What kind of car insurance do I need?

There are many options for car insurance to consider, including (1) levels of coverage, (2) deductible amounts, (3) policy add-ons, and (4) discount eligibility.

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Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Jan 25, 2021

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Here's what you need to know...

  • With so many options regarding car insurance, it is best for you to decide the coverage amounts you want before you start shopping
  • Be sure to compare multiple companies’ quotes to find the best rates
  • You can ask for additional discounts and savings if you believe you qualify
  • Never set a deductible that you could not pay in the event that you have an emergency

The toughest thing about buying car insurance is also one of the best things about buying car insurance — there are plenty of options.

A driver has options on the type of policy they get, how much to insure the vehicle for, and how high to set the deductible. There are options on where to buy car insurance, how to pay for it, and how to get a quote.

The sheer number of choices available to a driver can be overwhelming when shopping for insurance. It is best to decide ahead of time the options that are most important to you and focus on getting those exactly the way you want them.

It is rare that you will find everything you want in an insurance policy, but by carefully going over your options, you can get pretty close.

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Types of Car Insurance Policies

The most common type of auto insurance carried is liability insurance. Most states require liability coverage to protect other drivers and passengers against loss if you cause an accident.

Liability provides no coverage for your injuries, only those who have medical expenses or property damage related to an accident that you cause.

Collision insurance will cover damages to your car, regardless if the accident is caused by you or by another driver. It is optional, so you do not need to file a collision claim on your insurance if the accident is another driver’s fault, and their insurance is prepared to pay.

As pointed out by Kiplinger, even if an accident is not your fault, you may not be able to prove it or the act of proving it can take a long time. In those cases, collision insurance will allow you to get your car repaired immediately.

Comprehensive auto insurance covers damage to your vehicle or loss of your vehicle by something other than a normal accident. Comprehensive coverage includes fire, weather damage, and theft.

Comprehensive, like collision, is required by a bank or finance company when you finance a car so that the company’s investment is well-protected.

Uninsured or underinsured motorist insurance is insurance to cover bodily injury to you or your passengers if you are involved in an accident caused by another driver who has no insurance or does not have enough liability insurance to pay for the full extent of your damages.

There is also uninsured motorist insurance for property damage, which works in much the same way to cover repairs to your car if someone damages it in an accident and does not have enough insurance to cover it.

Personal injury protection (PIP) insurance covers injuries to people in your vehicle regardless of who is at fault in an accident. This type of insurance is sometimes required in states with a no-fault accident policy.

Personal injury protection insurance may provide medical benefits, disability benefits, and/or death benefits.

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Amounts of Car Insurance

The dollar amount of insurance you should choose depends on a number of factors. Collision and comprehensive insurance are probably the easiest to set an amount for; you want coverage for the value of the car.

After about five years, when the value of the car has dropped closer to the cost of the insurance, you might want to drop the collision and comprehensive insurance altogether.

The amount of personal injury liability insurance you need comes down to your net worth.

If you have nothing of value, you can get by with your state minimum. If you have a house, a retirement fund or other valuable assets that you could be sued for, it’s wise to carry more liability insurance.

For property damage liability, it’s best to take enough to replace the most expensive car you are likely to damage, usually between $50,000 and $100,000.

Uninsured or underinsured motorist insurance is relatively cheap, so there’s no reason not to get a good amount of it.

At least $100,000 and possibly up to $250,000 should be enough to help you with medical bills if you are injured in an accident with an uninsured motorist hit and run driver.

Car Insurance Deductibles

A car insurance deductible is the amount of money you will need to pay before the insurance takes effect.

The keyword there is before; if you fail to pay your deductible, your insurance company will not pay a dime toward your claim.

A car insurance deductible can range from as low as $100 to as much as several thousand dollars.

Some high-risk drivers might be required by the insurance company to pay a deductible of $500 or more, but for most of us, the deductible is purely a matter of choice.

The lower the deductible you choose, the higher your premium will be.

So how does one know how much their deductible should be? You won’t get any help from your insurance company until you pay the deductible, so it makes no sense to set your deductible too high just to save money on your premiums.

On the other hand, if you set your deductible too low, you will be paying too much for your premiums, and you may never even have an accident for which you would need to pay your deductible.

Car Insurance Policy Add-ons

Most insurance companies will offer additional services or features for your policy for a small extra fee.

Among the most common features are roadside assistance, towing insurance, rental car insurance, and glass breakage protection.

The fees for add-on coverage options are usually just a fraction of your total insurance cost, making these features inviting, but they are not always as good a value as they seem.

For example, towing and roadside assistance are often included as part of your new car warranty, and even if that does not apply to you, you could get a much more valuable, full-featured auto club membership for just a little more than you would pay for the insurance.

Glass break protection, however, can be a good value since even a slight chip in the windshield can cost you hundreds of dollars to repair.

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Where to Buy Car Insurance

Many years ago, buying auto insurance was pretty simple. You would go to the local branch office for whichever of the top five or six insurance companies you like and meet an agent. Now you have hundreds of options for where to buy insurance.

You will see the same original insurance companies you saw 30 years ago, plus new insurance companies similar to them, Internet insurance companies, insurance brokers, and other institutions that offer car insurance as an aside to their normal business.

Car Insurance Payment Options

All auto insurance is prepaid, meaning that the insurance is usually not effective until you have already paid for your first term.

There are plenty of options for term length, however, so you could be paying for as little as one month or as much as one year of insurance in advance. In general, the longer the term you pay for, the more money you save.

How you pay your bill is up to you, but insurance companies will usually try to steer you toward automatic payment. If you elect to go with paperless billing and automatic payment from either your credit card or your bank account, you will usually be offered some discount.

If you elect to go with paperless billing and automatic payment from either your credit card or your bank account, you will usually be offered some discount.

Most insurance companies will accept payment by check, credit card, or cash.

Comparing Car Insurance

While the number of options you have for car insurance can be overwhelming, the actual process of shopping for auto insurance has been made much easier.

Now, rather than going to insurance offices or calling multiple insurance companies, you can do most of your shopping online. You can go to insurance companies’ individual websites or use comparison sites that will give you quotes from multiple insurers.

You should use a comparison site to shop for auto insurance but choose wisely. Some will legitimately offer you a quote as soon as you give your information, but others will have lenders contact you later by phone or email to give you the quote, often after asking for more information.

Even if you choose to shop in person, you can still do your research online, and research is a major step in shopping for car insurance.

Your insurance shopping will go much better if you have already selected the options you want for type and amount of insurance as well as the deductible before you even go looking for a quote.

Armed with the knowledge of exactly what type of policy you are looking for, you can compare apples to apples when looking at different insurance quotes and pick the deal that makes the most sense for you.

Enter your zip code below to access car insurance rates from multiple companies today!

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