We hear ya: The #adulting lifestyle is giving you a run for your money.
And, we’re about to throw something else at you: You may need to learn how to buy car insurance. Yup, even if you’d rather spend your hard-earned money elsewhere or save up for a vacay, car insurance is crucial if you plan to drive.
We’re here to tell you that finding an insurance policy that fits your budget is possible. Here’s everything you need to know about how to buy car insurance.
Understand the Basics
The point of car insurance is to protect you financially if you get into an accident or your car gets stolen.
Here’s a quick breakdown of car insurance lingo:
1. Liability Coverage
Liability coverage pays for the damage you cause in an accident. It covers both bodily injuries and property damage. Most insurance companies structure this coverage into three parts.
For example, you can choose 100/300/50 coverage limits, which means your insurance company will pay up to:
- $100,000 for injuries per person.
- $300,000 for injuries in total, per accident.
- $50,000 for property damage per accident.
2. Uninsured/Underinsured Motorist Coverage
Nearly one in eight drivers on the road are uninsured. Why should you care? Because this can put you at risk.
Uninsured/underinsured motorist coverage pays for the costs of your property damage and bodily injuries caused by an uninsured or underinsured motorist. This is also the area of coverage that will protect you in the case of a hit-and-run accident.
3. Comprehensive Coverage
What if you need to repair or replace your vehicle but weren’t in a collision?
This is where comprehensive insurance coverage steps in. This coverage protects you against vandalism, theft, fires, accidents with animals and natural disasters. Oftentimes, drivers will set their deductible to $1,000 to keep the annual cost of this coverage low. This means that if you claim fire damage, you will be responsible to pay your $1,000 deductible before your insurance benefits kick in.
4. Collision Coverage
Collision coverage helps you pay to repair or replace a vehicle that has been damaged in an accident. With this coverage, your insurance company will cut you a check if you totaled your car in an at-fault accident.
It is optional coverage if you own your car outright, but it is worth having. If you are leasing or financing your current set of wheels, this coverage might be required.
5. Medical Payments Coverage
Medical payments insurance is the additional coverage used to pay for excess medical costs that do not fall under liability coverage. It will pay for accident-related dental work, EMT and ambulance fees, surgeries, funerals and more. You can also use this coverage if you’re injured by a vehicle as a pedestrian or bicyclist.
Drivers can set the maximum limit of coverage for medical payments. The higher the amount of coverage, the higher your premium.
6. Personal Injury Protection
Personal Injury Protection covers medical expenses for the drivers and their passengers. The coverage extends to individuals that do not have health insurance, as well. Not all states require PIP coverage. If it’s optional in your state, figure out how much extra it will cost you per payment. You can then decide if it’s more beneficial to use your money to start a savings account or pad your emergency fund.
Ways to Buy Car Insurance
Now that you’re familiar with the different types of insurance coverage, it’s time to buy a car insurance policy.
Shopping for car insurance has never been easier. There are several resources at your disposal to help you choose the right policy, including many online aggregators to help you compare prices. So, take the time to research different policies and shop quotes. Even a $25 monthly price difference can add up to a potential $275 saved per year.
Here’s how to shop for car insurance:
Buy From an Auto Insurance Agent
An auto insurance agent works for a specific company and can give you in-depth details on that company’s rates and policies. Many times bundling your car insurance with your homeowners or rental policy can save you money, but don’t forget to compare prices.
Agents can be helpful as you can get personal answers to tricky questions like, do I need insurance to buy a car? Or, what types of vehicles cost less to insure? Ultimately, an agent’s job is to sell you a policy, so again, make sure you shop around so you can save money.
Use a Broker
Unlike an agent, an independent auto insurance broker is not tied to a specific company. A broker works for you and can help you discover the best types of coverage for your driving needs. They can also provide you with a wide variety of policies and quotes from different companies. Make sure to ask if the broker charges a fee for his services or if he works on commission.
Shop for Car Insurance Quotes Online or by Phone
You can also skip the agent and broker altogether. Several companies make it easy to get vehicle insurance quotes with a quick online or phone questionnaire. Typically, these questionnaires are fast and you will get your estimated quote within minutes. The final quote typically comes after your driving record and credit information are received by the company.
Use a Comparison Tool to Compare Car Insurance Rates
Comparison tools on websites can help you see several different rates and policy details side-by-side.
Keep in mind that these websites can receive a financial kickback for featuring specific companies. So, use these tools as a jumping off point to do more research. NerdWallet’s free car insurance quote comparison and Compare’s auto insurance tool are worth checking out.
Four Tips to Save Money on Car Insurance
Credit Karma estimates that Americans overspend on auto insurance by nearly $21 billion per year. Here are four ways to score cheap car insurance:
1. Shop Around for Auto Insurance Quotes
Figuring out how to insure a car is going to take an hour or two. Yet, factoring in the time can save you up to $365 from your annual bill. So, it’s time well-spent.
To start, use an online comparison tool to see the top three auto insurance companies in your area. Next, talk with an insurance broker to better understand your options. Finally, chat with individual agents to discover possible discounts.
2. Don’t be Afraid to Switch Car Insurance Policies
You aren’t married to your car insurance policy. You can look at new rates and even switch insurance companies at any time. So, shop for new quotes every six months as rates change often.
3. Raise Your Deductible
A higher deductible can decrease your overall monthly rate. In fact, you can save an average of $367 per year by increasing a $250 deductible to $1,000.
To minimize the risk of a higher deductible, make sure you have an established emergency fund. If setting $1,000 into a savings account seems daunting, use automatic savings with Chime.
4. Don’t be Afraid to Ask About Driver Discounts
Ask insurance agents if they offer any discounts. You might be surprised to find out that drivers under 25 can save 15 to 25 percent if they have a 3.0 GPA or higher. Likewise, drivers can earn a discount for being low income, driving a hybrid vehicle or being in the military. Many companies also offer discounts if you pay your premium in one lump sum.
5. Raise Your Credit Score
Many insurance companies will look at your credit score as one of the many factors to determine your premium. The reason behind this is that drivers with poor credit-based insurance scores are more likely to file a claim. A higher credit score, along with a clean driving record and safe vehicle type, will give you a better credit-based insurance score.
(If you live in California, Massachusetts or Hawaii, this doesn’t apply to you. These states don’t allow car insurance companies to base rates off of scores.)
Shop Smart and Save Money
Figuring out how to buy auto insurance is not as complicated as it seems.
Remember, once you commit to a great rate, don’t be afraid to play the field every six months. You never know when you’ll find a lower auto insurance rate and save money.