A Comprehensive Guide to Understanding and Choosing the Right Auto Insurance

If you’re going to drive, you need auto insurance. Think of it as a safeguard. You hope nothing ever happens on the road (or in your driveway), but if it does: you’re covered.

The key is balancing the coverage you need with a premium you can afford. You’ll need to know what you’re looking for to find the right policy.

Here’s what you need to know:

What Is Auto Insurance?

Auto insurance protects you financially. Depending on the policy, auto insurance provides financial protection in case of an accident, theft or damage to your vehicle. By paying a premium, you transfer the risk of potential losses to the insurer, who agrees to protect you up to your coverage limits.

What Does Auto Insurance Cover?

When choosing auto insurance, you have three basic coverage levels. Most insurance companies also offer additional protections like towing and roadside assistance.

Liability

Liability auto insurance covers the costs associated with injuries or property damage caused by you to others in an accident. Say, for example, you’re at fault in an accident. Your liability insurance would cover property damages and medical care for the other driver up to your policy limit. It won’t cover any of your damages or medical care.

Liability coverage is required in 49 out of 50 states. It is typically the cheapest option but carries substantial financial risk since you’ll need to pay for your damages out of pocket.

Collision

Collision insurance covers repair or replacement costs of your vehicle if it's damaged in a collision with another vehicle or objects up to your coverage limit, regardless of who is at fault. Typically, this coverage is stacked on with liability, so both you and other drivers on the road are protected.

Collision coverage is not mandatory, but if you have a loan or lease on your car, the lender or leasing company may require it.

Comprehensive

Comprehensive auto insurance protects your vehicle against non-collision events, such as theft, vandalism, fire or natural disasters — essentially everything beyond collisions. Say, for example, you park your car in your driveway. During a winter storm, a tree limb falls, substantially damaging your vehicle. If you carry comprehensive insurance, your insurance would likely cover repairs up to your coverage limit.

Comprehensive insurance is typically bundled with collision and liability coverage to make a well-rounded plan.

Uninsured/Underinsured Motorist Coverage

Uninsured/underinsured motorist coverage (UM/UIM) is designed to protect you if you're involved in an accident with a driver with insufficient or no insurance coverage. This coverage can help pay for medical expenses, lost wages, and other damages in such situations. While it may not be required in all states, it's a valuable addition to your policy, considering the number of uninsured or underinsured drivers on the road.

How Much Auto Insurance Do I Need?

If you own a car, you’ll likely need a liability policy. The minimum coverage required varies by state. For example, some states may require uninsured motorist coverage, while others may not.

Beyond liability, assess your risk tolerance and financial situation to decide how much coverage you need. If you have a loan on your car, your lender may require a full coverage policy (liability, collision and comprehensive combined). Many experts also recommend full coverage policy for newer cars and cars that would be expensive to fix, such as classic vehicles.

You’ll also want to consider what you can afford. After an accident, you may face medical bills, time off work and hefty car repair costs. Insurance can help you offset those expenses — or avoid them entirely.

How Much Does Auto Insurance Cost?

Auto insurance costs can vary significantly depending on factors such as your driving record, the type of car you own, your location, and the coverage options you choose. In general, insurance pricing can be broken down into two main categories: premiums and deductibles.

Find the best price with our Auto Insurance Comparison tool.

Deductible

The deductible is the amount you agree to pay out of pocket before your insurance coverage kicks in. For example, suppose you have a $500 deductible and your vehicle sustains $2,000 in damages from a covered incident. In that case, you'll pay the first $500, and the insurance company will cover the remaining $1,500. Generally, choosing a higher deductible can lower your premium but increases your financial responsibility in the event of a claim.

Premium

Auto insurance premiums are the periodic payments you make to maintain your coverage. Insurance companies typically assign a risk level to each driver and adjust the premium accordingly.

Beyond raising your deductible, you can lower premium costs by getting discounts. For example, many insurance companies offer a discount for bundling your auto insurance policy with your homeowner's insurance. You may also get a deal depending on where you work, where you went to college or if you belong to any organizations.

Some insurance companies also offer safe driver discounts. They'll lower your premium if you go a certain amount of time without filing a claim.

Ready to see how much you could save on your premiums? Compare rates with our Auto Insurance Comparison tool.

How Are Auto Insurance Rates Determined?

When determining auto insurance rates, insurance companies take into account several factors:

• Driving record
• Age
• Gender
• Location
• Type of car you drive
• Your credit score
• Your marital status

Understanding these factors is essential as they can significantly impact your premium rates.

How to Choose an Auto Insurance Policy

Choosing an auto insurance policy comes down to finding the coverage you want — with premiums you can afford – through a good provider.

Assess Your Needs: Evaluate your specific insurance needs. Consider factors such as the level of coverage you require, any additional coverage options you may need (e.g., comprehensive, collision, or uninsured motorist coverage), and your budget.

Research and Compare: Research different insurance companies. Look for reputable providers with strong financial standing and positive customer reviews. Consider factors such as their reputation, years of experience and track record in handling claims.

Compare Quotes: Obtain quotes from multiple insurance companies. Ensure you provide accurate information about your vehicle, driving record and coverage requirements to receive accurate quotes.

Review Policy Details: Carefully review the policy details. Pay attention to coverage limits, deductibles, exclusions, and any additional features or discounts. Ensure the policy aligns with your specific needs and provides adequate coverage for your vehicle.

Want to skip the hassle of researching individual insurance companies? Quickly compare rates from reputable insurance companies with our Auto Insurance Comparison tool.