The Basics of Car Insurance Everyone Should Know
If you buy a new car (even if it’s new-to-you), it can be an exciting milestone. You have your own set of wheels and have a sense of freedom to go where you want. But then there’s the practical stuff, like getting auto insurance. It can be overwhelming and lead to so many questions. How much is car insurance? What is the average car insurance cost? Where do you find the best car insurance quotes? In this quick guide, we share what you need to know about auto insurance.
Who Needs Car Insurance?
To legally get behind the wheel of a vehicle, you typically need two things — a driver’s license and car insurance. All states except New Hampshire (drivers need to prove financial responsibility) and Virginia (which includes a $500 Uninsured Motor Vehicle (UMV) Fee) require drivers to get liability insurance and meet minimum coverage requirements.
Each state has different levels of coverage you must get, which cover both bodily injury and property damage. Basically, this type of insurance protects your liability and pays out to the other driver if you cause an injury or damage to their property.
Two major things to note:
- Liability insurance doesn’t cover any of your own costs.
- You might want to consider getting more than your state’s minimum coverage.
It’s important to highlight this because you could leave yourself vulnerable if you only get this basic level of coverage and only take out the minimum.
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Insurance companies are in the business of evaluating risk and all of these factors paint a picture for them on how likely it is you’ll file a claim.
How Much is Car Insurance?
Since you basically have to get auto insurance, it’s yet another expense to think about. So how much is car insurance, anyway? The average car insurance cost is $51 per month for liability coverage and $132 per month for full coverage, according to insurance site PolicyGenius.
But how much you’ll pay for car insurance is based on many factors. According to the Insurance Information Institute (III), factors that affect car insurance rates include:
- Driving history
- Age
- ZIP code/city/state
- Gender
- Type of car
- Credit score (though this is prohibited or limited in a handful of states)
- Coverage type
Insurance companies are in the business of evaluating risk and all of these factors paint a picture for them on how likely it is you’ll file a claim. Your driving history is one key part of that. So if you have been in an at-fault accident or have a collection of speeding tickets, you’re considered more at risk and may pay more for car insurance.
Where you live and where your car is parked matters too because of population density, theft, crime, and natural disasters. So that means drivers in crowded cities or ones that experience higher levels of crime and theft may pay more.
Even things outside of your control like weather can impact rates. Florida drivers are feeling that right now, as premiums have increased up to 30% in some cases. Due to the unruly hurricane season and other factors, insurance companies are charging more.
To find the best deals, get various car insurance quotes from several car insurance providers. Consider the discounts each company offers and look at customer reviews on Trustpilot and the Better Business Bureau (BBB). If you purchase more than one insurance policy with a company — such as an auto policy and a renter’s policy — you’ll likely qualify for a bundling discount.
If you’re on a budget and concerned about the average car insurance cost, getting the minimum coverage required will save you money. However, minimum coverage offers minimum benefits. Getting full coverage car insurance provides wider protection, but also costs more.
“Full coverage” car insurance typically refers to having multiple coverage types, including liability, collision, and comprehensive coverage.
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Different Coverage Types
Car insurance companies offer different types of coverage. Some may have special add-ons or endorsements, like roadside assistance, but these are the most common coverage types available.
- Liability coverage: This type of insurance is required by your state and covers bodily injury and property damage. You must meet minimum requirements, though it can be a good idea to have higher limits.
- Collision coverage: Whether you hit another car or run into a pole, if you “collide” with something, this insurance coverage will pay for the damages. This can be a good addition to liability coverage, to ensure your property is taken care of.
- Comprehensive coverage: Think of comprehensive coverage as covering everything else that could damage your vehicle — from fires to floods, to theft and vandalism.
- Personal injury protection (PIP): Getting this coverage can help cover medical bills if you’re injured because of a car accident. No-fault states typically require this coverage.
- Uninsured or underinsured motorist coverage: State law dictates that drivers need to have liability insurance. But not everyone follows the law. Through this coverage, you’ll be protected if you’re involved in an incident with a driver who either doesn’t have car insurance at all or is underinsured and can’t cover all costs.
How Does Car Insurance Work?
When you purchase an auto insurance policy, you pay a premium. Those payments keep your policy active. What your insurance covers is based on the coverage type you purchase. If you get full coverage car insurance and get in an accident, you can file a claim with your insurance company.
When you file a claim, typically an adjuster will review the incident. Once the claim is approved, your insurance company will reimburse you for the costs to repair the vehicle.
In most cases, you’ll pay a deductible before you get a payout. When buying coverage, you can choose a deductible amount. If you choose a higher deductible, premiums are generally lower. The converse is true as well — if you choose a lower deductible, your premiums will likely be higher.
Bottom Line
If you’re wondering how much is car insurance, there’s no simple answer. While we know the average car insurance cost, the rates you qualify for will be based on your driving history, location, and other factors. For cheap car insurance coverage in your area, review various car insurance quotes to find a deal you feel good about. And for financial tips and tricks, sign up to be a Consumer INsider!
