If you prefer to shop from your couch, you can find free car insurance by going to an insurer’s website or using a comparison site that lets you compare multiple policies all at once.
- An insurance agent. If you prefer to talk with someone, you can speak with an insurance agent. It’s better to speak with an independent agent who sells policies from multiple policies compared to a captive agent that only sells policies from one specific company.
Here is some of the information you’ll need handy to gather insurance quotes:
- Personal information. This includes the age and driving experience of all drivers in your household, driver’s license number and ZIP code (where you will garage your car). Vehicle information. In addition to the make and model of your car, it’s good to have information like safety and anti-theft features, which could land you a discount.
Buying an Auto Insurance Policy
Once you identify the company and policy you want, it’s time to make an auto insurance application.
Some insurers will offer up to a 10% discount if you pay the full term up front. If you don’t want to pay in full, you can typically choose monthly instalments. You might be able to get a small discount for using automatic withdrawals.
When you have a policy the insurance company will send you proof of insurance via email, fax or mail. Some insurers have a mobile app that you can download your proof of insurance. Most states, excluding New Mexico, accept digital proof of auto insurance.
If you are purchasing a new or used car, most states require proof of insurance before you can register the vehicle and drive it off the dealership lot.
Canceling Coverage With a Previous Insurance Company
If you already had insurance in place on your current car, make sure your new coverage is active before canceling the previous policy. You should get a refund for the unused months on the old policy.
Make sure you get confirmation that your policy was canceled.
If you cancel auto insurance before the new coverage is effective, your car will be uninsured, which can have serious legal and financial consequences if you get into a car accident—meaning you will have to pay for all damages and expenses out-of-pocket, and you could be ticketed for driving uninsured.
Tips for Car Insurance Buyers
Whether you’re a car insurance newbie or an expert, here are some helpful tips worth considering when buying a car insurance policy.
Look for Ways to Cut Car Insurance Costs
There are ways to save on car insurance, such as:
- Bundle your insurance. Also called a “multi-policy discount,” this is when you buy more than one type of policy from an insurance company. It’s typically one of the best discounts you can get. For example, you can bundle auto and home insurance.
- Ask for discounts. Insurers offer a wide variety of car insurance discounts, such as discounts for insuring multiple cars, vehicle safety features, anti-theft devices, good driving, being a good student, and occupational and professional memberships.
- Increase the deductible. The higher your insurance deductible for comprehensive and collision insurance, the less you’ll pay in premium. That’s because your insurer will pay less if you file a claim. For example, you can increase your deductible from $500 to $1,000 (or more). Just keep in mind, if you choose a high deductible, you’ll be responsible for paying that amount out of pocket if you file an insurance claim.
- Minimize optional coverage on older vehicles. In some instances, it doesn’t make financial sense to pay for certain optional coverages for an older car. Here’s a guide for when to drop collision and comprehensive insurance.
Keep Your Coverage Options Open
Be prepared to regularly review your auto insurance coverage to make sure it still meets your needs. The policy you bought 10 years ago may no longer be adequate or competitively priced.
“Auto insurance needs vary from person to person. From young drivers, commuting to work, carpooling to soccer practice, or approaching your golden years of driving, it is important to consult with your agent throughout every phase of life to make sure that you have the exact coverage you need and nothing that you don’t,” says Jon Bloom, vice president of product management at Erie Insurance.
Look Beyond the Price
Sure, you want to find car insurance at the best possible price. But cost isn’t everything. If you have to file a car insurance claim, you want an insurance company that has a solid reputation for customer service.
The best car insurance companies combine good service at a competitive price. We evaluated large insurance companies based on average rates, levels of complaints and grades for collision claims by auto body repair professionals.
