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Frequently Ask Questions
Insurance is a safety net. Accidents can happen – even to the best drivers. Insurance can help cover repairs to your vehicle, or another’s and medical costs. Insurance is your firewall against economic disaster should you cause an accident and there is property damage or injuries to other people. With today’s high medical costs, increasingly expensive car repair costs and high litigation expenses, even a seemingly minor accident could cause a major financial hardship and even bankruptcy. Insurance is not an option. It’s an absolute necessity. And it is mandatory in every state.
Insurance is a safety net. Accidents can happen – even to the best drivers. Insurance can help cover repairs to your vehicle, or another’s and medical costs. Insurance is your firewall against economic disaster should you cause an accident and there is property damage or injuries to other people. With today’s high medical costs, increasingly expensive car repair costs and high litigation expenses, even a seemingly minor accident could cause a major financial hardship and even bankruptcy. Insurance is not an option. It’s an absolute necessity. And it is mandatory in every state.
Insurance is an agreement between you and your insurance company in which you pay the insurance company a certain amount of money and, in return, the company will protect you from major financial losses due to an accident for a given period of time. The amount that you pay is called the premium, and is typically a relatively small amount of money paid monthly, bi-annually or annually. Should you ever need to make a claim, another payment, called a deductible, must be paid for the first portion of the costs of the repairs to the vehicle. For example, in an accident a car may require $5,000 to be repaired. The deductible might be $500. Once you pay the deductible, the insurance company pays the rest up to the limits of coverage. The insurance company uses the pool of premiums they collect and hope that they’ve made good choices about who to insure, so that they can pay out far less than they have in claims. A typical insurance company makes about five to eight cents on every dollar, and the rest goes towards claims, overhead and advertising.
This depends on a number of factors. Certainly, you want to get liability coverage to protect yourself against claims in case you cause an accident. However, if your car is older, you might not want to get collision insurance since you might pay more for the premiums than the car is worth. On the other hand, if your car is new or is a used one that is being financed, the lending institution will probably insist on collision insurance and comprehensive coverage. Below is a listing of the different kinds of coverages a policy may contain and what they do.
Body injury liability – pays medical costs, lost wages, and pain and suffering of other people injured in an accident that you caused. It also covers the cost of litigation if you should be sued.
Property damage liability – pays for other people’s property damaged in an accident for which you are responsible.
Medical payments – pays medical costs if you or your passengers are injured in an accident. There are usually limits specified in the policy.
Uninsured/Underinsured motorists – pays your medical bills and certain other expenses if you’re injured in an accident caused by someone who has no insurance or inadequate insurance to cover the costs. In some states, it will also cover damage to your property.
Collision – pays for damage to an insured vehicle in an accident involving another vehicle or some other object.
Comprehensive – pays for damage to your car not caused by an accident, like theft or vandalism.
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The short answer is, yes. Your credit history can make a difference on what you end up paying for auto insurance.In all states except California, Hawaii and Massachusetts, an individual’s credit rating is a key factor in determining your auto insurance rates. The relationship between credit score and insurance risk is backed by research done by the car insurance companies. What they have found is that people with better credit tend to have better driving habits. It’s akin to being conscientious. Someone who has good habits that produce a good credit score is more likely to be thoughtful and considered in their judgement when choosing how to drive, where to park their car and whether to lock it,
The insurance companies review your credit information and run it through a formula to create an "insurance risk score." It is very much like the process that a lender would use to approve a personal loan, mortgage loan or credit card.
How important is your credit history when it comes to your auto insurance premiums? More than half of the insurance companies surveyed used credit history information to decide how much to charge in premiums.
So, before buying insurance, make sure to get copies of your credit report and correct any inaccuracies.
The good news is that an excellent credit history could help lower your auto insurance premiums. If you don’t have great credit, or where credit history isn’t used, you may still be able to lower your auto insurance premium simply by comparison shopping multiple insurance companies.
It’s illegal to drive without car insurance in all 50 states. So that leaves us with one choice, which is to try to find a good deal. The good news is that every insurer offers a discount of some kind that might fit you. While the methods below are not going to prevent you from paying through the roof, they are proven cost-saving methods that could cut hundreds of dollars off your car insurance premiums:
Drive an older, “everyday” car: You will save a ton of cash on your auto insurance policy. Fewer bells and whistles, means fewer things to fix after an accident.
Be a good driver: Violations hurt your wallet on their own, but a record of violations could continuously hurt your wallet via increased monthly insurance premiums. Also, if you can find a driver’s education course, take the class, and let your insurance company know about it. It can potentially reduce your auto insurance premiums.
Be a member or alumni of an organization: Let your insurance company know about any memberships in clubs or organizations.
Higher deductibles, lower premiums: By raising your deductible, say from $250 to $500 for liability insurance (covers medical costs caused by you in an accident), you can save several hundreds of dollars in premiums.
Lower Coverage: Also, you can save by lowering the limits of coverage. So, instead of carrying 100/300 ($100,000 of coverage per person/$300,000 per accident) of liability insurance, you can decrease this coverage to 50/100 ($50,000 per person/$100,000 maximum. Each state has a minimum coverage.
Drive less: Less mileage driven means a lower rate. One way to do this is to live near where you work.
Good grades, better rates: If you are a student and have grades in school, let your car insurance company know. Students with a “B” average or higher (3.0 on a 4.0 scale) can often take advantage of discounts.
Never Let Coverage Lapse: Maintaining auto insurance coverage without a lapse makes a significant difference in rates.
Mature-Driver Discounts: Most insurers lower rates for mature drivers (55 years and over).
Take a Driving Safety Course: Many insurers will cut auto insurance rates for drivers who take an approved driving safety course.
Car Pool Credit: Many auto insurance carriers drop premiums if you carpool to the office, especially if you drive a significant distance to work.
Check Rates Before Buying a New Car: Auto insurance rates vary considerably from car to car.
Take Credit for Safety/Security Features: Drivers should make sure they are receiving lower car insurance rates for safety features such as air bags and antilock brakes.
Finally, the number one way to save, drumroll…shopping is the No. 1 way to save on auto insurance. Our research has shown that auto insurance premiums can vary hundreds of dollars from company to company for the same coverage.
How to get Best Rates and Prices on Car Insurance
To understand how to get the lowest cost car insurance, it's helpful to understand how car insurance companies price the insurance. There are two large factors that determine your rates: the first factor is the amount and type of coverage; and the second factor is the probability or risk of an event happening that causes the insurance company to have to pay on a claim. Calculating the risk of an event is complicated and involves assessing numerous hard to quantify risks, including yourself as the owner and person in the most control to prevent a claim from happening. That said, location is likely a factor that the average person isn't going to change and can significantly change the price. Because of the difficulty assessing risk, the premium rates that you receive from a car insurance company as they each have their own ways of calculating all the various risks. Cheap car insurance can come from a variety of different companies. To understand how to get the lowest cost car insurance, it's helpful to understand how car insurance companies price the insurance. There are two large factors that determine your rates: the first factor is the amount and type of coverage; and the second factor is the probability or risk of an event happening that causes the insurance company to have to pay on a claim. Calculating the risk of an event is complicated and involves assessing numerous hard to quantify risks, including yourself as the owner and person in the most control to prevent a claim from happening. That said, location is likely a factor that the average person isn't going to change and can significantly change the price. Because of the difficulty assessing risk, the premium rates that you receive from a car insurance company as they each have their own ways of calculating all the various risks. Cheap car insurance can come from a variety of different companies.
Because calculating risk is so difficult the carriers all take different approaches to the challenge. Which means that shopping around can save you a lot of money. In our research, the difference between carriers was as much 500%. That means that if you choose the wrong carrier you could pay 5 times more than necessary. Price may not be the only consideration, but that difference is too much not to shop. In The Car Insurance Guide's proprietary 2020 research we found rates for the same person in the same car varied on average 100-200% from one car insurance company to another. Over the course of a year, the choice of one insurance company over another could result in a thousand dollars of savings. This is after tax dollars!
Insurance companies that offer both home insurance and car insurance will reduce the overall cost when bundling both coverages together. It stands to reason. The company can get an additional sale with little additional sales & marketing costs. Also, the more relationships that a consumer has with a company, the more likely they are to maintain that relationship. From the consumers standpoint, it's typically easier to deal with one company as opposed to two companies. So as a general matter, combine your car insurance quote with homeowners insurance to see if you can save even more with a bundled quote.
Getting quotes from multiple car insurance companies can be a time-consuming process, but fortunately that's where The Car Insurance Guide is a very helpful resource. Our team of licensed insurance agent analysts have done a lot of the research for you. We've conducted extensive pricing research with different consumer profiles in different regions to see which car insurance companies provide the most affordable insurance premiums for a consumer like you. Some companies clearly provide better pricing and cheaper car insurance than others. That's a major factor in how we've developed the list of recommended car insurance companies that you see recommended on our site. To save time and get the highest chance of finding the cheapest insurance from a highly rated car insurance company, start getting quotes from best ranked companies on our list and compare the pricing you get.
A great way to reduce the costs of insurance after shopping around is to reduce the risks that you have to cause claims. Preventative measures, like car alarms, and lojack, are a great way to do this. Many companies offer discounts for people for a variety of reasons. Some examples are: good driving, alumni, grades, lower mileage, military, paying early, and driving training.
Another way to reduce cost, is to reduce the scope of coverage and or get lower coverage amounts. However, reducing you monthly premiums in this manner increases the risk to you because if something does happen you may have to cover some of the losses out of pocket. For this reason, we don't recommend taking on more risk to reduce your premiums.
Finally, increasing your deductible can reduce your monthly premium. A deductible is the amount that you pay on the damage, loss or liability before insurance kicks in and covers the rest (or up to the policy limit). For the insurance company, the lower the deductible the more the insurance has to pay when there is an incident. Not surprisingly, insurance companies will charge a higher premium for policies that have a low deductible. Therefore, the choice is based on whether you have a preference for a lower premium or for being less out of pocket if anything does happen. If you don't think you'll be able to pay the deductible if something does come up, chose a low deductible plan. If you want to bet that nothing will happen and you can afford to pay a high deductible if it does, then choose a low premium plan.
