by Jeanine Skowronski
Most people buy car insurance on the fly — probably because you need an auto policy to drive a new ride off the lot. We can't knock a flash purchase. Having insurance right away is important — and not just because states mandate coverage. There's no guarantee you won't get into a car accident on your drive home.
Still, it's not ideal to get a policy at the last minute. For starters, you can save money by comparison shopping for car insurance. Plus, auto policies are complex. To help you understand what you're buying, here are the answers to 20 car insurance questions you might be too embarrassed to ask.
1. Did you say foregoing car insurance is illegal?
Yes, because, most states, plus Washington, D.C., have mandatory car insurance minimums. New Hampshire and Virginia are the big exceptions, but in New Hampshire, if you opt for car insurance, you have to buy the minimum amount, and in Virginia, you have to pay $500 a year to drive around without coverage. Plus, you won't have coverage.
2. Is the minimum amount of car insurance required by my state enough?
Ehhhh ... I mean, you won't face a legal penalty. (They vary by state, but usually involve hefty fines. Plus, your license could get suspended.) In terms of adequate coverage, it depends on where you live. Some states have low minimums. In fact, many only require liability insurance, which covers property damage or bodily injury you cause other people. You would need other types of car insurance if you wanted coverage for damage to your car.
3. There are different types of car insurance?
Oh, yeah. Here are the big ones:
Bodily injury (BI) and property damage (PD) liability coverage, which pays for damage you cause to other people or their property
Personal injury protection (PIP), which pays for medical expenses and usually lost wages regardless of fault
Collision coverage, which pays for damage done to your car in a collision
Comprehensive coverage, which pays for damage done to your car in non-collisions (i.e., fire, vandalism, or theft).
Uninsured and underinsured motorist (UM/UIM) coverage, which protects you if you're in an accident and the driver at fault doesn’t have insurance.
There's also gap insurance, which covers the — you guessed it — gap between what your car is worth (what your insurer will pay if the car is totaled or stolen) and what you still owe on it.
4. Do I need gap insurance?
Gap insurance is important if you put down a small down payment, have a long auto loan term (60 months or more), drive a lot, are low on emergency funds or bought a car that depreciates quickly or gets stolen a lot. (Learn more about gap insurance here).
5. Should I buy every other type of car insurance?
Not necessarily. Say, for instance, you don't own a car, but drive ...
6. You need car insurance if you don't own a car?
If you rent or drive other people’s cars frequently, then, yes, you should look into a non-owner auto insurance policy, which provides basic liability coverage. Non-owner policies don't include collision or comprehensive coverage, because you don't need it. Remember, collision and comprehensive coverage pays for damage to your car and, in this scenario, you don't have one.
7. Huh. I have a car. How much auto insurance should I buy?
You should buy as much car insurance coverage as you feel comfortable with and can afford. (We can help you compare car insurance quotes here.) Having said that, the price difference between a bare-bones policy and a robust policy is sometimes negligible.
8. How is that possible?
Car insurance premiums are based on a laundry list of factors, including your driving record, vehicle, how often you drive, age, gender, marital status, zip code, credit ...
9. Wait ... what do personal details, like my marital status, have to do with car insurance?
All insurers base their rates on risk. We're talking car insurance, so the company is primarily trying to determine how likely you are to get into an accident. Obviously, if you have a poor driving record or you're on the road all the time, the odds are less in your favor. But statistics show women get into fewer accidents than men as do married individuals versus single ones. Younger drivers, conversely, get into more accidents than older drivers. All that data on your demo can influence what insurers charge.
10. Is that legal?
By and large, but it depends on where you live. A few states have laws barring auto insurers from using credit scores, marital status, gender, education level, income and more when setting rates. Some also prohibit basing rates on your age, though they permit companies to look at how many years of driving experience you have.
11. Why do car insurers care about my credit?
Most insurers — and we're not just talking about auto insurance companies here — use some type of credit-based insurance score to help determine how risky a potential customer is. The practice is a bit controversial, which is why some states have laws against using it (see above). But the general thinking behind insurer credit checks is: If someone is bad with their finances, they might be irresponsible in other areas of life, too. You can learn more about how car insurance rates are determined here.
12. OK, but while we're on the subject: Do red cars cost more to insure?
No. That's a myth. The make and model of a car impact your rates, given some cars are just more expensive than others. Take the Tesla Model S, for instance, which costs a ton to insure, regardless of color, because it's full of expensive parts.
13. Will my car insurance rates automatically drop as my profile changes?
It's hard to say. You might see rates change as you age, but they don't always go down, so much as they level out or increase at a lower rate. (Remember, the rules of inflation are in effect.) And that assumes you don't incur any red marks on your driving record. As for a change in marital status, you generally have to contact your insurer to get a rate decrease — and if your spouse has a less-than-stellar driving record, well, again, you mind wind up paying more.
14. So I'm stuck with whatever rates my insurer initially gives me?
No, you just have to get proactive. You can call your agent to see if you qualify for a lower rate or you can shop around for a new policy. In fact, car insurance rates fluctuate so often and so widely that, no matter how you feel about your policy, it's a good idea to at least window-shop every one to three years. You can also ask your insurer if you qualify for any discounts.
15. What kind of car insurance discounts are there?
Oh, there are a whole bunch. The big ones include good driver discounts (for going long enough without a moving violation); affiliation discounts (for belonging to a group, like AAA or AARP, that partners with the insurer); low-mileage discounts (for, you know, low mileage) and car safety feature discounts (for installing stuff like emergency break assistance or collision avoidance systems). You can find a full list of common car insurance riders and discounts here.
16. Should I bundle my car insurance with another policy?
Probably. In many instances, bundling car insurance with homeowners or renters insurance saves you money. But don't blindly assume you're getting a discount, even if the quotes are lower. You want to check that you're not losing any coverage if switching policies. Learn more about bundling here.
17. How will I know I'm not losing coverage?
Check the coverage limits in each category of insurance to make sure you're not paying less in exchange for lower amounts of coverage. We can show you how to do that effectively here.
18. How much does car insurance usually cost?
The average cost of car insurance in the U.S. is around $866 a year ($72 a month), according to the National Association of Insurance Commissioners. The averages in each state vary with New Jersey drivers paying the most ($1,264 a year) and Idaho drivers paying the least ($572).
19. Is there any other way to lower my car insurance premiums?
There are two other methods that come immediately to mind. First, you could pay your premiums annually or semi-annually. Some car insurers offer anywhere from a 3% to 10% discount for doing so. The other thing you can consider is increasing your deductible. That's the amount of money you pay out of pocket before insurance kicks in, so you'd pay more in case of an accident, but your monthly premium would be lower.
20. Can you tell me once & for all if I need rental car insurance?
We can help you figure out if you need rental car insurance. The short take: If you don't have auto insurance, yes, you most likely need coverage. If you have robust car insurance, you might simply need a collision damage waiver as it’s the only way to ensure you won’t pay the rental company any damages in case of an accident. Of course, it gets more complicated from there. For the long take on car rental insurance, head here.
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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