5 Considerations When Choosing Your Auto Insurance Policy

Nov 04, 2021 11:27 AM EDT | Ernest Hamilton

5 Considerations When Choosing Your Auto Insurance Policy

(Photo : Photo by Mikhail Nilov from Pexels)

There are many considerations to make when choosing your auto insurance policy, and choosing the right auto insurance policy is based on your needs alone. Consider the following:

  1. How will factors like your age, location, and driving history influence the cost?
  2. What type of coverage is best for you?
  3. What is the cost of car insurance?
  4. What are the state requirements to legally drive?
  5. Are you securing a lease or loan for the vehicle?
  6. Which insurance provider do you want to insure you?

How will your age, location, and driving history influence the cost?

Your rates are influenced by a range of factors, which will ultimately determine if your rates are higher or lower. For example:

● Younger drivers generally have higher premiums because they are inexperienced and statistically more likely to crash.

● A higher credit score can lower premiums in states that allow credit to be used as a rating factor. Insurance providers often associate less risk with a driver who has a higher credit score.

● If you live in a high-crime area, this can increase premiums. Insurance providers will believe you have a higher chance of filing a claim related to vandalism, theft, or other crimes.

● A claims-free driving history usually decreases insurance premiums. Not only will insurance carriers view claims-free driving histories as less risky, but you may qualify for additional safe driving discounts.

● The make and model of a vehicle can increase or decrease insurance premiums. A model with higher safety ratings and cheaper replacement parts might cost less to insure versus a model with lower safety ratings and more expensive parts.

Choose What Type of Coverage Is Best for You

At the core of an auto insurance policy is the coverage it provides. This means selecting the right coverage options to provide the financial protection that fits your needs and your budget. Insurance providers offer a standard list of coverage options, which include the following:

Liability: Bodily injury and property damage liability helps cover injuries and property damage expenses for the other driver when you are at fault in an accident.

Collison: If your vehicle is damaged due to colliding with another vehicle or object, collision helps cover the repair costs.

Comprehensive: Also known as "other than collision" coverage, comprehensive covers damage to your vehicle from weather-related events, vandalism, theft, and animals.

Uninsured and underinsured motorist: These coverage options help pay for your medical expenses if the at-fault party isn't insured or does not carry high enough insurance limits.

Medical payments or personal injury protection (PIP): These coverage options help pay for injury-related expenses for both you and your passengers related to an accident, regardless of fault. Medical payments can help cover medical bills, whereas PIP can help cover medical bills, essential services, and lost wages.

At the very least, policyholders need the state minimum insurance requirements to drive legally. These minimum requirements vary by state but generally include liability, uninsured motorist, and medical payments or PIP in certain states. But it may make more financial sense to opt for a full coverage policy, even when it is not required.

Full coverage is not a specific type of policy but includes the state's required coverage plus comprehensive and collision coverage.

Cost of Car Insurance

The cost of car insurance is likely a concern for most drivers and may influence which coverage options you choose. In the U.S., the average car insurance cost is $1,674 per year for full coverage or about $139.50 per month. There are a number of factors determining the exact amount you pay for coverage, not only the coverage selections you choose.

Other factors such as your ZIP code, vehicle, driving history and claims record, credit score, and marital status can impact the cost of car insurance in most states. You can help control the costs by shopping around for multiple quotes, taking on higher deductibles, looking for as many discounts as possible, maintaining a strong credit score, and keeping a clean driving history. While you may not be able to control all of the factors, these are tactics you can use to pay the least amount in premiums for the coverage you need.

What are your state requirements for insurance?

Each state has its own requirements with how much insurance you should maintain in order to drive legally. For many states, this means purchasing at least a minimum amount of liability insurance. Although it might be tempting to only purchase the lowest amount, doing so could spell financial trouble, especially if you are found at fault in an accident with multiple injuries and property damage.

If you live in one of the states requiring PIP, medical payments, or uninsured/underinsured motorist coverage, you may have to purchase additional coverage outside of only liability.

Are you financing or leasing the vehicle?

Whether or not you are financing your vehicle may affect how much coverage you purchase. Nearly all lenders require drivers to purchase a full coverage policy when financing or leasing a vehicle. Lenders require comprehensive and collision coverage to protect their investment since both options cover expenses related to damage to your vehicle. If your vehicle is leased, you may be required to carry liability coverage limits higher than state minimum limits to satisfy the lease agreement.

Another requirement from the lender or leasing company may be gap coverage. This pays the gap between the amount you financed or leased the vehicle for and the fair market value assigned by the insurance provider. Gap coverage can become critical if you are involved in an accident and if your newer vehicle is totaled. Without this coverage, the difference between these two amounts could be quite high, especially considering how quickly a vehicle's value depreciates after a purchase.

What company do you want to buy insurance from?

There are several strategies to use when choosing the best car insurance company for you. You may base your decision solely on which one offers the lowest rates and the highest number of discount options. But also keep in mind the type of company you want to work with if you have to file a claim. If you are looking for a more personalized experience versus an all-digital one, this could help narrow down your options.

Other qualities of insurance providers should also be considered, such as their financial strength rating and customer service reviews. This provides a more well-rounded review when it comes time to make the big decision.

A Bankrate.com writer, Sara Coleman has three years of experience in writing about insurance on publications like The Simple Dollar, Reviews.com, Coverage.com and numerous other personal finance sites. She writes about insurance products such as auto, homeowners, renters and disability.

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