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Choosing a car insurance policy

To choose a car insurance policy, you need to know how much coverage you need and how much coverage you can afford.

When you have car insurance, you’re protected from the liability you incur when you injure someone or destroy his or her property with your car. Your car is also protected from damage to itself or theft. Car insurance could cost anywhere from less than a hundred dollars per month to thousands of dollars per year, but in most states, you’re required to have coverage.

Choosing a car insurance policy is a function of how much coverage you need and how much you can afford. It starts with understanding how car insurance protects you and getting auto insurance quotes from insurance companies that offer that level of protection.

Read on to learn more about choosing a car insurance policy:

Research car insurance policies

Before you choose a car insurance policy, you need to know what you’re paying for. That will help you choose a plan that offers the coverage you need at price you can afford. One of Policygenius’ agents can help you make sense of shopping for car insurance.

Car insurance is made up of individual components, called coverages. Knowing which car insurance coverages you need and how much you can afford to purchase for each one is integral to buying a new car insurance policy.

Liability insurance

If you’re in one of the states that requires you to have auto insurance, liability coverage is the one you’ll need most. But you’ll want to purchase beyond the minimum your state requires, as liability coverage protects you when you injure somebody or damage his or her property with your car. Since liabilities could reach into the tens or even hundreds of thousands of dollars, you should make sure you’re getting enough coverage in this area.

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Personal injury protection

This coverage is for you and your passengers, if any of you are hurt in an accident. It’s not required in every state and isn’t incredibly necessary if you have good health insurance, but it could defray a lot of the costs your health insurance doesn’t cover.

Collision insurance

Collision covers damage to your car caused by an accident. You should get as much as you need to replace your car in the event of a total loss, but less if you can cover much of it out of pocket. You’ll have to purchase collision insurance if you lease your car.

Comprehensive insurance

Comp is for damage caused to your car by something like fire, wind, riots, or hitting an animal. This coverage also pays for when your car is stolen or vandalized. You’ll have to purchase comp insurance if you lease your car.

Uninsured/underinsured motorist insurance

This coverage is to protect you from when the other party in an accident is at fault but doesn’t have enough insurance to pay for the liabilities he or she owes you.

Gap insurance

A backronym for “guaranteed auto protection,” gap insurance 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.

Once you know how much coverage you need in each component, it’s time to get quotes. It’s best to get as many quotes as possible because each insurer has different ways of calculating your rates. But because insurance is highly regulated by state and federal laws, the coverage you’re offered shouldn’t differ too much from carrier to carrier.

If you’re personally wealthy, or have enough assets to cover you in the event of an accident for which you’re liable, you may be able to purchase less car insurance or forgo any of the components you’re not worried about paying out of pocket.

How your car type affects your auto insurance

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.

New cars are more expensive to insure than old cars

This is mainly a function of how much new cars cost. If you just drove off the lot in a new car, you probably paid tens of thousands of dollars for the car, so you’ll need at least that much protection in case the car gets destroyed or stolen. Naturally, that means older cars (but not vintage cars) need less coverage, at least in the collision and comprehensive insurance coverages.

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 are even more difficult to insure, so be sure to shop around until you find an insurer who knows how to handle them.

Owning vs leasing a car

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.

Getting a good premium rate

Since car insurance policies more or less have similar coverage, one of the most important decisions in choosing a car insurance policy is getting a good premium rate. It's not always obvious which car insurance company offers the best rates, because everyone's situation is different.

Coverage amounts

The more you purchase in each coverage component, the higher your premiums will be. But it won’t cost you an enormous amount to increase your coverage in each area, because auto insurance carriers know they can probably settle a claim for less. In any event, it’s better safe than sorry, so don’t get less than you need just to save a few bucks per month.

Deductible

When you choose your car insurance policy, you’ll be allowed 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. 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.

However, it frequently doesn’t cost all that much to get a lower deductible. 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.

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 include:

  • Safety equipment discounts. Installing safety features, including but not limited to a car alarm, a LoJack, airbags, or anti-lock brake systems, could result in a discount. Check with your insurer about what what discounts they have for each safety feature.
  • 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. Demonstrating a safe driving history for a certain number of years or taking a driver’s education class could mean a discount.

Bundling your policies

If you choose a car insurance policy from a large insurer, you could probably bundle your renters insurance or homeowners insurance with your auto insurance and save on your premiums across the board.

Choose a top-rated insurer

The better the insurer, the more positive an experience you’ll have with them. That includes filing claims, getting your claims approved in a timely manner, and good customer service. Good insurers are also financially solvent, although you will almost certainly never have to worry about your insurance company going bankrupt.

J.D. Power and A.M. Best publish satisfaction ratings for insurance companies. We have a list of the best car insurance companies based on the their J.D. Power and A.M. Best scores.

You might also check the Better Business Bureau, which aggregates customer reviews. However, keep in mind that a random sampling of disgruntled customers may not be representative of some insurers, who often have millions of customers across a range of insurance products.

Additional features

When you shop around for a policy, you’ll want to make sure it covers things that are unique and important to you. For example, one policy may offer coverage for your stereo system, but only if it was installed by the manufacturer or, if installed by you, only up to a specific amount.

Another item that some policies hinge on is glass breakage. 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. Additionally, glass breakage coverage — as an isolated incident, not when the car is otherwise involved in an accident — may not be offered in your base policy, meaning that you’ll need to purchase a rider or endorsement to get the coverage you need.

Since most policies are very similar, you’ll see a lot of these additional features no matter what policy you choose. But always compare policies to make sure they have what you need; furthermore, the amount of coverage offered in each additional feature may vary from insurer to insurer. If you’re choosing a policy and want more coverage in an additional feature, be sure to ask for it and you may be accommodated, albeit at a higher premium.

Other additional features include:

  • Roadside assistance coverage. Usually not needed if you’re already a member of an auto club like AAA, but it could be nice to have if not.
  • Rental car insurance. 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.

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 that info.) 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 choose a new car insurance policy are:

You’re adding a new driver to the policy.

That might mean a spouse or a newly licensed teenager. 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.

Disclaimer: 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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