Car insurance is a type of insurance that can cover bodily injury, damage to a vehicle, or damage to other property. Depending on what kind of policy you have, car insurance covers everyone involved in an accident or just the driver who isn’t at fault. The Zebra points out that most states require drivers to purchase car insurance.
Types of Car Insurance
While most states require you to carry a minimum amount of liability insurance, you can purchase additional insurance policies for extra protection. Comprehensive car insurance and collision insurance are good investments if you own an expensive vehicle or you’re frequently on the road. Here is what each type of car insurance covers, according to Liberty Mutual:
- Liability – If you’re responsible for an at-fault accident, your liability insurance will cover the costs of vehicle repair and medical care for the other driver involved. Liability insurance can protect an at-fault driver’s assets if the other driver decides to sue.
- Collision – A collision policy will cover damage to your car if you hit another vehicle or an object. Many states allow drivers to opt out of collision insurance.
- Comprehensive – A comprehensive insurance policy protects your car from pretty much anything that can happen to it other than a collision. This includes everything from theft to hail damage. If you’re leasing your car or financing your vehicle, the financing company may require you to purchase comprehensive insurance.
Comparison Shopping for Insurance
While car insurance is often a significant expenditure, you can save money if you take the time to comparison shop. As The Zebra notes, insurance rates vary greatly from company to company, even for the exact same driver. Insurance rates tend to increase over time, but they can also drop. If you already have insurance, you might want to do another round of comparison shopping to see if your provider still offers the lowest rates.
Keep in mind that every company you request a quote from should be willing to provide it for free. While some insurers ask that you make a small down payment to start your policy, they should never charge you for a quote. According to NerdWallet, these are the steps you should take when you’re ready to start comparing quotes:
- Get your information together. Having all of your information on hand before you contact an insurance company will save you a lot of time. You should have your driver’s license info, vehicle information number (VIN), vehicle mileage, driver’s history, and insurance history. If you’re adding other drivers to your policy, you’ll need their information too.
- Select the right amount of liability coverage. Your state sets a required minimum of liability coverage, but if you don’t feel like the minimum is enough, you should request a quote for higher coverage levels. It’s better to be overinsured than underinsured. If your liability insurance isn’t enough to cover damages in an accident, you’ll have to pay for those costs out of pocket.
- Decide if you want to stick with a liability policy or purchase full coverage. Liability insurance doesn’t cover your car or injuries in the event of an accident. If you want your vehicle covered, you’ll have to purchase collision coverage. To protect your car from theft or weather damage, you’ll want to add comprehensive coverage.
- Begin collecting and comparing quotes. To get a good comparison of quotes, you’ll want to contact at least three insurance companies. Try to get a mix of quotes from national and regional companies. Make sure that all quotes cover the same amount of coverage and deductibles. You should give each company the exact same information for drivers and cars that you want to be covered. Don’t forget to see what discounts you qualify for.
How Does an Insurance Company Calculate a Quote?
When calculating a quote, an insurance company looks at the driver’s complete profile to assess how risky it is to insure that driver. According to The Zebra, your driver’s profile includes:
- Your Location – If you live in a ZIP code with high rates of theft and uninsured drivers or a densely populated area where drivers file many claims, an insurance company will consider you to be at a higher risk to insure. Your premium will cost more even if you’ve never had to file an auto insurance claim. You’ll also have to pay more for a premium if you live in a no-fault state like Michigan, which requires drivers to purchase unlimited personal injury protection coverage.
- Who You Are – Your age, gender, marital status, homeowner status, education level, and credit score all factor in your car insurance costs. Younger drivers are riskier to insure because they don’t have as much experience on the road and statistically cause the most accidents, especially male drivers in their teens. Insurance companies consider married drivers a lower risk because they tend to share driving responsibilities. Homeowners can expect to pay lower rates because insurance companies view them as more financially stable. You’re also considered less of a risk if you have a Master’s or Ph.D. Credit scores have the biggest impact, with drivers in the “Very Poor” tier paying the highest rates.
- Insurance History – If you only purchase the bare minimums when it comes to car insurance, insurance companies will view you as underinsured and a bigger risk than drivers who buy extra coverage. You can also expect to pay higher rates if you have gaps in your coverage history. Drivers with a history of continuous coverage, higher liability limits, and fewer claims can get a cheaper quote.
- Driving Habits – When calculating your car insurance quote, insurance companies will also factor in how many miles you drive and whether you use your vehicle for work or leisure. Drivers who use their car for business tend to spend more time on the road, putting them at greater risk of an accident. Companies will also look at how many speeding tickets, DUIs, and accidents you have on your record. If your record is clean, you can expect to pay lower rates.
- Your Vehicle – Luxury vehicles, performance vehicles, and foreign-built models are more expensive to repair, making them more costly to insure. If you drive a domestic model or a vehicle that isn’t built for driving fast, such as a sedan or van, you’re less of a risk for car insurance companies.
Now that you know the steps you should take to compare insurance quotes and what goes into determining those quotes, you can decide what type of coverage is right for you.
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