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How to Choose the Right Car Insurance: A Comprehensive Guide

Updated: Jan 7

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Purchasing car insurance is an essential step for every vehicle owner. It provides financial protection and ensures peace of mind while on the road. However, selecting the right car insurance policy can be daunting, with numerous factors to consider.


In this guide, we will explore the considerations you should make to help you make an informed decision when choosing car insurance.


Understand Your Coverage Needs


The first step in choosing the right car insurance is to assess your specific coverage needs. Consider your vehicle's value, your driving habits and any others being covered, and your financial situation.


An auto insurance policy's price largely depends on two factors. The first is underwriting, where insurance companies evaluate the risk associated with an applicant. Insurers also assign ratings based on how much they believe it will cost to assume the financial responsibility of a potential claim on an applicant.


Types of insurance coverage


According to The National Association of Insurance Commissioners (NAIC), your auto policy may include the following coverages. Each coverage is usually priced separately.


Required by state law


Bodily Injury Liability: This coverage applies to injuries you cause to someone else. You and family members listed on the policy also are covered when driving someone else's car with their permission.


Property Damage Liability: This coverage pays for damages you cause to someone else's car or objects and structures your car hits.

Required by law in some states


Uninsured and Underinsured Motorist Coverage: Uninsured motorist coverage reimburses you if an uninsured or a hit-and-run driver hits you. Underinsured motorist coverage pays when an at-fault driver doesn't have enough insurance to fully pay for your loss.


Medical Payments or Personal Injury Protection (PIP): This coverage pays for treating injuries to you and your passengers. Personal Injury Protection (PIP), available in "no-fault" states, can also cover lost wages and funeral costs.


Required by the lender if you have an auto loan


Collision: This coverage pays for damage to your car from a collision with another car, an object, a pothole, or from flipping over.


Comprehensive: This coverage reimburses you for damage to your car that's not caused by a collision. This includes theft, hail, windstorm, flood, fire, and hitting animals. Comprehensive coverage also will reimburse you if your windshield is pitted, cracked, or damaged. Some companies won't charge you a deductible for windshield repairs.

 

No-fault. If you live in a no-fault state, your insurance company pays for injuries to you and your passengers regardless of who's at fault. Most no-fault states also let you sue the at-fault driver if you have serious injuries. However, you still must file a claim with the at-fault driver's insurance company to be paid for damage to your vehicle.

 

Use the NAIC Glossary to explore additional coverage types of definitions to terms found in the fine print of your auto insurance paperwork.


Evaluate your needs and preferences


Evaluate your needs and preferences to determine the type and level of coverage that suits you best. When evaluating your auto insurance coverage needs, it's essential to consider several key factors to ensure you have the proper protection. Here are the top five considerations:


State Requirements


Each state has its own laws regarding the minimum amount of liability coverage you must carry.


For example, in California, the auto insurance requirement mandates that drivers carry a minimum liability coverage of $15,000 for bodily injury per person, $30,000 for bodily injury per accident, and $5,000 for property damage.


While in New York, the auto insurance requirement stipulates that drivers must have a minimum liability coverage of $25,000 for bodily injury per person, $50,000 for bodily injury per accident, and $10,000 for property damage.


Find state-specific contact information for insurance departments and local insurance agents, or file a complaint using the NAIC Insurance Departments state-by-state interactive.


Vehicle Value and Financing


Consider the value of your vehicle and whether you have financing or a lease agreement. If you have a newer or more expensive vehicle, comprehensive collision coverage may be necessary to protect against damage or loss. The lender may require specific coverage types and limits if your car is financed.


Personal Liability


Assess your personal liability needs. Auto liability insurance provides financial protection to the policyholder against claims or lawsuits from third parties for bodily injury or property damage caused by the policyholder's negligence or fault in a car accident.


Liability coverage protects you financially if you cause an accident that results in injury or property damage to others. Consider your assets and the potential financial impact of a lawsuit. It's generally recommended to have liability coverage limits higher than the state minimums.


Additional Coverage Options


Evaluate additional coverage options based on your individual circumstances. These may include uninsured/underinsured motorist coverage, medical payments coverage, roadside assistance, rental car reimbursement, and gap insurance. Determine which additional coverages align with your needs and provide the desired level of protection.


Deductibles and Premiums


Consider your financial situation and tolerance for risk when choosing deductibles and evaluating premiums. A deductible is paid out of pocket before your insurance coverage kicks in.


A higher deductible can lower your premium but may require more significant upfront expenses in the event of a claim. Assess what you can comfortably afford regarding deductibles and premiums while maintaining sufficient coverage.


Factors influencing the cost of your coverage needs


  • Driving record: Drivers with previous violations or accidents are considered a higher risk.

  • Geographic territory: Urban areas have more claims than rural areas

  • Gender and age: Males have more accidents; certain age groups have more claims

  • Marital status: Married people show lower rates of claims

  • Prior insurance coverage: If you have been canceled for non-payment of premiums

  • Vehicle use: Higher annual mileage results in higher exposure to risk

  • Make and model of your vehicle: Luxury and sports cars average a higher number of claims

 
 

Research Different Insurance Companies


Next, it's crucial to research and compare different insurance companies to find the one that meets your requirements. Look for companies with good reputations, strong financial stability, and positive customer reviews.


When researching auto insurance companies, gathering comprehensive information is essential to make an informed decision. Here are three tips to guide you in your research:


Seek Recommendations and Read Reviews


Start by seeking recommendations from friends, family, or colleagues who have had positive experiences with their auto insurance providers. Personal referrals can provide valuable insights and help narrow down your options.


Read online reviews and testimonials from customers to understand the company's reputation, customer service quality, and claims handling process. Websites like Consumer Reports, J.D. Power, and the Better Business Bureau can provide valuable information and ratings.


Check Financial Stability and Ratings


Assessing the financial stability of an insurance company is crucial to ensure it can fulfill its obligations in the event of a claim.


Look for companies with strong financial ratings from independent rating agencies such as A.M. Best, Standard & Poor's, or Moody's. These ratings reflect the insurer's financial strength and ability to meet financial commitments. A financially stable company is more likely to provide reliable service and process claims efficiently.


Compare Quotes and Coverage


Obtain quotes from multiple insurance companies to compare prices and coverage options. Ensure accurate and consistent information when requesting quotes to receive reliable estimates.


As you compare quotes, consider each company's coverage types, limits, deductibles, and additional features or discounts. Remember that the cheapest option may not always provide the best value. Evaluate the overall coverage and policy features to ensure they align with your needs and offer adequate protection.


 

Related: Subscribe to the Modern Husbands Podcast, where we share ideas to manage money and the home as a team.

 

Compare Quotes and Policy Features


When comparing car insurance quotes, it's essential to consider the price, policy features, and coverage limits. Examine the deductibles, liability limits, medical coverage, and additional features or riders each company offers. Consider the trade-off between a lower premium and the potential out-of-pocket costs in the event of an accident. Ensure that the coverage aligns with your needs and provides sufficient protection.


The easiest way to compare auto insurance quotes and coverages is by following these steps:


Use Online Comparison Tools


Take advantage of reputable online insurance comparison websites or platforms that allow you to enter your information once and receive multiple quotes from various insurance providers.


Some popular tools include Policy Genius, The Zebra, and Compare.com. These platforms simplify the comparison process by presenting quotes side by side, making it easier to evaluate coverage options.


Provide Accurate Information


When using comparison tools, provide accurate and consistent information about yourself, your vehicle, and your driving history.


Inaccurate or inconsistent information can lead to misleading quotes and discrepancies in coverage. By providing precise details, you'll receive quotes that align with your specific circumstances.


Review Quotes and Coverage Details


Once you receive the quotes, carefully review the details of each policy. Pay attention to the coverage types, limits, deductibles, and any additional features or discounts each insurance company offers.


Take note of any specific coverage exclusions or limitations that may affect your decision. Evaluate the cost, value, and adequacy of the coverage provided.


Consider Customer Reviews and Ratings


While comparing quotes and coverages, it's also beneficial to consider customer reviews and ratings of the insurance companies you're interested in. Look for feedback on their customer service, claims handling, and overall satisfaction.


Websites such as Consumer Reports, J.D. Power, and the Better Business Bureau can provide valuable insights into the reputation and reliability of insurance companies.


Seek Professional Advice if Needed


If you find the process overwhelming or have specific questions, consider consulting an independent insurance agent. They can provide personalized guidance, answer your queries, and help you compare quotes and coverages based on your individual needs.


Check for Discounts


Car insurance companies offer various discounts that can help lower your premium. Look for discounts based on your driving habits, such as safe driver discounts for maintaining a clean driving record, low-mileage discounts for infrequent driving, or usage-based discounts for installing a telematics device in your vehicle.


Additionally, some insurers provide discounts for bundling multiple policies or particular affiliations, such as being a member of an organization or alumni association. Investigate the available discounts to maximize your savings.


Safe Driver Discount: This discount is available to drivers who maintain a clean driving record without accidents, traffic violations, or claims over a specific period. Insurance companies reward safe driving habits with lower premiums.


Multi-Policy Discount: Suppose you have multiple insurance policies with the same company, such as auto and homeowner's insurance. In that case, you may qualify for a multi-policy discount. Bundling your policies can result in savings on both coverages.


Multi-Vehicle Discount: Some insurance companies offer a multi-vehicle discount if you insure multiple vehicles on the same policy. It provides a reduced premium for covering more than one vehicle under the same policy.


Good Student Discount: Full-time students who maintain good grades, typically with a minimum GPA requirement, may be eligible for a good student discount. This discount acknowledges responsible behavior and can lower student drivers' premiums.


Low-Mileage Discount: If you drive fewer miles than the average driver, you may qualify for a low-mileage discount. Insurance companies consider lower mileage associated with reduced accident risk and often provide discounts for drivers meeting certain thresholds.


Safety Features Discount: Vehicles equipped with safety features such as anti-lock brakes, airbags, anti-theft systems, or electronic stability control may be eligible for a safety features discount. These features help reduce the risk of accidents or theft, leading to potential premium savings.


Defensive Driving Course Discount: Completing a state-approved defensive driving course can often result in a discount on your auto insurance premiums. These courses provide additional driver education and promote safe driving habits.


Affiliation or Group Discounts: Some insurance companies offer discounts to individuals who belong to specific professional organizations, alumni associations, or other groups. Check with your insurance provider or inquire about potential group discounts you may qualify for.


Usage-Based Discount: Insurance companies may offer usage-based discounts for drivers who participate in telematics programs. These programs involve installing a device or using a mobile app that monitors your driving habits, such as speed, mileage, and braking. Safe driving behaviors can lead to premium discounts based on your driving data.


Loyalty or Renewal Discount: Some insurers reward policyholders for loyalty by providing discounts when renewing their policy. These discounts may increase over time, incentivizing customers to stay with the same insurance company.


How to Choose the Right Car Insurance: A Comprehensive Guide

Evaluate Customer Service and Claims Process


In times of need, you want an insurance company that provides excellent customer service and a smooth claims process. Research the customer service ratings and reviews of the insurance companies you are considering. Check their responsiveness and ease of communication when filing a claim. Look for companies that offer 24/7 claims reporting and have a strong reputation for handling claims efficiently.


Several independent websites allow you to evaluate insurance companies' customer service and claims processes. These platforms provide insights and ratings based on customer experiences:


J.D. Power: J.D. Power is a trusted resource for customer satisfaction surveys and ratings across various industries, including insurance. Their studies assess customer experiences, including satisfaction with the claims process, interaction with representatives, and overall service quality.


Consumer Reports: Consumer Reports provides unbiased reviews and ratings on various products and services. They offer insights into customer satisfaction and reliability of insurance companies, including feedback on claims handling and customer service experiences.


Better Business Bureau: The Better Business Bureau (BBB) is a non-profit organization that promotes marketplace trust. They provide ratings and customer reviews for businesses, including insurance companies. You can check BBB ratings and read customer complaints or reviews to gauge customer service and claims satisfaction.


National Association of Insurance Commissioners: The National Association of Insurance Commissioners (NAIC) is a regulatory organization that oversees insurance activities in the United States. Their website offers resources to search for complaint ratios of insurance companies. This information can help you evaluate how well insurers handle customer complaints and resolve issues.


 

Related: Take our 10 question money and marriage quiz to learn more about managing money as a team.

 

Consider Your Financial Situation


While cost is a crucial factor, balancing it with your financial situation is essential. Consider the deductibles and coverage limits that align with your ability to pay in the event of an accident. A higher deductible can lower your premium but may require a larger out-of-pocket expense if a claim is filed. Assess your financial capabilities and choose a policy that offers the right balance between affordability and comprehensive coverage.


When selecting auto insurance, it's important to consider various financial factors to ensure you choose a policy that aligns with your budget and provides adequate protection. Here are the key financial considerations:


Premium Cost


The premium is the amount you pay for your auto insurance coverage. Evaluating the premium cost and determining if it fits your budget is crucial. Obtain quotes from multiple insurance companies and compare the premiums for similar coverage. Remember that the cheapest option may not always provide the best value, so consider the overall coverage and features.


Deductibles


A deductible is paid out of pocket before your insurance coverage kicks in. Higher deductibles typically result in lower premiums, but they also mean you'll have to pay more in the event of a claim. Assess your financial situation and determine the deductible level you can comfortably afford if you need to file a claim.


Coverage Limits


Auto insurance policies have coverage limits that specify the maximum amount the insurance company will pay for covered losses. Evaluate the coverage limits and ensure they are sufficient to protect your assets and meet your needs. Consider the potential financial impact if you were involved in a serious accident and whether the coverage limits would adequately protect you.


Additional Coverage Options


Depending on your circumstances, you may need or want additional coverage options such as comprehensive, collision, or uninsured/underinsured motorist coverage. Evaluate the cost of these additional coverages and consider whether they provide valuable protection based on your vehicle's value, driving habits, and potential risks.


Discounts and Savings Opportunities


Consider the potential discounts and savings opportunities offered by insurance companies. These can include safe driver discounts, multi-policy discounts, good student discounts, or discounts for safety features in your vehicle. Take advantage of applicable discounts to reduce your premium and save money while maintaining the necessary coverage.


Financial Stability of the Insurer


Evaluate the financial stability and reputation of the insurance company you are considering. A financially stable insurer is more likely to meet financial obligations and promptly handle claims. Research independent rating agencies, such as A.M. Best, Standard & Poor's, or Moody's, to assess the insurer's financial strength and stability.


Review and Update Your Policy Annually


Car insurance can change over time, so reviewing and updating your policy annually is essential. As your vehicle depreciates in value, it may be worth reassessing the need for collision and comprehensive coverage.


Significant life changes such as getting married, moving, or having a child can also impact your insurance needs. By reviewing your policy regularly, you can ensure it continues to meet your requirements and provides adequate protection.


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Citations


“How to Choose Car Insurance.” Policygenius, 11 Oct. 2022, www.policygenius.com/auto-insurance/choosing-a-car-insurance-policy/.


Bell, Amy. “Millennials Guide: Picking the Right Car Insurance.” Millennials Guide: Picking the Right Car Insurance, 7 June 2023, www.investopedia.com/articles/personal-finance/091015/millennials-guide-picking-right-car-insurance.asp.


Sato, Gayle. “How to Choose the Right Auto Insurance Policy.” How to Choose the Right Auto Insurance Policy, 14 Oct. 2022, www.experian.com/blogs/ask-experian/how-to-choose-the-right-auto-insurance-policy/.


“The National Association of Insurance Commissioners .” NAIC, content.naic.org/. Accessed 8 June 2023.

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