Choosing a car insurance policy

There are a lot of factors to consider when choosing a car insurance policy, like how much coverage you need, what you can afford, and which insurance company to choose.

Zack SigelKara McGinley

Zack Sigel & Kara McGinley

Published June 16, 2020

KEY TAKEAWAYS

  • Before choosing a policy, consider how much coverage you need for yourself and your car, and how much coverage you can afford

  • You should shop around with different car insurance companies before choosing an insurer, one insurer might offer you a cheaper rate for the same amount of coverage

  • Keep in mind that different types of cars need different types of insurance policies. Choose a policy that will offer the best protection for your vehicle

  • You should shop around for a new car insurance policy every couple of years to get better rates

When you choose the right car insurance policy, you are ensuring financial protection in case you get into a car accident and injure someone or damage their vehicle with your car. Depending on what type of car insurance policy you choose, your car could also be protected from damage due to accidents and other circumstances, like if a tree falls on your car, or if your car is stolen.

When you choose a car insurance policy you should do so with a few things in mind, like how much coverage you need and how much you can afford.

Choosing the right car insurance policy starts with understanding how car insurance protects you, what kind of protection you need, and then shopping around different car insurance companies to find the most affordable and best offer for you.

In this article:

How to choose the right amount of car insurance coverage

Car insurance is made up of individual types of coverage and each type offers a different form of protection. Every state that requires you to have car insurance mandates a minimum amount of insurance that you need to have in each type of car insurance. However, these amounts are low in comparison to the actual costs you could incur if you’re liable for an accident or need to repair or replace your car, which is why it is a good idea to buy more than just your state’s minimum requirements. Knowing what each component of car insurance covers and how much protection you need is integral to buying a new car insurance policy.

Below are the coverage components that make up what is called a “full coverage” auto policy:

Coverage TypeWhat It Does
Bodily injury liabilityThe part of your liability coverage that pays for medical bills if you've injured someone in an accident
Property damage liabilityThe other part of liability coverage, covers the cost of property damage you've caused in an accident
Personal injury protectionCovers medical expenses for you or your passengers after an accident
Uninsured/underinsured motoristCovers the costs if you're in an accident caused by a driver with little or no car insurance
ComprehensiveCovers damage to your car that happens when you're not driving
CollisionCovers damage to your car after a car accident, no matter who was at fault

Gap insurance is another component of car insurance coverage you can buy that covers the gap between your car’s depreciated value and the amount you still owe on its lease or loan. Gap insurance comes into play when your car is a total loss or has been stolen and not recovered.

Choosing policy limits

When you choose the coverage components that you want to make up your car insurance policy, you will also choose the limits for each type of coverage. A limit is the maximum amount your insurance company will pay you out for a covered claim. For example, if you have $15,000 worth of property damage liability coverage, and you get in an accident and cause $25,000 worth of damage to someone else’s vehicle, your insurance company will only pay you out $15,000 because that is your policy limit, and you’d be on the hook for the remaining $10,000. This is why it's important to have higher limits than your state's mandated minimums, because higher limits means you pay less out of pocket if you get into an accident or if your car is damaged in a separate event.

Below is a sample car insurance policy that details coverages and policy limits.

Basic CoveragesPolicy Limits
Bodily injury liability$50,000 each person, $100,000 each accident
Property damage liability$50,000 each accident
Medical expenses (personal injury protection)$5,000 each person
Uninsured/underinsured motorist$50,000 each person, $100,000 each accident
Comprehensive$500 deductible
Collision$500 deductible

Additional car insurance coverage

When choosing a policy, you can also add additional coverages that don’t typically come with a standard auto insurance policy. For example, some policies might cover safety glass breakage while others don’t, so you might want to add on extra coverage. Policies differ on how they handle damage to your windshield or windows, sometimes offering different amounts of coverage whether the glass was repaired or replaced.

Other additional coverages include:

  • Roadside assistance coverage: Usually not needed if you’re already a member of an auto club like AAA, but it would come in handy if you are not.
  • Rental car reimbursement: When your insured car is in the shop or you’re waiting for it to be replaced, your insurer may cover the cost of renting a car in the meantime.
  • Associated legal costs: When you’re liable for damage, additional costs may crop up, like interest owed on damage payments, court costs, and appeal and appeal bonds. If you’re required to assist the insurer in investigating a claim, and your assistance results in lost wages, you may be entitled to a daily payment for each day you assist.

Once you know how much coverage you need in each component, it’s time to get car insurance quotes.

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How to choose a car insurance company

A better insurance company typically means faster responses to claims and questions, a better claims process and higher settlement amounts. You should check ratings with third-party reviewers while researching insurance carriers. . J.D. Power and A.M. Best publish satisfaction ratings for insurance companies. During these scorings, insurance companies are rated based on a variety of factors, such as:

  • How efficiently they file claims
  • How long it takes to get claims approved
  • Overall customer service

Read more about the best car insurance companies based on their J.D. Power and A.M. Best scores.

In addition to checking an insurance company’s rating, it’s important to shop around and get quotes from multiple insurers because one insurance company might offer a cheaper rate than another insurance company for the exact same amount of coverage. You can shop around by comparing quotes online or by working with an independent broker who can help you solicit and compare quotes from various carriers.

How to get an affordable car insurance premium

One of the biggest factors that will determine which insurance company you choose will revolve around getting a good premium rate. It's not always obvious which car insurance company offers the best rates, because everyone's situation is different. The same driver might get vastly different quoted rates at two different companies.

Various factors will affect your car insurance premium, including:

Learn more about how car insurance premiums are calculated

Choosing a deductible

When you choose your car insurance policy, you’ll be asked to choose your deductible, which is the amount you’ll pay to settle a claim before the carrier picks up the rest. Deductibles are assessed per coverage type, and liability coverage never has a deductible, while comprehensive and collision coverage almost always require one.

Common deductibles are $500 or $1,000, but a lower deductible means a higher premium because it increases the carrier’s obligation to you in the event of a claim.

When choosing your car insurance policy, see how much each deductible will cost you. It might mean choosing a $1,000 deductible and saving a little money now versus choosing $500 deductible and saving a lot of money later.

Car insurance discounts

When speaking with insurers, you should ask about discounts. Most insurers offer car insurance discounts off your premiums. The available discounts shouldn’t be the make-or-break decision when choosing a car insurance policy, as the more important decision is your coverage. But some of these discounts may include:

  • Safety equipment discounts — Installing safety features, like an anti theft system, could result in a discount.
  • Association discounts — Being a member of certain clubs, an employee of some companies, or a student or alumni of some universities will yield a discount from some insurers.
  • Safe driving discount — Some insurance companies will offer a discount to drivers who take a driver’s education course or who have a history of safe driving.
  • Good student discount — Discount given to student drivers who can demonstrate that they do well in school. Both high schoolers and full-time college students below age 25 are eligible.
  • Paid in-full discount: Most insurance companies will offer a discount to policyholders who pay a year's worth of premiums upfront.

Learn more about car insurance discounts.

Choosing the right car insurance for your car

The car insurance policy you choose needs to work well with the car you’re insuring. Every insurer has different rules for how it covers certain cars; a newer car might be covered differently than an older car; a Tesla might be better covered by one carrier than it would under another; leased cars require more coverage than cars paid for up front.

Car insurance companies handle insuring different types of cars in different ways.

  • New cars vs. older cars: Insurance companies will factor in the age of your car, as well as its mileage, when determining what kind of coverage you need.
  • Luxury, exotic, and performance cars: When choosing a car insurance policy, check with how the insurer covers luxury and performance cars. It’ll be more expensive to insure an exotic car like a Lamborghini than a typical mid-size sedan, and some insurers may not cover luxury or exotic cars at all.
  • Collector cars: Collector cars can be difficult to insure, so be sure to shop around until you find an insurer who knows how to handle them.

If you lease your car, or purchased it with an auto loan, you’ll be required to purchase collision and comp insurance. That’s to protect the lienholder’s investment; if the car gets totaled or stolen, the lienholder at least has some recourse. However, if you own your car, you should still get these coverages to protect your own assets.

When to choose a new car insurance policy

It’s important to review your coverage every time your policy period ends. (Check the top of your car insurance declarations sheet for information about your policy period.) When you renew your coverage, you may be eligible for a lower premium if certain conditions are met. You can also shop around for another policy from a different insurer if you feel like you’re paying too much. Some of the reasons to shop around for a new car insurance policy are:

  • You’re adding a new driver to the policy: Whenever you add a new driver, be sure to review your coverage with your insurer and shop around to see if you can get a better rate. Some insurers offer a family discount.
  • You’ve been driving more safely: You can get a safe-driver discount if after a certain number of years, you haven’t accrued any traffic violations. Because that number of years may differ from one insurer to another, you may find a better rate by shopping around.
  • You just turned 25 years old: Car insurance for a younger person can be pricey, but at age 25, rates drop by a lot. Rates continue to drop the older you get, up to your early 60s, after which they start creeping back up again. If you’ve reached an age where you think you’ll qualify for a better premium rate, it doesn’t hurt to choose a new car insurance policy.

Learn more about switching car insurance.

About the authors

Managing Editor

Zack Sigel

Managing Editor

Zack Sigel is a SEO managing editor at Policygenius. He covers personal finance, comprising mortgages, investing, deposit accounts, and more. His previous work included writing about film and music.

Insurance Editor

Kara McGinley

Insurance Editor

Kara McGinley is an Insurance Editor at Policygenius. She previously worked as a freelance writer and a copywriter for various startups. Her work can be found in Teen Vogue, The Culture Crush, Mask Magazine, and more.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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