Congratulations on getting your driver’s license! Before you can hit the road, though, you’ll need to get some auto insurance. In fact, most states require it before you can even start driving. For the others, you’ll still need to pay some kind of penalty if you don’t have it (and still have no coverage). But buying car insurance can be tricky. Here’s a guide on how to buy an auto insurance plan and some tips on how to get a good deal.
Types of Auto Insurance Coverage
There are several types of coverage. A good auto insurance plan has most, if not all of them. But not every one is necessary, and you might be able to save some money by leaving some of those unnecessary ones out in certain cases. Auto insurance requirements vary by state, so I’m just going to go over the general stuff here.
Collision
When your car hits another car, object, or flips over, this is what covers the repairs for your car. It comes into effect after a deductible (out-of-pocket cost) and covers the car up to its Blue Book Value (its current estimated value). Most accidents count as collisions, so as you might expect, this one’s generally important.
But if you’re driving an old car, and your premium (monthly amount you pay) for collision coverage for a whole year equals or exceeds 10% of your car’s Blue Book Value, you might want to consider dropping it. That’s because you might end up paying more in premiums over time than you would get back when you need to repair or replace your damaged vehicle.
Comprehensive
This one’s actually misleading. It sounds like it covers everything, but it doesn’t. Comprehensive coverage covers damage to your car (after a deductible) that happens from most things that aren’t collisions. These include vandalism, theft, natural disasters, and hitting animals (yeah that one’s technically a collision, but it’s out of your control).
Like with collision coverage, it’s generally important but you might want to consider dropping it if your annual comprehensive coverage premium equals or exceeds 10% of your car’s Blue Book Value.
Liability
In the states that require auto insurance, liability coverage is mandatory. It covers damage you cause to others in an accident when you’re at fault. It’s usually expressed as a set of three numbers that describe maximum payouts (bodily injury per person/bodily injury per accident/property damage), though sometimes it’s offered as one combined limit. The minimum required varies from state to state. As an example, California requires a minimum of $15,000 for injury/death to one person, $30,000 for injury/death to all people in the accident (excluding you/your passengers), and $5000 for property damage. In shorthand, it would be 15,000/30,000/5000 or 15/30/5.
What happens if your liability coverage isn’t enough to cover the damage? If that happens, the other party’s attorneys can go after your assets to cover the rest of it. That’s why you should get enough coverage to protect your assets as well. Even if you don’t have many assets, you should still get more than just the legal minimum because, depending on the state, your wages could be garnished (collected as payment) instead.
Uninsured/Underinsured Bodily Injury and Property Damage
What happens if you’re not at fault in an accident, and the other party doesn’t have auto insurance or simply can’t pay enough for the damage? That’s where this coverage kicks in. Many states require it. But even if your state doesn’t, around 12% of drivers don’t have any auto insurance at all, so it’s still important to get it. In addition, it may also cover lost wages after an accident (from not being able to work), your injuries as a pedestrian, and hit-and-runs.
Personal Injury Protection
This covers your (and your passengers’) medical expenses from injuries and can sometimes cover wages lost from being unable to work. Some states require it. For others, it’s optional, and you probably don’t need it if you have good health insurance. If you don’t, it’s pretty important.
Gap
Another optional coverage, it covers the “gap” in what you owe on the car and what its current value is when you lose your car to theft or collision. Cars depreciate (lose value) quickly, so there’s a period of time where the amount you owe on the car (if you didn’t just straight up buy it) is more than the amount you’ll get if you total it. Your collision/comprehensive coverage covers the current value of the car, and gap coverage covers the rest of what you owe.
You should consider it if you’ve you made less than a 20% down payment on the car, are driving it on a lease, or financed it so your loan is longer than 60 months. If you own your car or owe less on it than it’s worth, you don’t need it.
Rental Car
Often, the liability coverage you have for your own car also applies to rental cars. In addition, credit card companies sometimes offer some coverage if you use the card to rent the car. Make sure to check your plan’s details. Otherwise, you’re going to have to buy insurance from the rental car company to cover the rental car.
Loss of Use/Rental Reimbursement
If you need to rent a car while your actual car is being repaired, this covers the rental costs. But if you have access to another car or can use public transportation, you don’t need it.
The General Process of Buying Auto Insurance
Now that you know about the types of auto insurance, it’s time to go through the general process of getting a plan. You’ll need the following documents: driver’s license (yours and the license(s) of anyone else who will be driving the car), vehicle registration information, and a current declaration page (details the current insurance on any cars you’re looking to cover).
1. Determine How Much Coverage You Need
The minimum coverage you need will depend on the state you live in. You can find it and other specific resources for your state by visiting the National Association of Insurance Commissioners (NAIC) website.
In addition to meeting the minimum, there are other factors you want to consider when figuring out how much insurance to buy. You’ll want to find a plan that sufficiently protects your assets and is affordable for your financial situation. In addition, it’s also important to consider your particular driving situation. Is your car new or old? How good are you at driving? Do you live in a place that’s prone to crime or natural disasters? Analyze your circumstances and determine what kinds of coverage are important to you.
2. Get Quotes
People who shop around can end up saving a lot of money (sometimes up to about 40%). There are two ways you can go about this: online or through an agent. Generally, searching for auto insurance online is more convenient, while getting insurance from an agent is more helpful. One thing to note is that a quote is more of an estimate, not a finalized price. To avoid being overwhelmed, keep your search down to about 5 companies or less.
Online
There are plenty of so-called “one-stop shopping” sites where you can type in your information and get a list of quotes from many companies. Just be aware that not all companies participate in these sites, so you might be missing out on a great offer if you restrict yourself to just those. You can also ask people you know if they recommend a certain company’s insurance plans and just go directly to the company’s site.
Online shopping comes with several benefits over getting insurance through an agent. You can shop whenever you want, and there’s no pressure to buy. In addition, you only need to submit your information once (per site) to get lots of offers. It may also be cheaper since there’s no agent to pay.
On the other hand, there’s usually no one (or no experienced person) around to ask questions should you have any. If you have special circumstances, machines won’t be able to understand them. Also, it’s harder to get special bundle offers that could save you money. Lastly, you often need to provide plenty of sensitive information (like your social security number), so need to be sure that the site you’re dealing with is legit.
Agent
If convenience and cost aren’t particularly important, getting insurance through an agent might be better for you. Insurance agents can either be tied to a company or independent. Those tied to a company will only give you offers from the company they work for, while independent ones can give you offers from several companies. Both are very knowledgeable and will guide you through the process of getting a plan that’s best for your particular circumstances. In addition, they can help you file claims and point you to special discounts and bundle offers.
Agents can be a great help for first-time buyers who aren’t entirely sure how navigate the insurance world. But there are a few disadvantages. Plans from agents are generally more expensive. In addition, agents often get paid a commission, so you might be under some pressure to buy. Also, if you’re dealing with multiple agents, you’d have to send your application to every one of them. Lastly, some agents might try to sell you unnecessary coverage to get more in commission. Always try to look for agents that have a good reputation.
3. Compare Quotes and Companies
Now that you have some quotes, you need to compare them. It’s important that you do an apples-to-apples comparison between plans (exactly the same coverage). Otherwise, you might think you’re getting a great deal when it’s actually just less coverage.
You also want to compare the reputations of the companies you got quotes from. For example, you should check how responsive their customer service is (useful when you have urgent questions), what their payment plan is like, and how easy is it to file and receive claims. If you’re working with an agent you can ask him or her about it. You can also ask people you know if they like their experience with a company.
4. See If You Can Get Any Discounts
Many companies offer discounts for various things like safety equipment (side airbags, good brakes, security alarm…), having a certain job, or even having a good GPA. Make sure to check for all discounts you qualify for (or ask your agent if you’re working with one).
5. Review the Plan
Once you’ve decided on a particular company’s quote, contact the company and get all the details of the plan. Review it carefully to make sure that you’re getting exactly what you want. For example, one thing to look out for is whether the company will pay for original factory parts when you need to repair it. Things like that can be important to you if you have a new car. If you’re completely satisfied with the plan then great, you have car insurance!
What Affects Auto Insurance Premiums?
Each insurance company has its own way of calculating premiums, and they depend on a lot of factors. These include your age/sex, where you live, the make and model of your car, how often/well you drive, and so on. As you might expect, there’s some confusion out there on what actually affects premiums. For example, contrary to popular belief, the color of your car doesn’t matter. Many people mistakenly assume that red cars are more expensive to insure than others because they get more traffic tickets. It’s wrong in two different ways. First, the car’s color isn’t something insurance companies care about. The only time it might matter is if it’s a custom paint job (it might count as a custom modification and require a small fee). Second, even if red cars do get more tickets (it’s a dubious claim), your insurance premiums reflect your tickets, not other people’s tickets.
Accidents and traffic tickets increase your premium, and good driving lowers it, understandably. But certain life events can also change it. These include getting a new job, getting married, and moving. Also, letting your insurance plan lapse (letting it end without getting new insurance) might result in higher premiums later on when you want to buy a plan again. Some companies also use your credit score in calculating premiums, so when that changes your premiums might too.
In addition, your insurance premium varies inversely with your deductible. For young, inexperienced drivers, it’s best to get a plan with a low deductible because they’re more prone to accidents. That way, they have less out-of-pocket costs when they file a claim. This comes at the cost of a higher premium. But more experienced drivers with better financial situations (enough savings to cover higher out-of-pocket costs) can lower their premium by contacting their insurer and increasing their deductible.
Other Useful Auto Insurance Tips
Here are some additional tips for dealing with auto insurance:
Don’t Lie on Your Application
You might be able to get away with it when you first buy it to get a better premium. But when you need to file a claim, it’ll definitely be obvious. Your insurer could decide to cancel your plan (you used invalid information) and leave you on the hook for everything. It might also make it more difficult for you to get an insurance plan in the future. Don’t risk it.
Make Sure You’re Covered If You Use Your Car for Business
Most personal insurance plans don’t cover your car if you use it for business (ex. delivering pizzas). In fact, many companies will cancel your plan if you’re doing it. To prevent that from happening, you need to check with your insurance company and get an “endorsement” (extra add-on) to your plan.
Beware of Auto Insurance Scams on the Road
These usually involve forcing you into an accident and framing you as the one at fault. For example, one common scam is the forced rear-end collision. Nearly everywhere puts the fault in rear-end collisions on the rear driver. The scammer drives in front of you and stops, making you hit the car. The scammer might also claim “back pain” or some other fake injury to cash in more. This results in a damaged car and higher premiums for you. In these types of scams, it’s important to be fully aware of your surroundings at all times and follow traffic rules carefully.
Another type of scam is the fake injury scam. In a minor accident, a scammer might claim the need to get treatment for bogus injuries. Sometimes, the scammer may even work with fraudulent clinics to get more money out of your insurance. Someone who appears to be fine after an accident, but then starts complaining of pain when authorities arrive is one giveaway. A variation of this scam is when the scammer claims injuries for nonexistent passengers. To avoid this scam, file a police report even for minor accidents. Be sure to document everything (including taking pictures of the damage and the other driver/passengers), so you’ll have evidence refuting the scammer’s claims.
Yet another kind of scam involves a seemingly “nice” person (often posing as an insurance agent) talking to/contacting you after you’ve had an accident and suggesting you go to a particular repair shop or clinic to get help. In this case, the repair shop/clinic is a fraudulent one, and it’ll bill your insurance company for bogus stuff. To avoid this scam, keep all business with your own insurance company (and that of the other driver, if applicable) and don’t give your information to anyone else.
Pick the Model of Your Car Carefully
If you don’t want to pay too much for auto insurance, try to pick a car that’s cheaper to insure. For example, you might want to consider a Honda minivan instead of an Audi or a BMW. Generally, cars that are easier to repair or are less expensive cost less to insure.
Negotiate with Your Agent
Agents typically get paid commission for their sales. That means you might be under some pressure to buy when you talk to them. But on the flip side, they might be under pressure to sell. You can turn this to your advantage by negotiating with them. While you probably can’t lower your premium, you might be able to get them to throw in some endorsements like roadside assistance in order to close the sale.
Shop Around Whenever Something Changes
You may be fine with your plan now, but it doesn’t hurt to shop around later on, especially when something in your life changes. You could find a better deal somewhere else for your new situation.
Sources
https://www.cbsnews.com/news/a-beginners-guide-to-buying-car-insurance/
https://www.edmunds.com/auto-insurance/10-steps-to-buying-auto-insurance.html
https://www.businessinsider.com/how-to-shop-for-car-insurance-quotes
https://www.consumerreports.org/cro/car-insurance/buying-guide/index.htm
https://www.bankrate.com/insurance/car/what-is-car-insurance/
https://www.allstate.com/tr/car-insurance/gap-insurance-coverage.aspx
https://www.reviews.com/auto-insurance/car-insurance-buyers-guide/
https://money.howstuffworks.com/personal-finance/auto-insurance/5-common-auto-insurance-scams.htm
https://www.investopedia.com/articles/pf/08/beginner-guide-auto-insurance.asp
https://cars.usnews.com/cars-trucks/car-insurance/buying-car-insurance-online
https://www.experian.com/blogs/ask-experian/can-i-purchase-car-insurance-online/
https://en.wikipedia.org/wiki/Vehicle_insurance_in_the_United_States
It’s good to know that liability insurance is mandatory. My younger brother just recently got his very first car a couple of weeks ago, and he wants to make sure that he knows how to get the right insurance for it. I’ll make sure to pass this information along to him so he can know more about getting insurance for his new car!
You made a good point that being as truthful as possible is essential when it comes to getting auto insurance. I want to buy my own car soon so it would be important to get the right kind of insurance for that. Hopefully, I will be able to start driving it by December.