What is a Car Insurance?

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.

StateAnnual Minimum CoverageAnnual Full Coverage
Alabama$558$1,701
Alaska$396$1,292
Arizona$571$1,637
Arkansas$477$1,854
California$624$1,967
Colorado$489$1,899
Connecticut$814$1,659
Delaware$918$2,027
Florida$1,085$2,775
Georgia$709$1,698
Hawaii$365$1,128
Idaho$330$1,027
Illinois$478$1,383
Indiana$349$1133
Iowa$237$1131
Kansas$470$1791
Kentucky$859$2423
Louisiana$920$2986
Maine$364$1074
Maryland$908$1987
Massachusetts$456$1163
Michigan$876$2084
Minnesota$535$1463
Mississippi$549$1819
Missouri$520$1694
Montana$407$1773
Nebraska$345$1401
Nevada$965$2489
New Hampshire$389$1143
New Jersey$957$1901
New Mexico$396$1461
New York$934$2008
North Carolina$402$1255
North Dakota$355$1233
Ohio$380$1066
Oklahoma$458$1906
Oregon$672$1355
Pennsylvania$453$1525
Rhode Island$833$2065
South Carolina$588$1561
South Dakota$299$1466
Tennessee$406$1404
Texas$599$1725
Utah$640$1596
Vermont$336$1074
Virginia$506$1354
Washington$461$1293
Washington, D.C.$718$1867
West Virginia$496$1580
Wisconsin$354$1206
Wyoming$336$1484

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 CompanyMinimum CoverageFull Coverage
All State$648$1994
American Family$593$1454
Erie$409$1233
Farmers Insurance$639$1745
Geico$370$1233
Nationwide$545$1332
Progressive$625$1739
The Hartford$1106$2395
Travelers$455$1426
USAA$396$1238

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

AgeMaleFemale
20$3561$3127
30$1697$1667
35$1634$1621
40$1589$1584
50$1485$1474
60$1438$1421

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 PolicyGood CreditBad Credit
Full Coverage$1630$2792
Minimum Coverage$561$973

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 ModelAnnual CostMonthly Cost
Ford F-150$1448$121
Chevrolet Silverado$1610$134
Ram 1500$1708$143
Honda Civic$1328$111
Nissan Rogue$1326$111
Toyota RAV4$1480$123
Honda CR-V$1214$101
Toyota Camry$1546$129
Jeep Grand Cherokee$1652$138
Toyota Highlander$1632$136
GMC Sierra$1526$127
Toyota Corolla$1252$104
Honda Accord$1484$124
Jeep Wrangler$1508$126
Ford Explorer$1436$120

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:

  1. Michigan
  2. Louisiana
  3. Florida
  4. Rhode Island
  5. Kentucky

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:

  1. Maine
  2. New Hampshire
  3. Idaho
  4. Ohio
  5. Wisconsin

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

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.

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What are Branded Titles?

A title brand is a label assigned to a car by the state agency after an insurance claim has been made to cover costs that are beyond the usual limits. It generally means that a car has sustained serious damage as appraised by the insurance company. It does not matter if car damage is repaired or not after the incident. The branded titles are designed to stay permanently in order to flag down buyers on the extent of damage the car may have obtained due to an unfortunate past incident. Hence, these title brands shall appear on car reports and other documents to get consumers up to speed about the cars.

Since no one can fully assess the actual extent of car damage after being titled or the effectiveness of repairs it underwent, a title-branded car can be a great bargain if it shed off a significant amount of its market value albeit effects of the accident on the vehicle’s quality and performance are hardly noticeable.

Common Types of Branded Titles

The definition and qualification for a title brand vary by state. Similar title brands may have different qualifications from different states. To learn more about the specifics of a local title brand, we suggest referring your questions to the authorized state agency or DMV of your residence.

Salvage Title

A vehicle may qualify for a salvage title if the repair cost for its damage constitutes more than half of the vehicle’s market value. Another way that a vehicle may suit this title brand is if a declaration of a ‘total loss’ has been made by the insurance company. In this case, a car shall be prohibited from being used. Once repairs have been made to rectify all deficiencies it may have sustained and after a thorough evaluation by agencies concerned, the state may relegate its branded title to a “rebuilt title ” so that the vehicle can be legally driven once again.

Rebuilt Title

A rebuilt title can be granted to a car if it is restored to a roadworthy condition after being deemed a ‘total loss’ by the insurer or has been given a salvage title by the state. The vehicle must pass a preliminary inspection from an authorized state agency to qualify for the rebuilt title, and thus, be eligible for driving again. A car with a rebuilt title can command a great price but it also comes with risks, since its past issues may have some recurring effects on the day-to-day condition of the car.

Odometer Rollback

Mileage affects the pricing of a car. As is often the case, high mileage is commonly correlated with a high depreciation rate. Dubious sellers may attempt to tinker with a vehicle’s odometer reading to display a mileage record lower than what the vehicle actually has achieved. Enlist the help of a certified mechanic to check if the odometer device can read mileage accurately. Reviewing a vehicle history report or other documents can also confirm the occurrence of an odometer rollback. A car with a confirmed incidence of an odometer rollback will receive a corresponding title brand.

Water or Flood Damage

Flood, water damage and other equivalent title brands can also be given to motor vehicles that have sustained damage from water-related natural disasters. Either through forgery or other tricks, a water-damaged vehicle can wind up in a dealership garage in areas that are not prone to typhoons or flooding. Luckily, a trained mechanic can detect flood stink, the presence of rust and other signs of water damage even if the seller’s documents fail to point at any particular type of damage.

Hail Damage

Hail damage can adversely affect the resale prospects of a motor vehicle, especially if the severity of its impact is more than meets the eye. Like always, a trusted auto mechanic can unveil the underlying problem beyond face value. Not all states issue hail-damage titles. However, the data can still influence the decisions of other parties in non-issuing states. One example of this is the hesitance of many insurers and lenders in giving their full coverage for vehicles subject to the title. This is due to the high risks they may have to take with such cars. This being the case, and if damage to a car can easily be corrected, you could save a lot of money if you will buy a car with this title brand.

Other Labels (Besides Branded Titles)

Theft

During theft and recovery, there is a high chance that a vehicle will sustain serious damage. As such, law enforcement and DMV agencies may also add ‘theft recovery’ on a motor vehicle’s title after it has been returned to the legal owners. As a result, the resale value of the vehicle may also take a serious hit. And if the repercussions of such an incident to the car are hardly noticeable, it could be a great buy for anyone looking for one.

Lemon

Many US states have ‘lemon’ laws that allow buyers to return vehicles that have persistent defects after many attempts have been made to fix their issues. The defects in question may have occurred during the manufacturing process, or when the vehicle was still under a dealership’s care. Vendors may answer lemon claims by buying back the vehicles or by replacing them with different units. Vehicles that are sold ‘as is’ may be exempted from lemon law. Each state’s criteria that qualify for ‘lemon’ claims vary. So, it is important to get in touch with the local DMV to know the local process in dealing with lemons.

What is Title Washing?

Title washing may happen inadvertently due to varying definitions and standards of title brands in each state. But many dishonest individuals exploit the interstate loophole intentionally by registering the vehicle to different states, thereby ‘washing’ a vehicle’s past titles. This way, they may be able to hike the vehicle’s market value to the detriment of consumers’ welfare. The best way to know if brand titles have been cleared off is to check the VIN for vehicle history reports. If certain title data do not appear on the seller’s copies, but it does on your own independent research, there is a chance that a title has been washed.

All title brands can work either way. It makes you aware of possible problems the car may cause you if you proceed in buying it but it can also open you to the opportunity of getting a bargain if you have the ability and the knowledge to play your cards right.

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