We Americans love our cars. And in return for unlimited mobility, many of us are willing to spend thousands of dollars buying them and keeping them going. As for insuring them, many of us spend as little time thinking about that as possible. But without the right car insurance, you could be ruined financially. A good policy can guarantee you can replace your car, cover what could be staggering medical bills and legal costs — and even make up for lost wages.
This guide will help you figure out your auto insurance needs, weigh the different types of coverage and find out how to get the best protection for you and your loved ones.
What Kind of Insurance Should You Get?
Almost all states require car insurance. If you “go bare,” you risk fines and getting your license suspended. But that can seem like small change if you’re sued after an accident. Not only will you have to pay hefty legal fees, but all your assets can be put at risk. But what kind should you get? Auto insurance is far from a one-size-fits-all product. What an individual policy covers will vary greatly, and you can mix and match coverage, deductibles and limits to meet your needs.
Insurance companies generally price each type of coverage separately. The major types of coverage include:
Includes both bodily injury liability coverage and property damage liability coverage. It covers damages you cause to other people and property. It may pay for such things as expenses for repairs, medical costs, legal fees and lost wages. It does not provide protection to you or your passengers. This coverage is required by most state laws
Provides protection if your vehicle is hit by motorists who don’t have insurance or don’t have enough coverage to pay for the full extent of the damage they caused. This covers damage to your car or truck, medical expenses, and other related costs. Some states require vehicle owners to carry this coverage.
Covers repair or replacement of your vehicle if you are in an accident, whether you collide with another vehicle, hit a telephone pole, or skid off a hill in a rollover crash. If you’re buying a new car, most lenders will require you to have this type of insurance (along with comprehensive coverage).
Provides protection against loss or damage to your vehicle that is caused by something other than a car collision, such as theft, fire, storms, hitting a deer or another animal, and natural disasters such as floods, earthquakes and hurricanes. Many insurers bundle comprehensive coverage with collision coverage.
Hurricane Sandy, for example, destroyed an estimated 250,000 vehicles in 2012, according to the National Automobile Dealers Association, and Hurricane Katrina, which flooded New Orleans, ruined another 325,000. Many insurers bundle comprehensive coverage with collision coverage.
Covers the cost of medical payments to care for injuries to you or your passengers. This coverage may also include lost wages and funeral expenses. This coverage is required in some states.
This is similar to medical payments coverage, but available in so-called “no-fault” states that require it. This covers medical and related expenses. Your insurance company will cover these costs regardless of who caused the accident. In cases of severe injuries, you may be able to sue the driver who is at fault depending on state regulations.
Also known as “loan-lease payoff insurance,” gap coverage is intended to make up any difference between the value of a car at the time of an accident that results in a total loss and the amount you still owe to a lender or leasing company. If you carry gap coverage, pay attention to the amount you owe on the car and its present value to see if you need to continue carrying the coverage.
How Much Insurance Do You Need?
While state laws require drivers to carry certain minimum insurance coverage, these requirements often fall far short of their actual needs, according to the Insurance Information Institute.
In 2013, the average auto liability claim from property damage was $3,231 and the average collision claim was $3,144, according to the Rocky Mountain Insurance Information Association, an insurance industry trade group. If people are hurt in an accident, costs can be significantly higher. In 2013, the average liability claim from bodily injury was $15,443
Claims could cost you thousands—or hundreds of thousands.
Liability claims can also run into the hundreds of thousands of dollars or even a million or more. If you can afford it, try to carry enough insurance to protect your assets should you be in an accident. To determine how much you need, consider the value of your car, your home and other assets.
Liability coverage will be expressed as three numbers, such as 100/300/50. That means the maximum amount the policy will pay for an injury to an individual is $100,000. The second number means the policy will pay a maximum of $300,000 for the total of all injuries in an accident. The third number means the policy will pay a maximum of $50,000 for property damage.
Remember, liability coverage pays for damage you do to people and property other than your own. It does not cover you, your passengers, or your vehicle.
More coverage may not be as expensive as you think
Most experts recommend getting liability coverage of at least $100,000 per injury and $300,000 per accident, according to the Insurance Information Institute. Sometimes the cost of getting an extra $100, 000 in coverage can be as little as $30 a month or less, according to MoneyGeek’s analysis of Quadrant data on car insurance.
If your assets far exceed your policy limits, you can consider getting an umbrella policy, which is a separate policy that would cover excess costs once your policy limits are exceeded.
If you choose to get collision and comprehensive coverage, the value of your car should determine how much you buy. If your car is worth $1,000 or less, and you’re be paying $1,000 a year with a deductible, it wouldn’t be worth the money to insure it.
Besides the major types of coverage outlined above, you might want to add other options to your insurance policy. These include:
Emergency roadside service For a small additional fee to your policy, this will cover the cost of towing. Consider this coverage if you do not already have it from your automaker, credit card company or membership in an automobile club.
Mechanical breakdown This coverage is available when insuring a new car. You might want to consider this as an alternative to an extended warranty. It may provide broader coverage than a manufacturer’s extended warranty, but won’t cover routine maintenance, such as oil changes, tune-ups and brake pads. Do a price comparison if you are considering a manufacturer’s extended warranty and make sure you understand what’s included and what not.
Modified car coverageLike to tinker? People who modify their car or add custom or aftermarket parts may find their car is worth more than its book value. If you carry this coverage, be sure to document your purchases with receipts and photographs.
Non-owner liability coveragePeople who prefer to rent a car, use a car sharing service or borrow other people’s cars should consider this coverage. This type of insurance often doesn’t extend beyond liability coverage, but that alone could be worth it to protect yourself in the event of a crash.
Car insurance coverage for special circumstances
Whether you own a collectible car or drive for a ridesharing service, such as Uber or Lyft, you may need special coverage. Here are some instances for which you may need something beyond the typical options:
If you own a classic or vintage car (anything older than 25 years), you should shop for specialized coverage. This allows you to insure your car for an agreed upon value with an insurer. While most cars depreciate in value year after year, classic cars are likely to appreciate. They tend to be driven differently from other cars and may require special insurance if they are displayed at shows. The insurance will likely be much cheaper than regular insurance.
To buy or not to buy, that is the question. Many people who have an auto policy may already have coverage when they rent a car. They may even get free coverage through their credit card. Before renting a car, take a look at the coverage you already have. If you are relying on your existing insurance policy, make sure it includes collision and comprehensive coverage. Consumer Reports also advises checking with your insurance agent to make sure your policy covers rental cars. If it does, ask whether it pays for rental-agency fees such as towing and “diminished value.” If not, the journal recommends adding gap insurance to your policy.
People who earn money driving for ridesharing services may not be covered by their existing policies: Personal auto policies generally don’t cover commercial use or “driving for hire.” In fact, if your insurer learns you are doing this without notifying them, they may drop you. This could lead to higher costs getting insured. Though ridesharing services, such as Uber and Lyft, offer some insurance, it may fall short of providing you with enough protection. Some insurers have begun offering ridesharing insurance, so talk with your agent to see what you need to be fully covered on the job.
Self-driving cars are expected to become commercially available by the end of the decade. Some forecasters suggest the advent of self-driving cars will do away with the need for auto insurance. Don’t bet on it.
What if you can’t get car insurance?
Although most states require vehicle owners to carry insurance, not everyone can get it. Some people, because of their past driving records, may be unable to obtain insurance from a private company. Others may simply not be able to afford it. In these cases, there may be state programs available to help.State-sponsored programs for high-risk drivers
While there are some companies that offer policy for high-risk drivers, all insurance companies are required to participate in a program that pools high-risk drivers. Companies participate in proportion to the business they do in the state. If you have a spotty driving record, this pool may help you obtain coverage. Premiums, thought, will be high. Check with your state insurance department to learn more.Low-cost insurance programs
Some states, such as California, Hawaii, and New Jersey, offer programs to provide affordable insurance to people who can’t afford to buy insurance from private companies. These programs are designed to prevent uninsured motorist from taking to the road. To qualify, vehicle owners must meet income eligibility requirements. Check with your state insurance department to learn more.
How to Save on Car Insurance
Before you buy car insurance, take time to shop around. Prices will vary between carriers, and a little effort can save you hundreds of dollars a year. The Insurance Information Institute says buyers should get at least three bids before making a purchase. Because your insurance will depend in part on the value of your car, its safety record, and the cost of repairs, it’s a good idea to price insurance before you buy your car to understand what different models might cost to insure.
Check with friends and relatives for recommendations and to find out how different companies are to work with if you have to process a claim. Also check with your state department of insurance, which may offer price comparisons and track consumer complaints. You may also want to check social media review sites, such as Yelp, to see whether customers seem satisfied.
Once you have a policy, don’t plan on keeping it forever. Make sure you shop around every few years to see whether you can save elsewhere. Consumer Reports found more than half of their subscribers remained with the same auto insurance for at least 15 years. While some reward such loyalty with discounts, many don’t — and some even raise rates because they feel confident you won’t look elsewhere.
Below are some tips from the Insurance Information Institute on ways to save money when you shop for auto insurance:
A basic rule of thumb is: The higher the deductible, the lower the premium. The deductible is the amount you will pay in the event of a claim before your insurance company puts up any money. This will cut your costs, but just be sure you have enough money to pay the deductible if you have to.Don’t over-insure older cars
As your car gets older and its value depreciates, be sure to review your policy. The Insurance Information Institute suggests that if your car is worth less than 10 times the monthly premiums, it may be worth dropping collision or comprehensive coverage. You can check the value of your car online at websites such as kbb.com.Maintain good credit
Though your credit history may not seem to have anything to do with your risk behind the wheel, insurance companies think otherwise. The Insurance Information Institute asserts that people with good credit file fewer claims. Make sure your credit information is correct and take steps to improve your credit if you have problems.
In addition, there are several discounts that may lower your premium still further. Read on below to learn about other ways you may be able to save.
Discount checklist: Lowering your monthly premium
You can save money by taking advantage of the many different discounts in the marketplace. These include a discounted premium for being a good customer, safe driver or — in the case of teens and college students — a good student. Specific discounts and the savings they produce will vary from company to company.
Even though a company offers a slew of discounts, it may not have the lowest prices. Consider the total cost of insurance after discounts when you compare prices. Some of the more common discounts include:
Many insurance companies will offer a discount if you bundle your auto policy with your homeowner’s policy. You can also get a discount if you insure more than one car. Even with such a discount, shop around to make sure you are getting the best deal you can.Long-time customer
Some companies offer discounts to customers who have been with them for several years. But as consumer advocate Bob Hunter has warned, others see this customer loyalty as inertia and a sign that you won’t shop around for a better deal. In other words, it will embolden them to raise your rates.Good student
Teen drivers are expensive to insure, so discounts here can be welcome. A good student discount is available from many insurers, although your teen will need to meet their definition of a good student. This is usually based on grade point averages.College student
If your policy covers a college student who is away from home, you may be eligible for a discount. Companies that offer this discount will that the college is a minimum distance from home. College students may also qualify for the good student discount.Seniors
Some companies offer a senior driver discount based on the age of the driver. The age at which this discount kicks in varies from company to company. Some start as early as 50. In many cases, senior drivers have to complete a defensive driving course to qualify for the discount.Good driver
If you’ve gone more than three years without a moving violation or accident, you may be eligible for discounts.Drivers’ education classes
Some insurance companies will provide a discount if you complete a driver’s education course or course in defensive driving. This can also cut the cost of insuring a teen driver.Group insurance
Some companies offer discounts to drivers who get insurance through a group plan from their employers, through professional organizations, alumni groups, or other associations such as the AAA.Low mileage
If you drive less annually than the average car owner, you may be eligible for a low-mileage discount. The threshold varies greatly with companies. Some will require you to drive less than 7,500 miles a year while other will give discounts for up to 15,000 miles a year.Anti-theft devices
Many insurers will offer discounts for anti-theft devices, such as auto alarm systems and ignition-kill switches, but don’t buy them just for the discounts. The reduction in the policy costs can be negligible relative to the cost of these devices.
Alert: What to do if your insurance policy is cancelled
If your insurance company cancels your policy, it’s important to understand whether your policy was actually cancelled or the company is just refusing to renew it. It’s also important to understand why they made that move.
While insurance companies can generally cancel policies for any reason during a fixed period after initiation— usually 60 days— after that time there are limited reasons they can do so, according to the National Association of Insurance Commissioners. This is generally because of either non-payment or something factually inaccurate on your application. State laws set a required period of notice prior to a policy being cancelled.
If your insurance company decides not to renew your policy, it must also give you advanced warning under state law. This is typically 30 days’ notice. If your policy is not renewed or cancelled outright, you should ask your company why. If you feel the company representatives did this for the wrong reasons, you can try to change their minds. If you fail, but still think they acted wrongly, contact your state department of insurance.
If your policy was cancelled for non-payment, you may be able to have it reinstated. This, however, will require that you cover the unpaid balance. Your company may also levy other fees, such as a non-payment premium.
If you lost your policy because of a DUI conviction or a sullied driving record, you can seek coverage elsewhere. The problem: It will now be harder to get and likely more expensive. Should you be unable to obtain coverage from a private insurer, you can seek out coverage through your state’s high-risk insurance pool.
What to Do If You’re Dissatisfied with Your Insurance Company
If you run into a problem with your insurance company, talk with your agent and broker to see if they can help resolve your problem. If you purchased the insurance directly from the company, seek out a customer service representative.
If the problem you are having relates to a claim, please see the section above “Using Your Car Insurance Coverage: How to Get What You Need When Making a Claim.”For other matters, find out if the company has an ombudsman or someone with similar authority who can resolve customer problems. Write a letter and document your problem in detail.
If you can’t resolve the problem to your satisfaction, ask to speak to an ombudsman. If this doesn’t work, the next avenue of recourse is your state department of insurance. Though most state offices just forward the complaint to the company, it does add pressure on them to resolve the matter. You could also consider filing a complaint with your state department of consumer affairs or the Better Business Bureau.
If you have exhausted other options and feel your insurance company is violating the terms of your policy, you can take legal action. If the amount in question is small enough, use the small claims court. Otherwise, consider getting a lawyer.
Expert Interview: Carole Walker
Carole Walker has served since 1998 as executive director of the Rocky Mountain Insurance Information Institute, a nonprofit trade organization that covers Colorado, New Mexico, Utah and Wyoming. She is also a member of the Colorado Teen Driving Alliance.
Let’s start with a really basic question: Why do I need to buy car insurance?
First and foremost, because it’s required by law in most states. In addition, it’s to protect your assets. If you don’t have insurance and cause an accident, it can put you in financial ruin if you are taken to court. Think of it as a small investment to cover this large risk.
How should consumers decide how much coverage they need?
Look at your car insurance policy as six separate policies. Look at what’s required by law, what’s optional, then discuss what makes sense for you with your agent.
Consider things like your assets and how much medical coverage you already have. The minimum required by law is usually bare bones, and is very low if you look at the costs you could potentially face in a claim settlement. You should strongly consider more coverage if you can afford it.
Remember the insurance isn’t just for you; it is for your passengers as well. Think about your driving behavior – are you a carpool mom or dad carrying around a lot of kids? You’re responsible for them too.
Often people don’t think about their type and level of coverage until they are filing a claim, and that’s the last time you should be considering this. By then it’s too late.
Is uninsured motorist coverage worth it?
Uninsured or underinsured motorist coverage is optional in many states. But [if you don’t buy it], you’re basically trusting that everyone else is carrying enough insurance — and we know that’s not the case. If someone who is uninsured causes an accident, they might be responsible for your costs. But if they couldn’t afford to buy insurance in the first place, your chances of getting paid are pretty slim.
When should I skip collision and comprehensive insurance?
People consider dropping collision and comprehensive insurance on older vehicles, as they may consider that it’s not worth the cost. Consider the risks in state you live in – for example, if you get a lot of hail storms, a lot of car thefts, or a lot of deer on the road. If you drop comprehensive coverage and a hail storm comes through, you will have to pay for your damages out of pocket. Think about whether you can afford to fix or replace your vehicle if you don’t have comprehensive insurance.
Why would I need medical payments coverage if I have health insurance?
First party medical coverage is additional coverage you can purchase to have your insurance company pay your bills regardless of who causes the accident. It may pay for an ambulance ride, an ER visit and medical bills, for example.
All too often people expect their medical insurance to cover their bills after an accident. Of course it’s important to have good health insurance for any instance, but it’s important to understand what your own health insurance covers. In a car accident, even if someone else is at fault, it may take a while to get it covered by your health insurance. This insurance could cover your initial medical costs.
Besides my age and gender, what do insurers look at when setting my premium?
Obviously you can’t change your age or gender. But how you drive, what type of car you drive, and your credit score are all things you can work on to improve your premium.
Your driving record is always considered by insurers. Moving violations and at-fault accidents will work against you and can lead to higher premiums. They can also cause an insurance company not to renew your policy because you are considered high risk. A good driving record is ultimately something you have control over. By driving safely, you can keep your premiums down and also make us all safer. Having a car that’s safe and crashworthy is also very important and can lead to [lower premiums].
If you have a good credit score, you may get a discount: People who manage their personal finances well will pay less Companies have been using this as a factor for many years. The initial reaction was ‘what does my credit rating have to do with how I drive?’ But study after study shows a strong correlation between how you manage person finances and whether you get in an accident.
How else can I keep my premiums down?
There are so many different discounts out there, it’s important to ask your insurer what you might be eligible for. For example, combining auto insurance with your homeowners or renters insurance might make sense. Ask for good driver discounts. If you have tickets, some insurance companies will offer a reduced premium if you take a defensive driving course.
When you’re looking at ways to save, having a higher out of pocket deductible can save you up to 20 percent on premiums. Look at all your deductibles on all your different kinds of coverage. Of course, you’ll have to pay out of pocket [for the deductible] if have an accident.
How are insurers using technology to track our driving habits? Is this really a good idea?
In the olden days, insurers asked people about their driving habits and took their word for it. Better drivers have historically subsidized bad drivers because the risk was spread out more and higher risk drivers were in the mix. Now, knowing how much you drive, how you drive and when you drive, insurers can measure your individual risk better. You may not be a good candidate for this program if you drive at odd hours or very many hours, but many consumers can reap a discount.
New vehicles all have the technology to do this. Most of the programs, like Progressive’s Snapshot device, are opt-in. The question for us as drivers is how are they going to use the information. Even from a marketing standpoint, insurance companies understand that people want certain information to be private.
Is there an easy way for consumers to compare rates?
The positive thing for consumers is there are more ways to buy insurance than ever before. Savvy shoppers go online and arm themselves with information, then they compare rates. However you’re buying insurance, be sure your expectations are very high.
It is important to shop around. Get at least three quotes, but don’t just shop for price. Ask about their claims process, make sure that you are able to buy the kind of insurance you need, and consider a company that has a good rating.
This consumer advocacy group lobbies and does public education on issues including auto insurance, health, food safety and product safety.
This non-profit trade association offers consumer information on auto, homeowners, renters and business insurance in the Rocky Mountain region.
This industry trade group offers consumer information on car insurance premiums and state laws.
Locate your state insurance department on the National Association of Insurance Commissioners website. If you have an unresolved complaint with your insurer, contact your department.