Which company offers the cheapest car insurance?

Are your children covered under your car insurance?

What kind of car insurance coverage does your state legally require you to have?

How Does Car Insurance Work?

When you get car insurance, you’re entering into a contractual agreement with your insurance company.

In exchange for you paying a monthly or annual premium, the insurer offers financial protection in case you’re in an accident or your vehicle is damaged or stolen. Auto insurance is required in every state but Virginia and New Hampshire. (Those states have alternative requirements such as paying an uninsured motorist fee.)

Depending on your policy, your insurer may pay for medical bills, legal fees and lost wages due to an accident or other covered events. How much you pay for your auto insurance will vary based on numerous factors, including your driving history, vehicle and the level of coverage you select.

Check out our guide on how to buy car insurance for more information.

Factors that can impact your car insurance quote

How much you pay for auto insurance will vary based on numerous factors. Here are some things insurers consider before setting your rate.

Credit score

In many states, insurers use your credit score as a factor in determining your auto-insurance premiums. According to the insurance industry, data shows that drivers with lower credit scores are more likely to file claims, and vice versa. However, California, Hawaii, Massachusetts and Michigan don’t factor in your credit score. More states are considering banning this practice as well.

At-fault accidents

Causing an accident indicates to insurance companies that you’re a higher risk to insure and your rates will often rise accordingly. If you’ve been in an at-fault accident be sure to disclose this to your new insurance company when signing up.

Driving habits

Maintaining a clean driving record and avoiding accidents is one of the easiest ways to save on car insurance. Insurance companies see you as a low risk driver if you exhibit safe driving habits. The more points you accumulate on your license, the higher your rates will be.

Coverage level

You have many coverage options to consider when getting insurance. State minimum coverage is typically the most inexpensive because it’s a liability only policy, and even then usually provides less protection than experts recommend. The more coverage you choose from there (i.e. additional liability, comprehensive, collision, roadside assistance and/or medical coverage) the more expensive your premium will be.

Gender

Men are more likely to participate in dangerous driving behaviors like speeding, so insurance companies tend to set their rates higher than those for women. The younger the driver is. As a rule, the bigger the difference in premiums due to gender. Seven states (California, Hawaii, Massachusetts, Michigan, Montana, North Carolina and Pennsylvania) don’t allow the use of gender as a factor when setting auto insurance rates.

Age

Teen drivers and young adults under 25 years old will pay the most for auto insurance compared to other age groups. That’s because they have limited experience behind the wheel and are more likely to engage in risky driving behavior. Rates tend to decline and eventually even out from ages 25 to 65, and then may increase again due to age-related health changes that can impact driving.

Permanent residence

Geographic location is one of the most influential factors when it comes to insurance rates. Cities with low crime rates and less dense populations tend to have lower insurance rates than those in which the opposite holds true. That said, rural states and regions,too, can have high insurance rates, because their less crowded roads can encourage driving at high speed, which also correlates with higher accident rates. .

How to lower your car insurance

If you’re currently paying more for auto insurance than you did or can now afford, you may be able to lower your car insurance premiums. Here are a few steps you can take to get cheaper rates.

Look into driver discounts

Most insurance companies offer a slew of discounts that can save you between 5% and 30% or so on your premium.

You may be eligible for a safe driver discount if you haven’t had accident or moving violations in the last 3-5 years. The multi-car discount is a common way to save if you insure more than one vehicle on the same policy. Be sure to ask insurance companies about any discounts they have. Some don’t list every option on their website.

Consider usage-based insurance

Usage-based insurance uses smartphone apps or sensors installed in the vehicle to track your driving habits. Those devices record such data as your braking and acceleration pattern, how many miles you drive, the time of day you drive and more. This information allows the insurer to determine whether you’re a safe driver or not. Drivers with safer driving habits will save on their premium.

Improve your driving skills with a defensive driving class

Defensive driving classes are designed for drivers to learn safe driving practices. They’re typically available for teens, seniors and other high-risk drivers, but you can still take them if you don’t fit these categories. Before you enroll, check with your insurance company to see if an accredited course will qualify for a discount.

Types of coverage for cars

When choosing your auto insurance coverage, you want to ensure it not only meets state minimum standards and requirements but those of your lender, if you have a lease or loan.

Liability

The coverage that’s most widely mandated by law, liability insurance covers damages you cause to another person's property while at the wheel. If you’re at fault in an accident, your liability coverage will pay for costs associated with fixing or replacing the other person's car, along with any medical bills they incur as a result of the accident, up to the policy limits.

Comprehensive

Comprehensive coverage protects your car when you’re not driving. This includes protection for everything from fire to theft and vandalism to a tree limb falling on your vehicle during a storm. This is a great option for protecting your investment, and all but those with an older vehicle of minimal value should, and do, carry it.

Collision

Collision insurance, also known as a physical damage policy, will cover any repairs to your car that occur while it’s in motion. With the exception, again, of owning an older vehicle of minimal value, you should carry this coverage; the vast majority of car owners do.

Personal injury protection

If you're in an accident and you or your passengers are injured, personal injury (PIP) protection can cover the cost of their medical expenses, lost wages and other related costs. Some state laws require that all vehicles carry this type of coverage (including Hawaii, Kansas, Michigan, Delaware, Florida, Massachusetts, North Dakota, Utah, New York, Oregon, New Jersey and Minnesota).

Gap coverage

Gap insurance is essential if you lease a car or have a loan. It will cover the difference between what you owe on your vehicle and its value in case your vehicle is totaled or stolen. This is beneficial because it keeps you from having to pay out of pocket for a vehicle you can no longer drive after an accident or other covered event.

Summary of Best Cheap Car Insurance Companies

Best for Veterans and Military Families: USAA

Best for Teen Drivers: Erie Insurance

Best for Multiple Coverage Options: State Farm

Best for High-Risk Drivers: Geico

Best for Poor Credit: Nationwide

Best for Rideshare: Allstate