Are you feeling overwhelmed by all of the different types of car insurance options you have? If you want to drive a car in the USA, then you’ll need insurance coverage before you get behind the wheel. Selecting the right insurance company and coverage is definitely tricky, especially for a first time driver. Not to worry though, because we’ll explain everything you need to know about car insurance coverage below!
Car Insurance Coverage Explained
The first thing you might be wondering is what car insurance actually is. The answer to this question is ultimately determined based off what type of auto insurance you have. Some insurance coverage is required by law, while others are completely optional. Nearly every state in the USA requires at least basic coverage, which only covers your liabilities to other drivers and/or property owners.
Many people think that car insurance is designed to cover injuries that you suffer and damage incurred on your car, but that just isn’t the case with most state’s requirements of basic coverage. In actuality, car insurance at a base level is to provide you with a way of covering the cost of car repairs and injuries that you inflict on other drivers. There definitely are auto insurance options that cover your own injuries and repairs, but we’ll go in depth on that later.
Why is Auto Insurance Necessary?
The reason why most states require you to drive with car insurance is because repairs and injuries are downright expensive. Even at low income levels, many families are eventually able to afford a car. However, a large percentage of people that drive cannot afford the cost of repairs and injuries.
To put things into context, you could likely find a car for $1,000 or less that runs. It won’t run well, but it gets you from point A to point B. You’d then be driving on the same road of vehicles that cost 10, 20, 50, or even 100 times more than the car you just bought. Even if you are at fault for an accident with a car worth just $3,000, repairs may already be out of your price range if you don’t have any savings.
Simply put, it is relatively cheap to get on the road, but driving poorly can quickly make that cost prohibitively expensive. This is why the monthly cost of an insurance premium is well worth it considering what you won’t need to pay in the event of an at-fault accident. At the same time, this is why it is so frustrating to get into an accident with someone that does not have car insurance, because there isn’t a reliable way of being compensated for your losses.
Levels of Car Insurance Coverage
Now it is time to break down the different types of car insurance coverage. We went over basic coverage earlier, which is ultimately just your liability for damage caused to other drivers and their vehicles/property. This is split into two categories; bodily injury liability and property damage liability.
Beyond basic liability coverage, you can expect to find these options from most auto insurance companies:
- Underinsured Motorist – This insurance covers you in the event that another driver’s insurance policy does not fully cover your repair costs.
- Uninsured Motorist – Taking coverage a step further, this will insure you against any damage caused by drivers without insurance. This is particularly helpful if you are the victim of a hit-and-run.
- Collision – Now this is what most people think car insurance is. Collision coverage will cover the cost of repairs or replacement on your vehicle when an accident happens. This type of coverage is optional, but critical to safeguarding your vehicle.
- Comprehensive – Even better than collision, comprehensive insurance gives a more-inclusive field of protection. It covers any damage caused by animals, vandals, or extreme weather.
- Medical Payments – As the name suggests, this insurance will help to pay any medical costs you are burdened with resulting from an accident.
- Personal Injury Protection – This is a better form of medical payment insurance. Not only will you receive assistance with medical costs, but you can also receive compensation for lost income.
- Towing & Labor – Another simple form of insurance, this covers the cost of having your vehicle towed and other similar roadside assistance needs (flat tires, empty gas tank, dead battery).
- Rental Reimbursement – If you end up needing to use a rental car, this insurance will help cover the daily cost of renting a vehicle.
- Gap – If your car is stolen (and never recovered) or totaled, then you are likely to receive a settlement payment. This amount may not be enough to purchase a similar car due to the depreciation in car value. Gap insurance can be used to help bridge the “gap” between your settlement and the cost of your new car.
How to Pick the Right Car Insurance
With so many different auto insurance options to choose from, there’s no surprise that most drivers feel overwhelmed when trying to select coverage. In all honesty, the right car insurance is not universal – it depends on your situation, vehicle, and finances. In a perfect world, you would have all insurance coverage available to you. This isn’t practical because of how expensive your premiums would be.
Remember that the minimum coverage includes liability to others, but it does not cover your own repair bills or injuries. With that said, collision is an excellent coverage to have on your auto insurance policy, but it is often comparable to the cost of liability insurance alone. Having more coverage is great in theory, but some are not entirely necessary due to their impact on car insurance prices.
Speaking generally, inexpensive vehicles and those with low income don’t need a lot of fancy coverage. The value of your car is low to begin with, so paying a high insurance premium doesn’t make a lot of sense if you’re on a tight budget. Your biggest concern will be any injuries that you sustain. You should definitely opt for personal injury protection if you can manage it.
If you have extra income that you don’t mind spending and especially if you drive a nicer car, opting for more coverage is definitely a great choice. Collision, comprehensive, uninsured motorist, personal injury protection, towing & labor, and rental reimbursement are all extremely useful. These insurance coverage options can be viewed as a luxury. If you can afford luxury, then it should be no question for you to completely cover yourself and your vehicle.
For many drivers, the biggest factor in determining what insurance coverage you have is price. The national average for liability insurance alone is between $500-$600 annually. Adding just collision will raise the price by $300-$400. Most drivers also include comprehensive insurance, which will bump your premium up by another $100-$200. So the average driver will pay between $900-$1200 for car insurance every year.
Something very important to understand is that there are multiple factors that influence the price of your insurance premiums. Age and driving history are definitely the two biggest ones, but gender, vehicle make/model, and your state also matter. If you’re under the age of 25, your insurance will be higher. This impact is bigger if you are male. Racking up tickets is another surefire way to increase your insurance. Finally, driving a smaller or expensive car will also add to your total cost.
What is the Cheapest Car Insurance?
If any of these factors apply to you, then finding cheap car insurance will be very difficult. At this point your only option is to go with minimum coverage (liability). This does open you up to greater risk when an accident happens. This is just the price you pay for not accepting the higher insurance cost. You should also try to negotiate for as many discounts as possible to lower your monthly bill.
As far as auto insurance companies go, State Farm is generally the cheapest option across the board. They also insure more drivers than any other insurance company. However, if you are eligible for USAA coverage (part of an active or retired military family), then they are definitely the cheapest choice. As a last option, Geico is slightly more expensive.
What is the Best Car Insurance?
When you’re looking to choose the best car insurance available, then you need to decide what is most important to you. If inexpensive insurance is the best for you, then State Farm is still a great choice. If high-quality coverage is your priority, then Amica Mutual is your best bet. On the other hand, Nationwide is a great choice if you value customer experience.
What is your experience with car insurance companies and options? Share your tips below!