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Car Insurance

Car insurance coverage is required to legally drive in most states. Your car insurance policy will cover damage to other cars and property, and medical bills for any person that the insured is liable for. Liability car insurance is typically required by law and comprehensive, collision, and uninsured motorist car insurance can be purchased on top for more protection. Shop around and compare car insurance companies to get best car insurance rates in your state.

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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...

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UPDATED: Aug 14, 2020

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It’s all about you. We want to help you make the right coverage choices.

Advertiser Disclosure: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We partner with top insurance providers. This doesn't influence our content. Our opinions are our own.

Editorial Guidelines: We are a free online resource for anyone interested in learning more about insurance. Our goal is to be an objective, third-party resource for everything insurance related. We update our site regularly, and all content is reviewed by insurance experts.

Things To Know:

  • Car insurance is required by law in almost every state, and each state has its own car insurance requirements
  • Car insurance rates are based on a number of factors, including the type of car, where you live, your driving record, and the amount of coverage you choose
  • Car insurance companies determine their own rates and offer a variety of car insurance discounts to help reduce rates
  • Shopping around to compare rates is the best way to find cheap car insurance

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. This is known as basic liability car insurance and is usually what is required by law. It’s important to remember that insurance companies will only pay up to the agreed amount outlined in the policy, otherwise known as the policy limits.

If damage from an accident exceeds the policy amount, the insured becomes responsible for any further charges.

This is why, when shopping for car insurance, it’s important to consider limits above the legal minimum.

Auto insurance policies can also include optional coverage that protects the insured property as well. Standard (or basic) car insurance policies are designed to protect the insured from liability arising from an at-fault accident but don’t automatically cover the cost of repairs to their own car. It’s important to determine whether this is needed and add the appropriate optional coverage if necessary. Comprehensive and collision coverage are the two most common additions, and adding these two creates what is known as a full coverage car insurance policy.

Additionally, each state has its own requirements in regard to the minimum amount of insurance coverage each driver much carry. Read on to learn the basics of car insurance.

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Typical Car Insurance Coverage

Here’s an overview of basic car insurance coverage options. For more details on coverage and what to buy, read our complete guide to buying car insurance.

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.

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Car Insurance 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 was $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.

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How Much Car 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 the 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.

Take a look at how coverage level affects rates below.

Insurance CompanyLow CoverageMedium CoverageHigh Coverage
Allstate$4,628.03$4,896.81$5,139.02
American Family$3,368.49$3,544.37$3,416.40
Farmers$3,922.47$4,166.22$4,494.13
Geico$3,001.91$3,213.97$3,429.14
Liberty Mutual$5,805.75$6,058.57$6,356.04
Nationwide$3,394.83$3,449.80$3,505.37
Progressive$3,737.13$4,018.46$4,350.96
State Farm$3,055.40$3,269.80$3,454.80
Travelers$4,223.63$4,462.02$4,619.07
USAA$2,404.11$2,539.87$2,667.92
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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 Impact The Cost of Car 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.

Take a look at how driving record can impact rates below.

Insurance CompanyClean RecordWith One AccidentWith One DUIWith One Speeding Ticket
Allstate$3,819.90$4,987.68$6,260.73$4,483.51
American Family$2,693.61$3,722.75$4,330.24$3,025.74
Farmers$3,460.60$4,518.73$4,718.75$4,079.01
Geico$2,145.96$3,192.77$4,875.87$2,645.43
Liberty Mutual$4,774.30$6,204.78$7,613.48$5,701.26
Nationwide$2,746.18$3,396.95$4,543.20$3,113.68
Progressive$3,393.09$4,777.04$3,969.65$4,002.28
State Farm$2,821.18$3,396.01$3,636.80$3,186.01
Travelers$3,447.69$4,289.74$5,741.40$4,260.80
USAA$1,933.68$2,516.24$3,506.03$2,193.25
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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 the 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 the 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 check quotes with different levels of coverage so you can see the price difference.

Car Insurance Premium Discounts

Insurance companies are often willing to give policy owners car insurance discounts for many different reasons. One of the easiest ways to get a discount is to 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.

Take a look at some common discounts and how much they can save you below.

Common Auto Insurance Discounts Offered by Company
Discount TypesDiscount SavingsCompanies Offering Discount
Low mileage/Low usage discountUp to 20%State Farm, Allstate, Travelers, Nationwide, Progressive
Defensive driving discount10%–15%State Farm, Geico, Allstate, Travelers, Nationwide, Progressive, Farmers
Safe driver discount10%State Farm, Geico, Allstate, Travelers, Nationwide, Progressive, Liberty Mutual
Military and federal employee discount8%–15%Geico, Esurance, USAA
Good student discount5%–25%State Farm, Geico, Allstate, Travelers, Nationwide, Progressive, Liberty Mutual
Senior/Mature driver discount5%–10%Geico, Allstate, Liberty Mutual
Homeowner discount3%State Farm, Geico, Allstate, Travelers, Nationwide, Progressive, Farmers
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You can also receive discounts on your liability insurance by maintaining a good driving record. Insurance companies are constantly monitoring the 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.

The best way to find the right coverage at the right price is to shop around. Compare car insurance rates online right now by entering your ZIP code below for fast, free quotes.