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CAR Insurance
CAR INSURANCE INSIGHTS

Trying to make sense of auto insurance can be tricky and confusing  unless you know where it's safe to save money -- and where skimping could ruin your finances.

Teen backing carExperts often tell you to buy as much car insurance as you can afford. That's probably not helpful unless you know the basics on how auto insurance works -- and which coverages you can't skimp on.

Compare car insurance quotes only when you understand the coverages that are best for you. It might be helpful to use our auto insurance coverage calculator to see what other drivers like you -- your age, in your state -- choose, and what we recommend.

KEY TAKEAWAYS
  • Compare car insurance quotes only when you understand the coverages that are best for you 
  • Insurance prices vary a lot by companies because every insurer considers certain factors while offering policies to individuals 
  • Insurance companies consider your driving history and the car you drive while providing car insurance coverage 
  • Many companies offer good deals on cheap auto insurance, but you'll have to comparison shop carefully to make sure you're still getting sufficient coverage
  • You can ask for discounts and increase your deductible to save on your insurance policy

Why is auto insurance important?

Auto insurance is necessary because it provides drivers with compensation for damage to their vehicle caused by an accident, or by other covered perils, like fire, falling objects, theft, vandalism, or other accidents.

If you’re like most people, you think you don’t need auto insurance. After all, what would happen if you got into an accident without coverage? But when it comes right down to it, having auto insurance is important for any driver.

Whether you drive a brand-new sports car or an old sedan, the chances of getting into an accident are always there. Accidents happen all the time for various reasons and to varying extents, but they always cost money. They can also cause severe injury or even death. If you don't have auto insurance, you're in for some serious trouble — not only will it cost you thousands for damages and medical bills, but also your driver's license might be revoked by the DMV.

To help explain the benefits of having car insurance, we've put together this list of 8 reasons why it's important and how it works.

1. Some of the most helpful coverages are the cheapest

The coverage you are required by law to buy -- liability insurance -- typically is the most expensive. It should be. The most common coverage limits can mean your insurance carrier is on the hook for hundreds of thousands of dollars for any damage you do.

Most other coverages are capped by the value of your car, though.

The difference between collision and comprehensive coverage is that, collision pays to repair your car if you are at fault, can be pricey, other optional coverages such as gap coverage, roadside assistance, rental reimbursement, uninsured/underinsured motorist coverage and comprehensive coverage can provide a lot of protection for a little price increase.

Comprehensive coverage will normally be the most expensive of these other optional coverages. However, it's usually about only half the price of collision coverage and a third the price of liability coverage. It's worth the cost of comprehensive to cover your car for things such as theft, fire and vandalism.

Uninsured motorist coverage is especially important, considering the benefits it offers and the number of uninsured drivers on the road. Take a look at your coverage options. Paying a little more now may save you a lot in the future.

2. Factors that affect car insurance rate

Auto insurance companies use many different criteria when evaluating an insurance application during a process called underwriting. Each car insurance company has guidelines regarding which groups of drivers they want to accept and how much they will charge those groups they consider a greater risk. The guidelines are different for each company, meaning that two companies comparing the same driver can arrive at vastly different conclusions.

During the underwriting process, car insurance applicants are placed in a group based on how much money and how many claims the insurance company believes it may have to pay. Underwriting is done automatically by software behind the scenes.

At this time, the insurance company will look at motor vehicle records to see how many accidents or tickets a driver has received. Many insurance companies also use an insurance history report to see if the driver has made any car insurance claims, and how much money was paid. Although accidents and violations can only affect the rates you receive for three years, many companies will look back five or more years when deciding if they want to offer you insurance.

In addition, many auto insurance companies look at the credit history of the applicant. Typically, drivers with bad or no credit history pay more. But that means you can save money (quite a bit) by shopping around as your credit improves.

3. Insurance prices vary (a lot) by company

Car insurance rates differ significantly from one insurance company to another. That's because each insurance company uses its own formula to assess risk and decide what you pay for coverage. This means no two insurers will have identical prices for the same policy -- often, the difference is hundreds of dollars. So, if you don't compare rates, you can wind up overpaying.

"Auto insurance is a highly competitive business and one of the most effective ways to reduce insurance costs is simply to shop around," according to Jeanne Salvatore, senior vice president of the Insurance Information Institute. "Drivers should look for an insurance company that will provide a good price along with excellent service."

The best plan is to decide what coverages and options you need and comparison shop so you can find cheap auto insurance that still provides sufficient coverage.

4. If you let your policy lapse, you'll pay more in the long run

Most insurance companies view drivers who are licensed but don't have insurance as risky or irresponsible. Because of this, if you let your policy lapse, you'll probably pay more when you go to buy car insurance.

To avoid this, if you don't want to pay for insurance or are planning to let your policy expire because you want to switch car insurance companies, make sure to purchase car insurance before your current policy is cancelled.

5. Higher deductibles can lower your premium

Insurance prices are based on how much money the insurance company believes it could have to pay. If you agree to pay for a larger portion of your own damages by raising your deductibles, your car insurance company automatically knows they won't have to pay as much for your claims.

Because of this, they will usually give you a lower premium. If you decide to raise your deductibles to save money, be sure you can afford to pay the deductible if you have to make a claim.

6. Insurance discounts can make a difference

Most insurance companies offer auto insurance discounts for things like a safe driving record, car safety features, anti-theft devices, electronic payments and payment in full. Make sure you're getting rewarded for being a safe driver and for having a safe car by shopping around for car insurance that appreciates your record.

7. Coverage affects what you pay

The majority of your car insurance premium generally goes toward the policy's legally-required liability portion. It's typically not a good idea to reduce this portion to save money, because you'll be responsible for any amount of damages above your policy limits.

However, other coverages, although generally helpful, could be reduced or eliminated to lower your premium. If you have an older car that's not worth very much, or if you won't have a problem paying for a new car, collision and comprehensive coverages may not make economic sense.

Use our coverage calculator to see how much car insurance coverage you need.

Insurance.com car insurance coverage calculator >

8. The car you drive can affect your auto insurance rates

The Highway Loss Data Institute compiles insurance accident statistics for most types of cars. Many insurance companies use data like this when setting prices on your insurance.

For example, if the car you drive is expensive to repair, the company is going to have to pay more if you get in an accident. Conversely, if your car is extremely safe and protects occupants well, your insurance company won't have to pay as much if you're involved in a crash. If your model of car is generally less likely to be stolen, your car insurance company is less likely to have to pay to replace it.

All of these car-related factors can raise or lower the auto insurance quotes you receive, so it makes sense to keep insurance in mind when purchasing a car. Of course, since rates are based on much more than just the car you drive, your overall rate may be more or less than someone driving the same car.

Auto Insurance Facts and Myths

1. Auto insurance can lapse before the policy expires

One of the most common auto insurance myths is that your policy will lapse if you get into an accident, get a ticket, or if you leave the state. None of these are true.

Auto insurance companies can't cancel your policy before it's expired unless you've been caught committing fraud or haven't paid your premiums. By paying your premiums on time, you can keep your policy for the duration of the agreement.

While state laws regulate auto insurance companies, they can't cancel your policy without a valid reason.

2. No-fault insurance means you are not at-fault

No-fault insurance means that you are required by law to carry auto insurance that will cover the cost of your medical bills and loss of pay (up to a limit set by state or carrier) if you are involved in an accident, even if the accident was your fault. No-fault auto insurance does not convey that you are not at fault.

If a car accident was not your fault, then no-fault auto insurance will cover your medical bills. It will not, however, cover any property damage. If another person were at fault and did not have auto insurance, then that person's liability would be covered by uninsured motorist coverage.

3. Red cars are more expensive to insure

Though the saying claims that red cars cost more than any other color to insure, this is an outdated rule that is no longer true. Studies show that there's no correlation between car color and insurance premiums.

Car color is not a factor in determining car insurance rates. If you're a safe driver, it doesn't matter whether you drive a red, yellow, black or white car. You'll pay the same amount in insurance premiums.

4. Advanced safety features can bring down your insurance costs

While some cars have advanced safety features, many accidents are caused by the driver. Even if you purchase a car with all the latest safety features on the market, your premiums may not go down if you have a bad driving record. If you want to save money on your auto insurance, get driving lessons.

Safety features can only get you discounts, not reduce your premiums. Anti-theft devices and GPS tracking protect your car from being stolen but don't make you a safer driver.

5. If you lend someone your car, their insurance will cover the damages

If you let someone else drive your car or let them borrow it, you may need to update your auto insurance. Your insurance will not cover them. It can be a big problem if they get into an accident. A better option is to add a driver to your policy.

Your auto insurance policy protects your vehicle. But, the other driver's auto insurance won't cover any damage if they're driving your car, even if they have the same policy.

For instance, if your friend gets into an accident while driving your car, they will be covered under your auto insurance policy. However, if this happens frequently, the insurance company can choose to recalculate your premiums based on the number of claims filed under your policy.

6. With age, car insurance gets more and more expensive

Although age plays a role in determining auto insurance costs, it's not as simple as paying more for a policy as your age goes up. The auto insurance average cost decreases every year from ages 17 to 64. But drivers over 64 can expect to pay more for coverage, as can young drivers with less driving experience.

There are some discounts you can get at 65 that could effectively offset the increased costs of auto insurance premiums.

7. Your credit history has no impact on your auto insurance rate

Your credit score will affect the cost of your auto insurance. A high credit score means you're more responsible with money, which can mean you are less likely to file an insurance claim. As a result, your insurance provider will reward you with lower premiums.

8. Adding rental car coverage means you are protected in rental cars

Getting rental car insurance is a good decision because it protects your auto insurance premium from increasing due to accidents in rental cars. However, rental car coverage in your auto insurance policy may not help with the costs of damage to rental cars.

In the event of an accident, the rental car insurance covers the daily fee for you to rent a car while your vehicle is being repaired.

9. Your insurer will pay if someone else causes an accident while driving your car

If your friend is driving your car and gets into an accident that results in serious bodily injury, your car insurance policy will pay to repair the property damage caused by the accident, but it won't pay for any personal injuries or medical bills. You'll be on your own with the medical costs unless you have collision coverage.

Car insurance policies cover you for damage or injuries caused by an accident or collision with another car. While these policies can vary from insurer to insurer. So, if one of your friends accidentally crashes your car while borrowing it, your policy may not cover the damage to the vehicle. In that case, you may have to fix the damage or pay for it yourself, or you can hold your friend responsible for the damages.

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