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.

Kara McGinleyStephanie Nieves author photo

By 

Kara McGinley

Kara McGinley

Editor & Licensed Home Insurance Expert

Kara McGinley is an editor and licensed home insurance expert at Policygenius, where she writes about homeowners and renters insurance. As a journalist and as an insurance expert, her work and insights have been featured in Kiplinger, Lifehacker, MSN, WRAL.com, and elsewhere.

 & Stephanie Nieves

Stephanie Nieves

Editor & Home and Auto Insurance Expert

Stephanie Nieves is a former editor and insurance expert at Policygenius, where she covered home and auto insurance. Her work has also appeared in Business Insider, Money, HerMoney, PayScale, and The Muse.

Updated December 2, 2021 | 5 min read

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Car insurance can cover the costs if you get into a car accident and injure someone or damage their vehicle. Depending on what type of coverage you have, it can also cover damage to your own car due to accidents or other incidents, like if a tree falls on your car, or if your car is stolen.

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Choosing the right car insurance policy starts with understanding how car insurance protects you and what kind of protection you need. Then you can shop around to find the best and most affordable offer for you.

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

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

However, these amounts are low in comparison to the actual costs you could rack up if you’re responsible 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 key to buying a new car insurance policy.

Below are the coverages 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

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. We recommend liability limits of at least $100,000 per person, $300,000 per accident in bodily injury liability and $100,000 per accident in property damage liability, often written as 100/300/100. 

Coverage typePolicy limits
Bodily Injury Liability$100,000 per person/$300,000 per accident
Property Damage Liability$100,000 per accident
Personal Injury Protection$40,000 per person
Uninsured/Underinsured Motorist$100,000 per person/$300,000 per accident
Comprehensive$500 deductible
Collision$500 deductible

Additional car insurance coverage

Beyond liability, comprehensive and collision coverage, there are some extra coverage add-ons that you may want to consider adding to your policy.

Other additional coverages include:

  • Roadside assistance coverage: Usually not needed if you’re already a member of an auto club like AAA, but it could come in handy if you are not.

  • Rental car reimbursement: When your car is in the shop or you’re waiting for it to be replaced, your insurer can cover the cost of renting a car in the meantime.

  • 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.

  • New car replacement coverage: New car replacement pays to replace your car with a comparable one if it's totaled in the first year or two of ownership.

Once you know how much coverage you need, 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

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

→ Read more about the best car insurance companies

How to get affordable car insurance

Car insurance companies consider personal details about every driver when calculating rates, including your age, ZIP code, credit score, driving history and the type of car you drive. But rates can vary from company to company, even for the exact same driver, so the best way to find affordable coverage is to shop around and compare quotes before picking a policy. 

→ 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 amounts, which is the amount you’ll pay towards 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.

Deductibles are typically $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 a $500 deductible and saving a lot of money later.

→ Learn more about car insurance deductibles

Car insurance discounts

Most insurers offer car insurance discounts off your premiums. 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 the most common car insurance discounts 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 the cost of your coverage..

  • 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 daily driver, 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

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We don’t sell your information to third parties.

Frequently Asked Questions

Why do you pay more for insurance if you drive a lot?

When you get a quote from a car insurance company, they’ll use your annual mileage to help determine your rates. The more time you spend on the road, the higher your chances are of getting into an accident, so car insurance companies may charge more for drivers with a higher-than-average annual mileage.

How can you reduce the cost of auto insurance?

The best way to lower the cost of your car insurance is to shop around and compare quotes from multiple car insurance companies before buying a policy. You can also save on car insurance by dropping coverages you don’t need, looking for discounts, and driving safely.

Does your car insurance go down after your car is paid off?

Your car insurance rates don’t automatically go down once you pay off your car, but you can save on car insurance by dropping any coverages you no longer need. You may have been required to have comprehensive and collision coverage while you were paying off your car, but comp and collision are optional otherwise, and you can drop those coverages once your car is paid off, as long as you aren’t concerned about the cost of repairing or replacing your car if it’s damaged in an accident.