Car insurance 101: A basic guide to coverage

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Car Insurance

Anna Swartz 1600

Updated November 17, 2020

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What is car insurance?

Auto insurance is essential financial protection for you and your car. It covers the costs if you cause a car accident that injures someone else or damages their property. It can also cover damage to your own car, either from a collision or another type of danger, like hail, fire, falling objects and theft. Car insurance can even pay for towing if you’re stranded by the side of the road, or for a rental car if yours is in the shop after an accident.

At least a minimum amount of car insurance is legally required in almost every state, but most drivers need more coverage than just their state’s requirements.

What does car insurance cover?

Every car insurance policy is made up of different types of coverage that all provide different types of protection.

When you hear full coverage car insurance, that just means an auto insurance policy that includes a full range of protection for both your and your car.

COVERAGEPROTECTS AGAINST…LIKE IF…
Bodily injury liabilityInjury you cause with your carYou rear-end another driver and the impact gives them whiplash
Property damage liabilityProperty damage you cause with your carYou run a stoplight and cause an accident with another car, smashing their passenger-side door
Personal injury protectionMedical expenses for you and your passengers after an accident (required in some states)You live in a “no-fault state” and are injured in a car accident
Uninsured/underinsured motoristDamage caused by a driver who doesn’t have insurance, or whose insurance doesn’t fully cover repair costsYou’re t-boned by an uninsured driver and your car requires expensive repairs
ComprehensiveDamage not caused by a collisionAn icy tree branch falls onto your car’s roof, smashing it and cracking the windshield
CollisionDamage caused by a collision, no matter who was at faultYou backed into a telephone pole and cracked your rear bumper

→ Learn more about what car insurance covers

How much does car insurance cost?

According to a 2020 report from the National Association of Insurance Commissioners (NAIC), the average car insurance premium was $1,134 a year (about $95 a month). But car insurance rates can vary widely depending on factors like driving history and type of car.

Your insurance company matters too — you can submit the exact same profile to three different companies and get three very different prices.

Here’s what helps determine your car insurance rates:

  • Your car: The make and model of car you drive will affect your insurance rates. Luxury cars with expensive parts cost more to insure than a budget daily driver, and cars with certain safety features get you a lower rate
  • Your coverage: More types of coverage and higher limits means more protection, but it also means higher premiums.
  • Your credit score: Drivers with poor credit scores may have more trouble finding affordable coverage than drivers with stellar coverage.
  • Your driving history: Recent accidents and driving violations will raise a red flag on your profile, while having a squeaky clean record can earn you extra savings.
  • Your address: Accident rates, density and repair costs in your neighborhood will all go into calculating your premiums.
  • Your age: Younger, less experienced drivers (under 25) are more likely to get in accidents and file claims, so they often pay the most for car insurance.

→ Learn more about how much car insurance costs

Best car insurance companies

The best car insurance company isn’t always the one that offers you the lowest rates. When you’re choosing car insurance, weigh cost along with factors like claims satisfaction ratings and customer happiness.

Independent third-parties like J.D. Power, which rates insurance companies based on feedback from real customers, and A.M. Best, which scores insurance companies on their financial stability, are good places to look for help choosing the best company for you. Low rates are great, but you want a car insurance company that will be there to help you when you need to file a claim.

→ Learn more about the best car insurance companies

How to buy car insurance

Buying car insurance can seem intimidating, but it’s actually an easy process — you can probably do it in one afternoon.

All you have to do is follow these five steps for simple shopping:

  1. Gather your info: Before you buy a policy you’ll need to know the make, model and VIN number for every vehicle you’re insuring, as well as the full names, birthday and driver’s license numbers for every driver on the policy.
  2. Choose coverage amounts: Know what types of coverage and how much of each you’ll need before you start shopping. Most car insurance policies have the same basic components, but higher limits mean more protection…and higher premiums.
  3. Compare quotes online: Getting quotes from different car insurance companies is an easy process, but you should compare more than just cost. Independent reviews can also help you figure out if you’re getting quality coverage.
  4. Pick a policy: Once you settle on a policy, you can buy it and set it to go into effect as soon as you need, whether it’s a month away or a day away.
  5. Cancel your old coverage: Wait until after you’ve purchased a new policy before you cancel your old one, and make sure they start and end on the same day so you don’t have a gap in coverage.

→ Ready to get started? We've got a comprehensive guide to car insurance car insurance quotes.

Insurance Expert

Anna Swartz

Insurance Expert

Anna Swartz is a Managing Editor at Policygenius in New York City, and an expert in auto insurance. Previously, she was a senior staff writer at Mic, writing about news and culture. Her work has appeared in The Dodo, AOL, HuffPost, Salon and Heeb.