Last updated: December 20th, 2022
Reviewed by
Grant Desselle
Licensed Insurance Agent
Buying a car is exciting. More so if it’s your first or the car you’ve been dreaming of for a long time. However, before you head off for that road trip to serenade your new prized possession, there’s one key thing you ought to do, buy car insurance.
Whereas it’s not the most exciting part of car ownership, it’s essential and mandatory. This is because you may be involved in a motor vehicle accident resulting in injuries to you or other parties or damage to property. When such events occur, they’re followed by medical expenses, repair costs, and lost earning potential.
With the right insurance policy, you can safeguard yourself from such risks. But there are a lot of things that come into play when buying car insurance. These range from the best policy for you to the insurance company to go for, making the process seem a bit daunting.
In this guide, you’ll learn about everything you need to know when buying car insurance.
Table of Contents
By definition, car insurance is a contract between an insurance company and a car owner. The basis of the agreement is that the insurance company (insurer) protects the car owner (insured) against financial losses that may come after an accident or other types of damage. In exchange, the policy taker pays premiums during the duration of the insurance coverage.
Your car insurance policy will cover you and your family, anyone you authorize to drive your car, and passengers.
Auto insurance offers protection against:
Depending on the type of cover you take, it may also offer protection against lost wages and funeral expenses.
Obtaining car insurance is a mandatory and essential part of car ownership. In each state, car owners are required to have car insurance that meets minimum state requirements. Such minimum requirements vary from one state to the next. Should you desire additional protection, car insurance companies offer a wide range of packages.
All road users, regardless of whether they are car owners or drivers, face similar risks. However, if you are not a car owner, you are not required to obtain auto insurance. This is because the car owner’s policy also covers passengers and other road users who may be affected by an accident.
However, it’s important to note that insurance companies may deny car owners an auto insurance policy under unique circumstances. These include:
One of the key concerns you may have when searching for a car insurance company is the cost of a policy. In this regard, it’s important to understand that there is no standard charge for policies. It varies from one state and provider to another, the level of coverage you want, and how much of a risk the company deems you.
Some of the factors that influence car insurance costs include:
Although car owners must have insurance, you must understand how it works to get adequate protection.
First and foremost, regardless of how careful you are, there is always a risk of being involved in an accident while on the road. This may be due to factors such as bad weather, reckless drivers, car trouble, bad roads, or an animal or passerby suddenly crossing the road.
Depending on the nature of the accident, your car may be damaged, and you or other people may sustain injuries. If you are at fault for the accident, such liabilities will fall squarely on your lap.
This is where insurance companies come in. They use a ‘pooling of risks’ approach to offer car owners protection from such risks. Despite making monthly contributions for their premium, not all insured parties will be involved in an accident. So, the insurance company can use the pooled funds to assist those in an accident in catering to their liabilities.
In essence, it reduces your risk at the cost of the premium. Also, from such contributions, the insurance company makes money to meet its running expenses and pay shareholders.
As you prepare to purchase car insurance, there are some things that you should know. These will help you make the right choice and get the most out of your coverage.
Depending on your state, car insurance requirements may vary. However, even before you go to the particulars for your state, you must know the different types of car insurance covers.
In this section, you’ll find the liability covers that are required in almost every state:
Although not mandatory in some states, this section features insurance coverages that are necessary for many states:
Due to the nature and risks involved with car ownership, you may want protection beyond the state minimum requirements. Some of the options you can consider include:
When taking out a policy, it’s essential to indicate whether you’ll be using the vehicle for personal use or business. A cover for business use will cost more as there are more risks as the vehicle will be on the road longer.
Therefore, if you plan to offer delivery or ride-share services or even do a side gig with your car, inform your insurance agent. Should they find out you are doing such work under personal auto insurance, they’ll cancel your policy.
The type and price of the vehicle have a significant bearing on the cost of premiums. However, it does not automatically mean that the premiums for a vehicle will be lower because it’s cheaper. Other factors can come into play, increasing your monthly premium. As such, it’s important to consider the car model when shopping for a vehicle.
For instance, if a particular low-priced car has high claim rates for thefts or accidents, insuring it may cost more than an expensive SUV with lower claim rates.
Ideally, when purchasing car insurance, you’ll have two primary options; third party and comprehensive coverage. As the name suggests, a third-party cover will cater to costs associated with damage to other vehicles and property. In addition to the benefits of a third-party cover, a comprehensive plan will also protect your vehicle.
Before you even begin searching for an auto insurance provider, you should determine your insurance needs. This will ensure you do not pay more than you should and that you are also not underinsured. For this, you should:
With all these in mind, you can choose your coverage based on:
Regardless of the type of cover you choose, you want to get as much value as possible from the premiums you pay. For this, there are some things you should know.
Whereas you can visit several insurance companies to get quotes, it’s not the most effective method. Begin your search online, where you can find multiple options to choose from. Better yet, use an independent insurance agency to get access to several companies and discounts.
Once you receive the quotes, don’t just jump to the cheapest offer, consider elements such as:
If you make a mistake during the insurance application process, it may affect your coverage or result in your policy being canceled. According to MarketWatch, some of the mistakes you should avoid include:
To ensure you get the best value for money, ensure that you know the different types of plans you can get and your needs. This should be followed up by doing extensive research on the insurance providers available to you. During the process, ensure that the details you provide are accurate.
Some of the steps you should follow when buying car insurance include:
As you prepare to purchase car insurance, you may not be clear with some things. To help, here are some frequently asked questions.
There are a lot of factors that come into play when calculating car insurance premiums. They range from your age, driving record and experience, location, etc. As such, there is no standard charge, and it varies from one applicant to the next. The only way to find out is to fill out application forms and receive quotes.
In each state, there are minimum car insurance requirements. These protect you, your passengers, and other parties from the most common accident outcomes. Should you desire additional protection, you can apply for add-on covers. These cover things such as collisions with objects, extreme weather conditions, and vandalism.
If you want to take a cover for an additional car, or you have other forms of coverage such as renters cover, you bundle them together to receive discounts on your premiums.
When buying a car, insurance is arguably the most important step. Getting it wrong will put your investment at risk and leave you exposed to liabilities. As such, you have to take the necessary steps to ensure that you are adequately protected.
Brian is the founder and CEO of Insurist and carries Life, Health, and Property & Casualty licenses in all 50 U.S. states. Since 2013, Brian has been a member of Million Dollar Round Table, a designation for the top 1% of financial advisors worldwide. Brian has been featured in Yahoo! Finance, Money.com, Entrepreneur.com, Life Happens, Forbes, MSN, and Good Financial Cents. Brian’s goal is to show customers the best products, the quickest answers to their questions, and provide expert advice.
Grant's past experience includes work as a licensed sales agent for Hagerty Insurance. He has reviewed thousands of existing auto policies across the nation and issued hundreds of new ones on everything ranging from classic cars undergoing restoration to modern exotics and motorcycles.
