Car Insurance Guide

In this section, you will learn what auto insurance covers, the types of coverage most companies offer and what can raise (or lower) your monthly premium.

We also include a step-by-step guide on buying car insurance and explain why car insurance is worth your money.

How does car insurance work?

Auto insurance helps you cover losses stemming from theft, collision and liability involving your vehicle. In simple terms, you pay premiums to an insurer, and it pays for any losses as stipulated in your policy, which generally includes damage to other vehicles and injury to the persons involved.

These policies always feature a deductible, that is, an amount you must pay out of pocket before the insurer covers the rest. These can range from $250 all the way to $2,000. Policies with higher deductibles will cost less than those with lower deductibles because you’ll assume more of the cost of repair or replacement in the event of an incident.

Car insurance does not typically cover property within your vehicle, however. For example, if someone breaks into your car and steals your laptop, the insurer will pay to replace the window and any other damage done to the car, but not the computer. In order to cover that, you would need homeowners or renters insurance.

Auto insurance is regulated at the state level, so your policy’s minimum liability limits will depend on local laws. Except for New Hampshire and Virginia, all other states require drivers to buy car insurance or pay some sort of fee if uninsured.

Types of car insurance coverage

There are seven standard components of auto insurance coverage:

1. Liability insurance includes property damage and bodily injury liability; the latter covers medical expenses to others stemming from an at-fault accident.
2. Uninsured/underinsured motorist coverage covers medical bills and repairs if you’re in an accident caused by another driver with little or no insurance.
3. Comprehensive coverage covers repairs if your vehicle is damaged by something other than another vehicle (including hail, fire, floods, theft and vandalism).
4. Collision coverage covers repair costs to your vehicle if you're involved in a car accident that is deemed to be your fault.
5. Medical payments coverage covers medical expenses if you or your passengers are injured in an accident.
6. Personal injury protection (PIP), also known as no-fault insurance, covers medical bills, loss of wages and funeral costs for you or your passengers if you're in an accident, regardless of who is at fault.
7. Guaranteed asset protection (GAP), supplements your car insurance when you owe more on the car than its cash value. This would typically not be covered under a regular policy.

In addition to these, optional insurance riders can give you additional coverage such as roadside assistance, glass replacement and rental reimbursement at an extra cost.

What does full coverage car insurance cover?

Full coverage auto insurance refers to a combination of liability, collision and comprehensive coverage. These coverage options financially protect drivers by reimbursing them for damages to their vehicle, injuries to passengers, and any damages to other cars and their occupants.

How much is car insurance?

Car insurance costs $1,176 on average, according to The National Association of Insurance Commissioners (NAIC)’s most recent Auto Insurance Database Report. However, this can vary greatly depending on a wide range of factors. In fact, the NAIC explicitly mentions that state-to-state comparisons are difficult to make because of the high degree of variability on insurance requirements and other factors.

Common factors that increase premiums

While your driving record and the type of car you drive influence your premium, there are other factors that affect what you pay for car insurance. Broadly speaking, the higher the risk you seem to present for an insurer, the higher the premium will be.

What drives up car insurance premiums?

Here are some of the factors that will determine your premium.

• Car usage: If you don’t drive often, there are fewer chances you’ll be involved in an accident. The opposite is also true; the more you drive, the more likely the insurance company has to pay out a claim, which leads to higher premiums.

• Place of residence: Where you live influences your car insurance premium. Generally, metropolitan areas like New York City, for instance, have higher vehicle theft and vandalism rates than rural neighborhoods, which means a higher risk.

• Age: Drivers under the age of 25 usually pay higher premiums because insurers see inexperience as a contributing factor in accidents. Teenagers, therefore, are considered high-risk drivers and will often have to pay the highest premiums.

• Gender: Statistically speaking, women are involved in fewer car accidents than men, resulting in lower premiums.

• Marital status: Insurers consider married drivers as safer than single drivers.

• Commute: Insurers ask for mileage information, such as how many miles you drive a year, because longer commutes increase your risk of being in an accident. Some companies have specific guidelines to determine whether your car is what’s known as a pleasure vehicle (around 7,500 a year or 20 miles a day), and offer lower rates.

• Homeowner status: Generally speaking, insurers regard homeowners as more financially stable, and thus less of a risk, than renters.

• Owning luxury or sports vehicles: These cars cost more to repair, have higher vehicle theft rates and plenty of horsepower, which makes them costlier to insure.

• Accidents or tickets: These can hike up your payments for three years or longer. Having a DUI violation on your record can also drive your rate up.

• Credit score: While some states have banned the practice, many states still let insurers use credit-based insurance scores to price policies. Statistical data reveals that drivers with poor credit are more likely to file insurance claims.

How to lower your car insurance premium

There are things you can do to lower the cost of your car insurance. You might already know about bundling and discounts, but there are other things you can do to help offset the high cost of insurance.