Overview

Auto insurance is an important and often expensive purchase for most consumers. Americans on average spend almost $1,020 per year on auto insurance coverage. Having auto insurance helps to pay for any damage or injuries that could happen because of an accident. In all but 2 states (New Hampshire and Virginia), drivers are required by law to purchase auto insurance.


Why Auto Insurance?

There are 3 main reasons consumers will need to buy auto insurance:

Laws

Most states require that drivers have some form of protection or coverage when driving. If you are caught driving your car without insurance, you could receive a ticket and have your vehicle impounded by the police.

Lender Requirements

If you financed a car with a car loan, your lender will require that you have auto insurance. This is aimed at helping to protect your vehicle and its value from damages.

If you cancel your insurance or fall behind on your payments, the lender may automatically insure your car for you. However, this coverage is much more expensive and provides less protection than most policies in the marketplace.

Protect Yourself

If you are responsible for an accident, insurance will protect you by providing bodily injury and property damage coverage. If you are taken to court, liability insurance will also cover attorney’s fees. Having auto insurance is a great way to protect you and your assets. Lost wages because of an accident can also be covered by insurance.


Types of Coverage

Although there are many auto insurance packages available, some coverages are required by state law.

Required by Law

Bodily Injury Liability

If you cause an accident, this coverage will apply to injuries you have caused to others. You will also be covered if you are driving another person’s car with their permission.

Property Liability

Property damage liability pays for any damages you cause to another person’s car or to any items your car hits.

Required by Some States

Medical Payments or Personal Injury Coverage

This coverage aims to pay for treating any injuries that occur to you and your passengers. In some states, this coverage can also pay for funeral expenses and lost wages.

Uninsured or Underinsured Motorist Coverage

Sadly, if you are involved in an accident with an uninsured motorist, you could be in trouble. However, having uninsured or underinsured motorist coverage can protect you if the driver at fault does not have the insurance necessary to pay for the damages.

Required by Lenders

Collision Coverage

This coverage will pay for any damage to your vehicle from a collision. This coverage also protects you if your car hits a pothole or if your car flips over.

Comprehensive Coverage

This form of coverage will protect you if your car is damaged because of something not related to a collision. This could include flooding, theft, hail, storms, and animals. This coverage will also help with windshield damage, often letting you replace a cracked windshield for free.

There are far more different forms of coverage available on the market today than we listed. Some other popular options include a towing package and a rental car if your car is unable to work properly.

If you have financed your car, your insurance policy will not cover paying off your loan if your car is damaged and the value of the car is less than what is owed. Many dealerships and auto loan lenders will offer Guaranteed Auto Protection, often called GAP, for most of their financed vehicles.

The vehicles listed below will most likely each need their own individual insurance policies:

  • Motorcycles
  • ATVs (All-terrain vehicles)
  • Off-Road vehicles
  • Recreational vehicles (RVs)
  • Commercial trucks and vehicles


How Are Premiums Determined?

Many factors will affect how much you pay for auto insurance. All insurance companies use complex mathematical equations to determine the rate you pay. Things that can affect your premium include:

  • Your driving history and record, along with the driving records of the other people covered by your insurance
  • Credit scores. Consumers with healthier credit scores typically pay a lower premium. However, many states have begun to crack down on insurers using credit scores to calculate insurance. A few states have banned the practice altogether. If you are shopping around for a quote with less than ideal credit, ask your insurance to consider situational credit exception.
  • Age, gender, and even your marital status will affect your auto insurance rate. Drivers under the age of 23, men, and single people often file more claims and thus will pay an overall higher rate for insurance. Drivers over the age of 65 also experience higher insurance premiums due to their increased accident rate.
  • The car you drive will also play a large factor in how much you pay for auto insurance. If you drive a sports car, you may pose a higher risk of an accident and will be slapped with higher insurance rates. Large trucks and SUVs can cause more damage in an accident than smaller cars and are also slapped with higher insurance premiums.
  • Your location plays a large role in your coverage. If you live in a rural area, you will pay less for insurance due to the lower number of claims filed.
  • The usage of your vehicle and how many miles you drive per year has a large role in insurance costs. The more you drive, the higher the chance of having an accident.
  • Past claims are reported to a nationwide claim database. Although there are many of these databases, the largest one is the Comprehensive Loss Underwriting Exchange or CLUE for short. If you have submitted a claim in the past, it will be in the private database.
  • The deductible you apply for when choosing comprehensive and collision coverage will also have an impact on how much you pay.

How to Get Discounts

Thankfully, most insurance companies will offer drivers various discounts if they qualify. Some of the most common forms of discounts include:

  • A strong GPA for young drivers and college students
  • Insuring both your car and home with the same insurance provider
  • Placing multiple cars under the insurance policy
  • Being a member of a specific organization
  • Taking driving courses for senior citizens

A image showing ways to save on auto insurance


Shopping Around

Just as with any other purchase, your goal should be to find the best rate possible for your car or truck. Insurance companies can charge different rates to different people for the same exact form of coverage.

Typical ways insurance providers sell their products and protection include:

  • Insurance Agents – Often independent with their own office. Many agents work for multiple insurance providers
  • Brand Agents – These agents only sell the insurance products of one insurance company
  • Market Sales – These are sales completed through online forms or through a phone call

Typically, the insurance provider pays their agents a base salary with commissions from sales. Bonuses can also be provided to agents for meeting specific sets of quotas.

Most consumers find insurance companies from friends, neighbors, the internet, and television ads. There are multiple channels to find auto insurance, however, we recommend searching online for auto insurance since this typically saves consumers the most money.

Many consumers rank customer service as one of the most important factors when choosing an insurance provider. When it comes time to file a claim, consumers want to be in good hands.

Your state has most likely created a complaint index for insurance companies that can tell you how well an insurance provider is serving its customers. This index measures how many complaints are filed against your insurance provider compared to its respective size.


Insurance Scams to Avoid

Insurance companies and their agents must be licensed to sell insurance. Simple business cards and a website do not provide any proof that an insurance agent or provider is legitimate. If you buy insurance from a company that is not licensed, they may not pay your claims or refund you if you cancel. You can check with your state’s insurance department to see if a specific provider or agent is licensed.


Getting Your Quote

The best and easiest way to compare insurance providers is by getting a quote. However, you should first sit down and brainstorm the coverages you will need. Consider your driving history, your mileage, and the car you will insure.

Most states have a minimum requirement of what an auto insurance policy must cover. However, these minimums are rarely enough to cover a significant and expensive accident. You can obviously opt-in to increase your coverage amount or add-on additional coverages.

If you decide to rate shop,  write down the quote you are provided along with the coverage provided by each company. You can simply track this on an excel spreadsheet or on paper.

Most insurance companies will need a large amount of information to provide you with an accurate quote. If you are insurance shopping, have your vehicle VIN, social security number, and other important pieces of information ready in-hand.

Be sure that the information you provide is accurate. If the insurance company asks about your previous driving record, disclose any accidents or claims you have filed in the past.

When you receive a quote from an insurance provider, have it in writing. There have been claims that insurers have increased prices from the time of the quote until the first insurance bill comes in.

When calling around and meeting with insurance agents for quotes, ask them some of these questions:

  • What coverage am I required to purchase by state law?
  • What are the specific things that my policy does not cover?
  • Are you and your agents licensed by the state to sell insurance products?
  • What will my deductible be?
  • Does my policy include uninsured and underinsured motorists?
  • How much will my credit history impact my rates?
  • If I was hit by another driver in an accident, will my own rates increase?
  • If I cause an accident, how will my rates be affected?
  • Am I able to choose my own repair shop in the event of an accident?
  • Who can drive my car and still be covered?
  • Does my policy cover me driving other people’s cars or rental cars?

After You Choose

After you choose an auto insurance provider, you are set to go. The auto insurance policy you agreed to is a legal contract. As a consumer, you will have a set of rights and responsibilities along with the insurance provider. Once you’ve chosen a provider and a policy, take some time to read over your new contract. Understand what rights you have as a consumer.

After you selected an insurance provider, you should receive a welcoming packet in the mail. If you do not receive this packet in the mail within 30 days, place a call to your insurance provider or agent.


Auto Insurance Tips

  • A payment will be due the moment your policy starts. This typically happens in 6-month intervals. However, insurance companies allow customers to pay monthly, but there could be a fee for this extra service.
  • Many insurance providers do not accept late payments. A late payment to your auto insurance provider could mean an increase in your premium when renewed.
  • Have a proof of insurance statement in your car and also in your wallet, if you are in another person’s car. Many insurance providers also allow you to access your insurance card from their app.

What to Do in an Accident

Getting into an accident can cause a massive amount of confusion. If you are involved in an accident, your first step should be to ensure that the other drivers and passengers are safe. Next, exchange your information with the other driver(s). Get their name, address, and the name of their insurance provider.

Their proof of insurance document will have all the above items recorded. If the driver cannot produce this information, write down the make, model, and color of their car along with the license plate number. Understand that the other driver will also request similar information from you.

Other tips for car accidents:

  • If somebody is injured, call 911
  • If your car is operable, attempt to slowly move it out of traffic
  • Search for witnesses, their names, and contact information
  • When speaking to a police officer, get their badge number and contact information. Ask to receive a copy of the police report once the report has been created.
  • Write down the exact time, date, and location of the accident. Try to take as many images as possible of the accident.
  • If your car was involved in a “hit and run”, call the police right away

 


Filing the Claim

To file a claim, call the phone number on your proof of insurance form. This should be done as soon as possible. Know that how often you file a claim and the type of claim you open will affect your insurance rates. Once you are speaking to an agent, ask if you must provide any specific forms or documents proceed.

Once you have called a claim in, your insurance provider will assign a claims adjuster to go over the damages and determine the proper payment amount. Typically, these adjusters are employees of the company but can also be independent contractors. Cooperate to the best of your ability when working with your adjuster. Take down notes, times and dates of all your conversations.

If you find yourself in a situation where you and your claims adjuster disagree, talk to your insurance provider first. If you would like, you can have your chosen body repairman present to meet you and your adjuster.

Ensure that you are not being rushed and forced into an agreement you don’t feel comfortable with. Often, insurance companies are under pressure to close claims quickly and at the lowest cost possible. Ask your claims adjuster for a copy of his notes with an explanation.

If you, your claim adjuster, and your insurance provider are still in disagreement, you could hire an attorney or a private adjuster. A private adjuster is licensed and is required to follow certain guidelines. You can contact your state’s insurance department for more information.


Losing Coverage

You can have your insurance canceled by either stopping your insurance coverage before the policy’s expiration date yourself or by having your insurance company stop the coverage. You have the legal right to cancel your insurance policy at any time you please. Your insurance provider may also cancel your insurance policy, but usually only has 60 days to do so.

Before an insurance provider cancels your policy, they are legally required to notify you. Typically, the amount of time required to notify customers will vary by state. If you or the insurance company cancels your policy, you may be entitled to a refund.

Your insurance company can also have the right to refuse to renew your policy. If your insurance company decides not to allow you to renew, you must be notified by mail within a 30-day period.


Final Note

For choosing an insurance policy that fits your needs, its best to be educated about your options. The insurance coverage you need will vary by your state along with your car’s ownership situation. If you are having difficulty finding insurance, you can call your states insurance department and ask if they have a program for high-risk drivers.