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Auto insurance protects your vehicle against many risks, such as car accidents, theft and vandalism. And most US states require car insurance – only New Hampshire and Virginia do not.
Understanding some auto insurance basics can help you avoid paying too much for coverage. Here’s what you need to know about auto insurance, plus some tips for lowering your premium.
With Credible, you can compare car insurance quotes of the best carriers.
How does car insurance work?
Car insurance is a contract between you and an insurance provider that helps pay for damage to your vehicle and other vehicles, other property damage, and bodily injury caused by an accident. The specific claims process depends on the state you live in and who is at fault for the accident, but typically you file a claim after a car accident and wait for your insurer to approve it.
Insurers determine your car insurance premium by evaluating several factors, such as your vehicle, the amount of coverage you get, and your driving record. Once you’re approved for a policy, you can pay for it in full up front or in regular installments – you can usually choose to pay monthly, every six months, or annually.
What is a franchise?
Your auto insurance deductible do you pay before your insurer pays the rest for a covered claim. For example, let’s say your deductible is $1,000 and you have an accident that causes $5,000 in damage to your vehicle. In this case, your insurance benefit would be $4,000.
Generally, the higher your deductible, the lower your auto insurance premium, and vice versa. If you choose a higher deductible to save money during the year, just make sure you can afford to pay that amount in the event of an accident.
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What types of car insurance do you need?
You can choose from several types of car insurance coverage — each protects you in different ways. Keep in mind that you must purchase at least the minimum insurance required in your state. Here are the types of auto insurance you should consider:
- Responsibility – If you are involved in a car accident and are at fault, liability coverage pays for the property damage and bodily injury you cause, up to the limits of your policy. Liability insurance is required in almost all states, and each state sets its own minimum liability coverage limits.
- Injury protection — Personal Injury Protection (PIP) covers medical expenses for you or your passengers if you are involved in an accident, regardless of fault. You may need to purchase this type of insurance if you live in a no-fault state – a state where you must file a claim with your own insurance company regardless of who is at fault.
- Medical payments — Similar to PIP, medical insurance covers your medical expenses and the medical expenses of your passengers, regardless of fault. But PIP and medical payment coverage are not the same. Coverage for medical payments is only available in at-fault states – those states require the person found to be at fault to pay for covered damages. And unlike PIP, medical payment coverage is always optional. This coverage can be advantageous if you do not have health insurance.
- Complete – Comprehensive coverage protects your car from damage not caused by a collision with another vehicle or object. Some examples include damage to your vehicle caused by a forest fire, windstorm, or vandalism. If you are financing a vehicle, your lender will likely require you to purchase this type of insurance to protect their interest in your vehicle.
- Collision — Collision insurance helps you pay to repair or replace your car if it’s involved in an accident with another vehicle or a stationary object, such as a pole. Similar to comprehensive insurance, a lender may require you to purchase collision insurance.
- Uninsured and underinsured motorist — Uninsured motorist coverage helps pay for damage to your vehicle caused by an uninsured motorist. It can also cover repairs if you are the victim of a hit-and-run accident. Underinsured motorist coverage helps pay for damage to your car if the driver at fault does not have sufficient coverage. Depending on your state, you may need to purchase one or both of these coverages.
How Much Auto Insurance Should You Buy?
The amount of coverage you need depends on the state you live in and your personal circumstances. You should carry sufficient liability insurance to protect your assets in case someone sues you after an accident.
The amount of collision coverage you need depends on the value of your car and whether you make payments on your vehicle or own it outright. It’s important to note that you may not need collision coverage if your deductible is greater than the value of your car — if you have an older vehicle, for example. But if you lease your car or have an auto loan, the lender or leasing company will require you to have collision and comprehensive coverage.
A good rule of thumb is to buy as much coverage as the minimum you can comfortably afford. For example, if you own your car, collision coverage and comprehensive coverage are not required. But adding these covers can help protect you in the event of an accident or unexpected event, such as vandalism.
How to lower your car insurance premium
If you are looking to save money on car insuranceconsider following these steps:
- Comparison shop for the best deal. One of the best ways to lower your car insurance is to shop around. To find the best deal, get quotes from at least three to five insurers. You can get car insurance quotes online or by contacting an insurance agent. When getting quotes, be sure to compare policies that offer similar coverage.
- Bundled with home insurance or other policy. Some insurance companies will give you a discount if you buy multiple policies from them, such as your Home Insurance and car insurance. You can also get a discount if you buy renter’s insurance and car insurance from the same insurer.
- Choose a higher deductible. If you choose a higher deductible, you can reduce your insurance rate. But before you do, review your finances to make sure you can comfortably afford the higher costs to repair or replace your vehicle if it’s damaged.
- Ask about additional discounts. Contact your insurance company to see if they offer discounts. Some Commons car insurance discount include those for the military, low mileage, being a good student, and using autopay.
- Boost your credit score. When you apply for auto insurance, many insurers look at your credit history to determine your risk of insuring. If you have good credit, you will likely receive a lower rate. You can improve your credit score by adopting good credit habits, such as paying all your bills on time and paying off any outstanding debt.
Credible makes it easy for you compare insurance rates of the best carriers in minutes.