A beginner's guide to buying car insurance
Insurance is an anomaly among commodities; it's one purchase that we hope we never have to use. But car insurance is a mandated purchase almost everywhere, and with good reason: If your vehicle were to be stolen, vandalized or in an accident, you could be at risk for huge financial burdens if faced with covering the costs on your own.
Shopping for car insurance isn't rocket science, but getting the best rate possible requires you to understand some basic information. Your rate will be affected by the value of your vehicle as well as any requirements from your state and your lender. Here's a look at some of the considerations you'll face when insuring your ride.
What Is a Deductible?
The word "deductible" refers to the amount of money you'll have to pay out of pocket, following an accident, before your insurance kicks in.
So why not always opt for the lowest deductible possible? The lower your deductible, the higher your monthly premium, or out-of-pocket expenses, will be. On the flipside, a higher deductible will lower your monthly payment. When settling on a deductible, pick one that works for your budget. A high deductible can save you money in the short term and might be the smartest choice if you have money saved to cover your deductible in the event of an accident or break-in. If you can afford it, a low-deductible plan will ensure that you won't have to dig deep into your pockets to pay for auto body work or car repairs resulting from a wreck.
Where You Live Makes a Difference
City vehicles are typically subjected to more break-ins, theft and fender benders, and are therefore more expensive to insure than ones in rural areas. In addition, your state's laws may require you to carry a certain amount of insurance coverage. For example, if you live in California you're required to carry minimum liability insurance of $15,000 for injury or death to one person, $30,000 for injury or death to more than one person, and $5,000 for property damage. But if you live in New Hampshire, you're only required to have motor vehicle insurance if you've been convicted of certain violations, including DWI and leaving the scene of an accident. Your first step should be to research the insurance requirements in your state by checking with your local motor vehicle office.
How Much Insurance Do You Need?
The car you drive may translate into pricier coverage. According to a survey by Insure.com, late-model BMWs, Mercedes and Audis are some of the most expensive cars to insure because they cost more to repair. Looking for cars that that won't require you to purchase more insurance? Consider a Jeep SUV or a Honda Minivan; they're among the cheapest new cars to insure.
Finding a balance between good coverage and affordable coverage is important. On the one hand, you want to have enough to cover your losses in the event of an accident. On the other hand, the more insurance you opt for will make for a higher monthly premium. Think it over carefully. You may decide that your 15-year-old jalopy isn't worth the cost of coverage. If you drive a brand new car and are still paying for it, your lender will likely dictate your coverage minimums on the car since it officially belongs to the bank.
The Different Types of Car Insurance
Your car insurance policy is comprised of a handful of different categories of coverage. Here's a list of the most common types and what they mean.
- Collision insurance covers damage to your car up to its current estimated value, also known as its Blue Book Value.
- Liability insurance is the portion of your policy that pays for damages you've caused to others if you're found to be at fault in an accident. This covers a wide range of damages, including bodily injury and property damage.
- Uninsured or underinsured insurance covers your losses if you're hit by someone with no insurance, or not enough insurance to cover the cost of damages.
- Comprehensive insurance pays for damages that occur to your car that aren't collision-related. According to the Insurance Information Institute, this includes theft, vandalism, fire and natural disasters.
- Personal Injury Protection (PIP for short) covers your medical expenses if you're injured and can sometimes even pay out for lost wages if your injuries prevent you from working.
Look for Discounts
Car insurance companies offer a variety of discounts based on a number of factors:
- A clean driving record can net you some big savings -- up to 45 percent according to Allstate, and 26 percent according to Geico -- because it shows you're less of a risk.
- Safety and security features can also translate into savings. Front- and side-impact airbags reduce your risk of injury, and security alarms decrease the risk of your vehicle being stolen, therefore limiting the insurance company's exposure.
- If you have a homeowners' insurance policy, booking car insurance with the same company may drive rates down even further.
- State Farm says that car insurance premiums may fluctuate based on how much you drive, your age, sex and marital status, and your credit history. You can see where your credit scores stand for free on Credit.com.
As always, it pays to comparison-shop before buying. Once you've identified the vehicles you're considering, call several insurance companies, who will be happy to provide you with estimates. In most states, insurance is a mandatory, ongoing cost, so doing your homework could go a long way toward saving you money.