How low can cheap car insurance go?

Published October 17, 2017|4 min read

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Having insurance is all about maximizing, not minimizing the amount of coverage you have. Take car insurance, for instance. The higher you set your limits, the more protection you have — i.e. the more your insurance pays out in the event of an accident. Of course, more coverage usually means a higher premium, so if you don’t drive often, don’t own your ride, or don’t have any breathing room in your budget, you might be looking for cheap car insurance. Thing is, notwithstanding the risk you take when opting for bare bones coverage, there’s only so low your coverage limits — and their associated premiums — can go. That’s because almost every state mandates how much auto insurance motorists must carry.

How low can cheap car insurance go?

First, a quick refresher on how car insurance works. There are actually many different types of coverage. The main ones are:

Liability insurance: Covers damage you do to other people (bodily injury) and their vehicles (property damage).

Personal injury protection (PIP): Cover medical expenses; PIP is usually required in no-fault states because it pays out no matter what party caused the accident.

Uninsured/underinsured motorist coverage: Covers you when a motorist with little-to-no insurance injures you or damages your car.

Collision coverage: Covers damage done to your vehicle in an accident you caused.

Comprehensive coverage: Covers damage done to your vehicle by non-collisions (so vandalism, theft, weather, etc.).

New Hampshire and Virginia are the only states in the U.S. where auto insurance is optional. (Remember, though, if you go without and get in an accident, damages that are your fault are also your expense.) Every other state mandates at least liability insurance. And many require PIP or underinsured or uninsured motorist coverage. So, without evening considering all the many other factors that determine your rates (which we’ll get to in a minute) cheap car insurance in a state with high minimums (like, say, New Jersey) is going to look very different than cheap car in a state with lower minimums (like Iowa). Having said that, you can go here to see the average cost of car insurance by state.

But here’s the good news …

The cost of car insurance is based on many factors.

If you opt for the lowest possible coverage your state allows, the move might not save as much money as you thought it would. That’s because “insurance is priced on a number of factors, some of which have to do with you and your car, but many factors will be out of your control,” says Instamotor co-founder Val Gui. “Your driving and accident history have a large impact on the price of your insurance, but your age, gender and address have a huge impact, as well.”

According to Gui, insurance companies gather up this information and place you in one of their risk pools, which are then divided up into geographic and demographic regions, where insurance rates may be statistically higher or lower. And not simply because of state requirements. Prices go up in zip codes where people are filing more claims. And those places tend to be densely populated,

“Depending on the cumulative risk of the pool, the insurance company will have a base rate that they need to charge to make sure they don’t lose money on paid claims,” he says. “They take that base rate and then add your individual risk profile price plus a premium for profit.”

So, even if you bought bare bones car insurance, you could still pay more than expected. Plus, minimal liability insurance will leave you on the hook for a lot of out-of-pocket expenses after a collision. And that risk might not be worth taking, since upping your policy — be it raising your coverage limits or going for a higher deductible — may not cost that much more than a minimum limits policy, once all other factors are considered.

How much car insurance do I need?

If you meet your state minimum, what type of coverage should you add?

It’s important to prioritize what you’re reasonably able to afford with the possible driving risks you might incur, says Toby Leffel, an insurance agent with Progressive in Virginia Beach.

So, having comprehensive and collision might be important if you live in an area where accidents are abundant. If your health insurance is solid, you may need lesser PIP coverage … but if it’s not, personal injury liability becomes a priority.

Where I live in South Florida, I made sure to max out my uninsured/underinsured motorist coverage due to the high statistics of said drivers in the region. I need to make sure my auto insurance covers any hypothetical gaps even for the smallest fender bender with an uninsured driver.

“You never know when something’s going to happen,” Leffel says. “The sky’s the limit, so it depends on what the situation is or how the person measures the risk.”

Gui offers one surefire solution for finding a balanced policy with fair rates.

“Shop around,” he says, “because no insurance carrier will consistently have the cheapest quotes.”

To cover your bases, Leffel recommends comparing no less than three insurance carriers.

“Based on the circumstances, should certainly look from carrier to carrier,” he says. “It’s all contingent on a lot of variables depending on the insurance carrier.”

Policygenius can help you compare and understand your auto insurance quotes. And, for more on car insurance in general, check out our Auto Insurance Learn Center.

Image: Peter Chernaev

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