What is a Car Insurance?Anne Reyes
Car insurance provides coverage to the damage of your automobile and financial protection if you are held accountable for the injuries and damages of other people. The policy covers you to a certain limit based on the agreement between you and your insurance company.
There are some things you should know about car insurance: What kind of coverage is suitable for your needs? What is required? What are your options? How much do they cost? etc. Knowing this information gives you a better understanding of car insurance.
You may opt to pay for specific coverage for potential incidents according to your lifestyle and how you use your vehicle; thus, saving money in the long run. On the other hand, you may save upfront by not choosing a particular coverage that does not align with your lifestyle.
Why do you need a car insurance?
When you drive without insurance, you may find yourself dealing with a license suspension, a fine, or jail time. If you are the reason for the accident, you are liable for the medical expenses, legal fees, lost income, and any costs related to it. It will give you some peace of mind that your coverage can take care of the cost of any bodily injury or property damage.
Sometimes, the mistake of another motorist also becomes your problem, for example, an under-insured or uninsured person hits you. With a good policy, you can get the right protection. Your policy can also cover replacements, repairs, and towing.
Also, by paying a small amount now, your insurance helps you avoid high costs down the road. Collision, comprehensive, and liability coverage protect you from expensive claims. Your insurer will help you choose the policy that meets the requirements of your state. In the event that you make a claim, they will help you with the process.
What’s the difference between minimum and full coverage?
Each state in the country has minimum requirements for car insurance. This refers to the amount of coverage you need in order to register and drive legally. The cost of minimum car insurance also varies by state.
The state law requires minimum coverage but not full coverage. But, your car dealership or bank may require full coverage if your vehicle is financed or leased. If you completely own your car, you are not obliged by law to purchase full coverage. Keep in mind though that a full coverage policy is a worthy investment, as it can protect you from huge expenses after an accident, particularly if your car still has significant value.
In general, you should only have minimum liability coverage when you have limited assets or are unable to manage higher insurance limits. Vehicle incidents are costly and without insurance, your out-of-pocket costs could be notably large. A good tip to follow when it comes to minimum coverage is to buy an umbrella policy to help increase your protection.
Minimum liability insurance is usually cheaper than full coverage. However, full coverage includes not only the amount of damage to your vehicle but also the damage to other parties. Full coverage means liability, comprehensive, and collision coverage.
All states do not require comprehensive and collision, but they are well worth it for drivers who add them to their policy. This is because you can get reimbursed for damages that you are at fault, for example, a flood in your neighborhood or a tree branch falling on your windshield. Minimum coverage will not protect and reimburse you for those incidents.
All things considered, the worth of your car determines the kind of coverage you need. So, find out if your vehicle is valuable enough for full insurance.
Is it compulsory to buy car insurance?
The law requires you to have car insurance if you are driving, mainly because your vehicle has the capability to cause harm to other people and things. It ensures that you can pay for the damages incurred.
Having insurance, a driver’s license, and a vehicle to drive, all go hand in hand before the law allows you to hit the road. You start with liability insurance (for property damage and bodily injury) and build your policy from there. This typically includes collision coverage, comprehensive coverage, and Personal injury protection (PIP).
With this, find out the requirements for car insurance in your state, particularly if you are moving. Your current state may require more or less coverage than your new state.
How much car insurance do I need?
Most states require minimum liability coverage. Usually, a state provides certain numbers that drivers must have in their coverages in order to drive legally. For example, if a state requires 25/50/10, it means:
- $25,000 per person for bodily injury coverage. It pays for the costs of the injuries to the other party if you are at fault.
- $50,000 per accident for bodily injury coverage. This refers to the total amount that your insurer will cover for the injuries of the other party.
- $10,000 for property damage coverage. It pays for the damage incurred in a property in a car accident that you cause.
Some states also require medical payments, personal injury protection, and uninsured/underinsured coverage.
How much does car insurance cost?
The average minimum coverage for car insurance in the U.S. is $480 every year. For full coverage, the cost is $1,655 annually or about $138 monthly. These rates are designed for drivers with clean records. But, there are several factors that affect the insurance premiums, including the type of vehicle, your driving record, and your location.
Average Car Insurance Cost by State
The state you reside in and other factors impact how much insurance you pay. Even the ZIP code within your state is a contributing factor to your premium. Several local factors such as vandalism and theft rates, frequency of occurrence of accidents and claims, and traffic volume also affect the car insurance rates.
|State||Annual Minimum Coverage||Annual Full Coverage|
Average car insurance cost by company
Insurance companies depend on statistics and mathematical calculations to determine the premiums of their clients. They use common rating factors like the model, make, and year of your vehicle, its safety features, and the manner you drive your car. These companies also factor in the number of years you have been driving as well as the number of driving offenses you have.
The cost of your premiums may vary and you may receive a discount if you add more coverage. Also, your deductibles can impact the amount of your car insurance coverage.
|Insurance Company||Minimum Coverage||Full Coverage|
Average car insurance cost by age and gender
The age of the driver is a huge factor that insurance companies view when assessing the cost of car insurance. Insurers perceive teenagers to be the most expensive to insure and the 50-year-olds to be the most affordable. Age becomes less significant when the drivers are between 20 and 25 years old. However, the premiums start increasing again for 65 and 75-year-old drivers.
Gender is another rating factor that affects the rates, particularly for young drivers. Data shows that male teen drivers pay more premiums than female teen drivers. This is because young male drivers are more likely to be risky when hitting the road, while their female couterparts tend to practice safe driving habits.
Average annual full coverage cost by age and gender
Average car insurance cost by credit score
Credit is a key element in the rates of car insurance. Typically, poor credit gives you more expensive coverage, and better credit means better rates, resulting in significant savings. Also, drivers with bad credit usually file more claims and costly ones at that than those with good credit.
Your insurer runs your full credit report through an algorithm to determine your insurance score. This gives them an idea of how risky you are according to your creditworthiness.
|Type of Policy||Good Credit||Bad Credit|
Average car insurance cost by vehicle type
Knowing the model and make of your vehicle will give you information on its appearance and ballpark price range. You will also get an idea of the cost of your car insurance. In general, newer and pricier vehicles have higher premiums because they also cost more to replace and repair.
If your car model is statistically less likely to be stolen or involved in a road accident, you may have a lower premium. Other factors that impact your insurance cost are the safety and handling characteristics of your car, vehicle size, engine size, body style, and trim level.
Average full coverage cost by make and model
|Make and Model||Annual Cost||Monthly Cost|
|Jeep Grand Cherokee||$1652||$138|
Average car insurance rates for young drivers
Insurance companies consider inexperienced and young drivers as liabilities; thus, give higher insurance rates than other age brackets. Younger drivers are more likely to get into trouble while driving and make more claims. However, a few years in age can vary widely for these young drivers. For example, the cost of insurance for an 18-year-old is different from what a 21-year-old driver pays.
When you add a young driver to an existing policy, the insurance rate can shoot up by up to 140%. If that teen driver gets a speeding ticket or is involved in an auto accident, your premium can rise another 40%. The insurance rates often stay in place until the driver reaches 20 years of age.
Decide if you will list your teen driver on your car insurance or get them a separate policy. The latter may be a cheaper option in the short term considering your existing premium will remain as it is. On the other hand, the former is a much safer option as your policy will extend to the teen with only a few changes done.
Even though young drivers are among the most costly to insure, you can save money by finding an insurer that offers student discounts, low rates, and a good policy with regard to accident forgiveness.
What other factors affect my car insurance cost?
- Driving experience – If you have been driving for a long time, there is less likelihood of making mistakes on the road. An insurance company will see you as a less risky driver, which means fewer violations and claims. You will enjoy lower insurance premiums if you have many years of driving experience.
- Driving history – If you had serious violations or had accidents brought about by driving, insurance companies will likely charge you a higher rate as you are a high-risk driver. You will have a better premium if you have a clean driving record.
- Your mileage – You may pay more for car insurance if you have a lengthy drive every day than someone who uses their car for quick errands only. The reason for this is that more miles logged are an indication of more risks on the road.
- Your location – When evaluating the cost of your insurance, your insurer looks at your ZIP code, the location where you park your vehicle most of the time. If you reside in an urban area where there are higher rates of vandalism, theft, and accidents, you may pay a higher premium.
- Insurance history – A lack of coverage in the past is a sign of a high-risk client unless you are a new driver. If you have no insurance even if you are licensed, an insurance company may see you as uninsured while driving.
How much is car insurance a month?
A good starting point for finding the best car insurance and the most affordable one is to obtain quote estimates. How your profile fits the various factors and methodologies will help determine your auto policy cost. The rate of your minimum coverage is based on the type of your coverage, your location, driving history, among others. Full coverage will be twice as expensive as your liability coverage.
The Most Expensive States for Car Insurance
Besides from person to person, the cost of car insurance also depends on the state you live in. There are main variables that impact your individual premium. The total miles you have driven on highways and interstates. A higher percentage indicates less time on local roads that are more prone to accidents. The urban population is another factor that insurance companies consider. States with higher traffic density is an indicator of more crashes and accidents likely to occur.
The states with the highest cost of car insurance per year are:
- Rhode Island
The Cheapest States for Car Insurance
One area to look for huge savings is your car insurance. But keep in mind that cutting coverage may give you cheaper insurance, but this may expose you to repair bills or lawsuits. The good news is there are ways to get cheap car insurance. Ask your insurance agent for a review of all the discounts available. You may also choose a good bundling discount from the same insurer by purchasing both car insurance and homeowners insurance from them.
The states with the lowest cost for car insurance per year are:
- New Hampshire
Types of Insurance Policies in the US
Car insurance policies comprise a variety of coverage. Some coverages are compulsory, and others are optional, depending on your state. Understanding different types of coverage is a crucial step in choosing the right auto policy for you.
- Liability – Also called minimum coverage, all states require a liability insurance policy. While the amount and type of coverage vary from one state to another, all states in the country require bodily injury and property damage liability. BI liability protection covers the medical costs of the other party in a car accident that you are at fault for. PD liability protects you against damages to property from an accident that you cause.
- Comprehensive – It is an optional coverage that is beneficial if you reside in a location with lots of natural disasters, theft, vandalism, or fire. The comprehensive policy ensures you are reimbursed in the event your car is stolen or damaged. The main advantage of this policy is that you have peace of mind even if you are away from your vehicle. You can add it to other coverages you have such as liability.
- Collision – This is the type of car insurance policy that covers the damage to your vehicle due to a crash. Collision will even pay out if you are the reason for the accident. This removes the need to worry about paying for high repair costs out of pocket. The rate of your collision policy depends on your driving history, the type of vehicle you drive, and your deductible.
- Personal Injury Protection (PIP) – When an auto accident results in a serious injury, receiving proper medical treatment is vital to your recovery. This is where PIP comes to the rescue; it pays for your medical bills. What’s more, your insurer will pay for the lost income benefits, funeral costs, and accident-related medical expenses regardless of who is at fault for the car accident.
- Uninsured Motorist – When another party causes an accident and has no insurance, an uninsured motorist policy helps cover your repair costs and medical expenses. In the event of an auto accident, you want to be financially protected when you or your passengers need medical care for several days. UM coverage also costs lower than other types of coverage. If you have full coverage, check your policy if it includes uninsured motorist coverage.
- Medical Payments Coverage – If you get involved in a car accident, MedPay coverage helps you pay for medical or funeral bills. It is an optional policy that covers you and your passengers whether or not you are at fault. MedPay typically includes nursing services and care, hospital stays and visits, X-rays, surgeries, ambulance fees, and doctor visits. A claim payout can either add this coverage to your existing health insurance or give you a direct reimbursement.
Other Kinds of Optional Car Insurance Coverage
- Roadside assistance insurance – It is a useful coverage for auto emergencies like if you need a spare tire, run out of gas, or are locked out of your vehicle. It also covers the cost of towing to a garage whenever necessary. Roadside assistance is a minimal cost addition to your monthly premium, making it a worthy optional coverage.
- Rental car reimbursement coverage – If you have made a collision or comprehensive claim and your vehicle is in an auto shop getting repairs, rental reimbursement coverage will pay for your rental car for the time being.
- Auto glass insurance – This provides coverage to your windows, glass roof, and other glasses in your car. You can file a claim of damages to any part of your vehicle that is made from glass. Your comprehensive coverage may cover glass damages, but getting glass insurance ensures you are fully covered.
- Personal umbrella insurance – This policy picks up where the limits of your auto liability leave off. For example, you are liable for the damages of another party and they go beyond your primary liability coverage limit, then personal umbrella insurance helps pay the extra costs.
- GAP Insurance – If your car is totaled after an accident or gets stolen, your insurance will typically cover the fair market value of your vehicle. The cost may be significantly less than your remaining balance on the loan. GAP (Guaranteed Auto Protection) covers the difference, helping you to avoid expensive out-of-pocket expenses.
Car Insurance Laws by State
If you buy a car, you need to know and adhere to the insurance laws within your state. Each state requires drivers to show their financial capacity for any auto accident they cause. For this, most states require certain car insurance types and amounts.
The requirements for car insurance is different from state to state, which means the rates vary widely too. However, the majority of states have minimum coverage requirements, helping determine the insurance rates for every state. For example, accidents are more likely to happen in higher density areas. Therefore, insurance rates are higher when there are more people and more accidents.
The department of insurance in your state monitors and regulates the insurance industry. These state government agencies ensure that insurance companies in their state are following good business practices.
What states have no car insurance?
New Hampshire and Virginia are the only states in the U.S. that do not require drivers to have car insurance. In New Hampshire, car owners may opt for cash bonds, while drivers in Virginia may pay uninsured motor vehicles to the state. Both states are at-fault, which means whoever causes the auto accident must show proof of financial responsibility for the injury and damage of the other party.
You may think that not having mandatory car insurance can save drivers a lot of money. But, one road accident can quickly balance out the monthly premiums. It would also be difficult to travel by car to other states with different car insurance laws. Because of this, most car owners in both states still buy a policy in order to have financial protection in the future.
Will insurance cover older cars?
Cars depreciate over time, causing them to decrease in value. This also reduces the maximum amount that insurers need to pay following a car accident. Also, when you have an older car, you can drop your collision or comprehensive coverages to make your insurance rate cheaper.
Choosing insurance for an older car involves some research. Find out what each policy covers and what is required so that you can get the best policy for your older automobile.
What kind of insurance do I need for an older car?
When owning a car, you want to have the right insurance policy in case of an accident. For most states, there are legal requirements for auto coverage no matter the value of your car. At the least, you must meet the car liability coverage requirements in your state. When you have an older car and enough savings, you may opt to lower your coverage and save on premiums, as long as you carry the required liability coverage.
One thing to consider is the costs of damages to your vehicle. When it comes to minimum liability coverage, your insurer will only cover the damage incurred to the other party and not the damage to your automobile.
Decide how much is right for your older car and your financial situation. You can get liability coverage, uninsured motorist coverage, medical payments coverage, comprehensive coverage, and collision coverage. Depending on the value and age of your car, you may not need to carry a collision policy.
Other additional coverage to consider are emergency road service, towing coverage, and rental car coverage.
How much does it cost to insure an older car?
The make and model of the older car make it cheaper to insure compared to a newer car. However, the premium you pay every month can still add up. Several factors go into insuring an older vehicle. For example, if your car was made in another country and would need to ship some parts for replacement, this can increase the insurance rate. The same goes for an older car with more difficult and costlier parts to replace or repair.
Other factors that impact the cost of your car insurance are your age, location, driving record, and claims history. Moreover, the safety features and repair price of your vehicle are also taken into consideration.
Older vehicles often have fewer safety features than newer ones, and this can increase the premiums. You may increase your deductible to reduce your monthly premium, but expect to shell out more out of pocket in case of an accident.
How do insurance companies determine a car’s value?
When you are involved in an accident and make a claim, your insurer will evaluate the actual cash value (ACV) of your vehicle. The process also helps determine if your car is a total loss or can still be repaired. Keep in mind that the insurer determines the value of a vehicle within the time frame of the accident and not during the purchase.
The insurance company will factor in your past accidents, regular usage, and general wear and tear. The ACV they get may be a lot less than what you paid for your vehicle. Cars depreciate in value from the time you start driving them. No matter how careful you are in using your car, the insurer will take into account the depreciation.