How to Buy Car Insurance: Everything You Need to Know

By KBB Editors 01/19/2022 4:00pm

Buying Car Insurance

Before purchasing car insurance, it’s important to know your state’s minimum requirements, the types of coverage available, and how much insurance you need to protect your financial health.

Once you know what you’re looking for, obtaining car insurance is simple. However, it’s worth taking the time to shop around and get multiple quotes because rates can vary between insurers.

Whether you’re buying your first car and need to get coverage for the first time or updating an existing policy, we’ll help you understand your choices so you can choose the option that’s best for you.

Things to Know Before Buying Car Insurance

Insurance companies use risk formulas to predict how likely an applicant is to file a claim. They incorporate many factors in their calculation, including your age, driving history, credit score, how many miles you drive a year, vehicle make and model, address, and more. These factors determine your rate.

In general, applicants over the age of 25 with clean driving records and good credit qualify for lower rates than younger drivers, people with a history of accidents and other infractions, and drivers with poor credit.

According to Insurify, the average annual car insurance rate for 2022 is expected to be $1,707, but drivers with an at-fault accident pay 29% above the national average. Drivers with poor credit pay 55% more for coverage than drivers with excellent credit.

However, each insurance company has its own formula for determining premiums, so rates may vary significantly from insurer to insurer. That’s why it’s wise to shop around before choosing a policy.

Steps to Take Before Buying

Before you start shopping for car insurance, there are several things you’ll want to do to prepare.

  1. Determine your coverage needs. Not all drivers need every type of car insurance coverage available. But it’s important to have enough to protect yourself from a financial loss if you’re in a serious accident. To determine the types and policy limits that are right for you, consider the assets you want to protect, how much your vehicle is worth, and your risk tolerance. You will need to research the different types of car insurance and determine which is right for you.
  2. Gather your information. Insurance companies will need some information about you and your vehicle to give you an accurate quote. Be prepared to provide the driver’s license number of everyone you want to include on the policy so the insurer can pull your driving records. They’ll also ask about the year, make, model, and VIN of the vehicles you want to insure as well as how many miles you expect to drive each year.
  3. Compare quotes. While insurance companies use similar criteria to determine auto insurance rates, they weigh the criteria differently. So, rates often vary from insurer to insurer. It’s a good idea to get quotes from multiple insurers before purchasing a policy.

The Main Components of a Car Insurance Policy

It’s important to understand what you’re paying for when purchasing car insurance. After all, you don’t want to spend too much for coverage you don’t need or too little for a policy that doesn’t provide adequate protection.

Check out these common types of car insurance coverage:

  • Liability. Liability coverage pays for injuries and damage you cause to other people if you’re at fault in an accident. It’s illegal to drive without it in every state except New Hampshire and Virginia.
  • Collision. Although not required by law in any state, lenders typically require you to maintain collision coverage if you have an auto loan or lease. It covers damage to your vehicle that results from a collision with another vehicle or stationary object, no matter who is at fault.
  • Personal Injury Protection (PIP) / Medical Payments (Medpay). PIP and Medpay help cover your medical bills and those of your passengers regardless of fault. PIP is available in states with “no-fault” insurance systems, and Medpay is available in states without “no-fault” systems. Some states require this type of coverage, and it’s optional in others.
  • Uninsured and underinsured motorist (UM/UIM). As the name implies, UM/UIM pays for your loss if a driver with little or no insurance coverage hits you. It covers your injuries and vehicle repairs after an accident.
  • Comprehensive coverage. Comprehensive coverage helps pay for vehicle damage due to fire, vandalism, theft, and other events that are out of your control. It’s optional in all states, but your lender may require it if you have an auto loan or lease.

The Easiest Ways to Buy Car Insurance

There are a few different ways to purchase car insurance. The option that’s best for you depends on your personal preference.

Where to Buy Insurance

There are three primary sources you can turn to when you want to purchase a policy.

  • Insurer. Buying a policy online or over the phone directly from the insurance company is quick and convenient. But if you want to compare coverage options and pricing, you’ll need to contact each insurer separately.
  • Broker. A broker works with multiple insurance carriers, making it easy to compare coverage options and prices from different companies. Since they don’t work for a particular insurer, a broker can help answer your questions and give their unbiased opinion on the pros and cons of each policy.
  • Captive agent. A captive agent works for a specific insurance company like Allstate or State Farm. They can help you explore coverage options with a single insurer, manage multiple policies and act as your point of contact for as long as you’re a customer. However, they can’t help you compare policies between different insurers.

Car Insurance Shopping Tips:

  1. Shop around. Because rates can vary between insurers, getting multiple quotes before buying a policy is a good idea.
  2. Ask for referrals. Ask people you trust if there’s a specific insurance company, agent, or broker they recommend working with.
  3. Do your homework. Check out online reviews of insurance companies, brokers, or agents you’re considering working with. A history of negative reviews and complaints may be a red flag that you want to steer clear of a particular company or agent. But remember, there’s no guarantee your experience will match those you read about online.

Shop for Car Insurance Before Going to Car Dealers

Are you wondering whether you should buy a car or insurance first? It’s best to shop for car insurance before heading to the dealership to buy a new or used car because the dealer will ask for proof of insurance before handing over the keys.

Most insurers will automatically cover you if you’re adding a new (or used) car to an existing policy. However, you need to let the company know about your vehicle within a certain number of days of purchasing it. Rules vary by insurer, and not all companies automatically protect you, so be sure to check.

If you don’t already have car insurance, ask the dealer for the VIN (vehicle identification number) of the car you plan to purchase. Then give it to the insurer. The insurance company will use the VIN to provide you with an accurate quote so that you can buy coverage.

What is a Deductible?

A deductible is an amount you must pay before the insurer covers your losses, but they don’t apply to all types of insurance coverage. Coverage that typically has a deductible includes collision, comprehensive, uninsured/underinsured motorist, and personal injury protection.

When you purchase insurance with a deductible attached, you get to choose your deductible amount. Policies with higher deductibles typically have lower premiums and vice versa. You can select different deductibles for different coverage types. However, it’s important to weigh the potential premium savings you may receive by choosing a higher deductible with your ability to pay it if you need to file a claim.

How Can You Save on Your Car Insurance?

While the cost of auto insurance can add up, there may be ways to reduce your premium. Most insurers offer various discounts that can help you save on coverage. Available discounts vary between insurers, but common ones include safe driver, homeowner, multi-policy, multi-vehicle, military discounts, and more.

Ask your insurer about discounts for which you may qualify.