You know you need auto insurance to buy a car, but do you really know what you’re buying? Automobile insurance can be confusing. From coverage options to the factors that determine your rates, there’s a lot you need to know to find the right policy at a good price. With that in mind, we’ve compiled this list of everything you need to know about buying auto insurance.
Understand coverage options
Whether you shop for auto insurance online or work with an agent, you’ll need to select limits and deductibles for the following coverage options.
- Bodily injury and property damage liability cover injuries or damages that you or another covered driver cause to someone else or their property. Your policy will specify a maximum per person, a maximum for all injuries in one accident, and a maximum for damage to property. For instance, it may include $50,000 per person, $100,000 per accident, and $25,000 of property damage (typically expressed as 50/100/25). Each state sets their own minimum liability limits, but the minimum may not be enough. If you are involved in a severe accident, you could be sued for much more than your policy’s minimum limits, so be sure to take this into consideration before you buy.
- Medical payments coverage pays the medical expenses for injuries to the passenger and drivers in your own car, regardless of who is at fault. This may include the cost of an ambulance ride, hospital or doctor visits, surgeries, and even funeral expenses.
- Collision coverage pays for damage to your car resulting from a crash.
- Comprehensive coverage reimburses you for losses caused by something other than a collision, such as damage from hail or falling tree branches, theft, or vandalism. You’ll be asked to select a deductible for these coverages ranging from $250 to $1,000. If your car is damaged, the insurance company will pay for the cost of repairing your vehicle, minus the deductible.
- Uninsured & Under-insured Motorists will reimburse you if you are hit by an uninsured driver, a hit-and-run driver, or a driver whose limits aren’t enough to cover your total loss.
In addition to these basic coverages, your insurance company may offer additional options that extend coverage to rental cars, pay for towing expenses, provide offer roadside assistance, and more.
What factors affect your rates?
Many factors affect insurance rates besides coverage limits and deductibles. Some you can control and others you cannot. Knowing the factors that affect your rate can help you make more informed decisions.
- Gender and age: Young men typically pay higher rates than young women as statistically, more young male drivers are involved in accidents
- Marital status: Married people tend to receive lower rates than unmarried people
- Where you live: Most auto accidents occur close to home, so the area you live in can greatly affect your rates. Densely populated areas have higher rates of accidents and thefts than the countryside. Urban areas with high unemployment may mean more uninsured drivers. In cities with a high cost of living, it may cost more to repair your vehicle. For example, California and Wyoming are the most expensive states for car repairs. Michigan and Indiana are the least expensive.
- Credit score: Many insurance companies consider your credit score when determining your rate. Insurance companies operate on the assumption that people with higher credit scores tend to be consistent with their payments, thus these individuals typically enjoy lower rates than people with poor credit.
- Occupation: If your job has you on the road most of the day, your rates will be higher than if your car is parked at an office most of the time. Pizza delivery drivers pay higher rates than office workers.
- Your vehicle: The car you drive impacts your rates significantly. Vehicles with higher safety ratings mean lower medical bills after an accident. Certain cars are more likely to be stolen, but having an alarm can lower your premium. Luxury import cars typically cost more to repair than domestic models.
- Driving record: One of the most important factors in determining your insurance rates is your driving record. If you have a history of accidents, tickets, or auto insurance claims, you’ll pay higher rates than people with a clean record.
- Driving habits: Your insurance company will probably ask whether you drive your vehicle for work and how many miles you commute each day. People with shorter commutes may receive lower rates than those who spend hours in rush hour traffic each day.
How to get the best deal on auto insurance
When shopping for car insurance, it may be tempting to get the lowest price by reducing your coverage or raising your deductibles, but there may be other things you can do to lower your premium without jeopardizing coverage.
- Bundle coverage: Most insurers offer discounts when you bundle your auto insurance policy with a homeowner’s or renter’s insurance policy. Discounts vary by company, but they could save you as much as 10-20% per policy.
- Install a monitoring device: Some insurers offer a discount if you agree to install a device that monitors driving speed and location. These monitors track how often you use the car, distance driven, how fast you typically drive, and how often you brake hard.
- Ask about discounts: Most insurance companies offer discount programs for certain types of drivers. Some may offer discounts to members of the military or students with good grades. You may be eligible for discounts through a club, professional association, or credit card. Each carrier has their own discount options, so ask your insurance agent about applicable discounts.
- Pay in full: Making monthly payments may be easier on your budget, but many insurance companies offer discounts for customers who pay their entire premium up front.
- Shop around: The auto insurance market is competitive. The company that gave you the best rate last year may not do so today. If you’ve been with the same company for years, there’s a fair chance that your premium has inched up year after year so you could save a significant amount by shopping around.
Buying auto insurance isn’t hard, but understanding coverage options, factors that determine your rate, and how to get the best deal on auto insurance can be difficult. Armed with this knowledge, you should feel confident that you’ll find the insurance company that best fits your needs.
