How to Buy Car Insurance – Coverage and Rates Guide

Learning how to buy car insurance online is easy when you follow this guide. Compare car insurance quotes online with our free tool, and get everything you need to know about car insurance basics so you can buy car insurance before buying a car with confidence.

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Eric Stauffer is a former insurance agent and banker turned consumer advocate. His priority is to help educate individuals and families about the different types of insurance they need, and assist them in finding the best place to get it.

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Written by Eric Stauffer
Founder & Former Insurance Agent Eric Stauffer

Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insuranc...

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Reviewed by Leslie Kasperowicz
Farmers CSR for 4 Years Leslie Kasperowicz

UPDATED: Dec 31, 2021

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Auto Insurance Overview

Car insurance is often times the first introduction to insurance for many people since a car is the first thing they own with significant value. Because cars also pose a significant increase in liability to others, auto insurance is vital in protecting not only a car but also any other assets an individual may have.

The typical auto insurance policy will cover damage to other cars, damage to property such as fences or buildings, and will provide medical coverage to any person that the insured is liable for. It is important to remember that insurance companies will only pay up to agreed amount outlined in the policy. So if damage from an accident exceeds the policy amount, the insured becomes responsible for any further charges.

Auto insurance policies can also contain optional coverage that protects the insured property as well. Standard car insurance policies are designed to protect the insured from liability arising from an at-fault accident, but does not automatically cover the cost of repairs to their own car. It is important to determine whether this is needed and add the appropriate optional coverage if necessary. Also, each State has its own requirements for what drivers need to carry in the form of car insurance, so this information should act only as a guide.

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Typical Auto Insurance Coverage

Property Damage Liability Coverage – This section of an auto policy covers the costs incurred from damaging another person’s property. This can include an automobile, a building, a fence, etc.

Bodily Injury Liability Coverage – When the insured is deemed responsible for injuries or death to another individual, this part of the auto policy will pay for these damages up to the stated maximum.

Personal Injury Protection & Medical Payments – This part pays for medical expenses resulting in injuries caused to your passengers or driver of the insured auto.

Underinsured & Uninsured Motorist – Covers medical expenses caused by another driver who does not carry enough insurance to pay for all the damages. This also includes drivers who have no insurance at all. Even if the other person is at fault, their lack of insurance can put the insured at risk of loss.

Collision Coverage – Helps pay for the cost incurred arising from damage to the insured car when in an at-fault accident. If the other driver were at fault then their liability coverage would cover the cost rather than the collision coverage.

Comprehensive Coverage­ – Covers expenses caused by damage to the insured car by any other means besides an accident. This can include theft, severe weather, tree limbs falling, etc. It also protects secured items in the car such as a car stereo or seats.

Coverage Explained

Each State has a minimum amount of insurance required to purchase in order to operate a vehicle on State roads. These numbers will usually be presented as follows: 15/30/5

These numbers represent the minimum amount of coverage in each of the following categories: Bodily injury liability limits (individual and per occurrence) and property damage liability.

In the above example, which is taken directly from the State of California insurance requirements, the first two numbers are the bodily injury limits. The 15 stands for $15,000 of bodily injury liability coverage per person, per accident. So if one person was injured and the total damage cost $20,000 the insurance company would only pay up to $15,000. The remaining would be the responsibility of the insured.

In the example above the 30 stands for $30,000 of bodily injury coverage per accident (or occurrence).  What this part of the policy is saying is that no matter what happens, the insurance company will not pay more than $30,000 in bodily injury payments TOTAL. For example, if the insured hits a van that has six people in it and each person sustains $10,000 worth of damage, the insurance company will only pay $30,000 because that is the maximum they will pay for bodily injury under this policy.

The third number in the example above represents property damage liability, and the 5 will offer $5,000 of coverage maximum. Property is considered to be things like cars, fences, buildings, etc. So if the insured caused an accident that resulted in $10,000 worth of damage to the other person’s car, the insurance company would pay $5,000 and the remaining $5,000 would be the responsibility of the at-fault driver.

How Much Insurance Coverage Should You Get?

When purchasing auto insurance one of the most important decisions is determining how much coverage you need, and it can also be one of the most difficult. The amount of coverage will directly impact the cost of the premium, so it is important to balance protection with cost. In the previous section we discussed what state minimums are and how much protection they provide. The numbers used were actually from the State of California’s insurance requirements, and it is pretty easy to see that they do not necessarily provide a lot of protection.

It is very well known in the insurance industry that state minimums often do not provide adequate coverage for the typical automobile driver. For example, California requires a minimum of $5,000 of property liability coverage, which will generally cover the cost of a fender bender, but in the event of a three-car pile up could be very inadequate. This is what is called being underinsured and can pose a serious liability to the policy owner since they will be responsible for all costs above the insurance coverage.

The bodily injury minimums can be reached fairly easily in the event of a serious accident. With today’s medical costs, $15,000 per person could leave an insured driver seriously exposed in the event of an accident.

When determining how much coverage you need, it is important to realize what would happen in the event of a large accident. For example, if a young family of four who own a house and have $20,000 in savings caused an accident and were liable for $50,000 beyond the insurance coverage, it could be very detrimental to their overall financial security. Auto insurance gives this family the ability to pass that risk onto the insurance company for a few extra dollars per year, and helps to protect them in the event of a loss.

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Things That Affect The Cost of Auto Insurance

There are many things that can affect the cost of car insurance and companies are very diligent about rating each driver to make sure their pricing is fair and reasonable based on the risk that they pose. When determining the price, here are a few things that are important in the decision:

  • Driving Record of the Insured – This includes accidents, traffic violations, and years of driving experience. Many states have a maximum number of years that an insurance company can look back to when determining a driving record, so older violations or accidents have the potential to fall off. Things like DUIs however, can hang around for a long time because they pose a very significant risk to the insurance company.
  • Type of Automobile Being Insured – Sports cars are generally a higher risk than station wagons, and SUVs can do more damage to another car than a compact. Other factors include engine size, number of doors, and likelihood of theft, just to name a few. Insurance companies look at a lot of data and determine which types of cars are more likely to result in a loss, and adjust the premiums around those statistics.
  • Coverage Amount – The amount of liability the insurance company will be taking on is another big driver for premium price. The higher the insurance amount the more exposure they have, therefore the more premium they will charge to the insured. However, many people would be surprised when seeing how affordable additional coverage can be. For example, going from $30,000 of medical liability coverage to $100,000 is often a lot less expensive than someone would imagine since most accidents are minor. That is why it is important to consult with an insurance professional who can help determine what insurance levels will fit your needs and budget.

As Scott Hogan from SaltWrap also mentions, “Your job can also affect your insurance rates. For example, if you are a delivery driver, versus someone who works primarily from home, then you can expect to see a difference in your end premium. Plus, the likelihood of injuries at work can often come into play as well.”

Premium Discounts

Insurance companies are often willing to give policy owners discounts for many different reasons. One of the easiest ways to get a discount is carry multiple insurance policies with the same company, or if you own more than one car by setting up a multi-car policy. The more policies you carry in one place, the more you can potentially save.

You can also receive discounts on your liability insurance by maintaining a good driving record. Insurance companies are constantly monitoring department of motor vehicle (DMV) records for any accidents or traffic violations their policy owners are incurring, and often will issue discounts on policies for those that maintain a stellar record. The data shows that people with fewer violations are less likely to get in an accident.

Discounts can also be given for certain devices installed in the insured automobile. For example, by installing a theft deterrent system or a GPS tracking device like LoJack, many insurance companies will give a discount on the comprehensive coverage since the car is less likely to be stolen.

Additionally, according to Christian Bogue of 365 Pronto, “Even though insurance on electric cars may not be the cheapest in the industry, there are plenty of other alternatives to helping you bring your overall payout down, for example, check out the federal incentives offered for EVs.”

What Insurance Company Should You Use?

Insurance is a very competitive industry so there are numerous companies all competing for your business. There are many financial services companies that offer insurance products and there are many insurance companies that offer financial products.

Every insurance company has different underwriting guidelines which determine the rate an individual will pay, so it it is not a bad idea to shop around. It addition to the rates, however, some companies are just flat out better than others in the way that they handle their customers. We at recommend shopping around for quotes, and have also put together a list of our recommended insurance companies you can start with.

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