Guide to car insurance: Bankrate’s essential auto insurance road map
Key takeaways
- Car insurance is a financial product designed to protect your finances from the fallout of auto accidents and injuries.
- Auto insurance policies consist of numerous different coverage types.
- Comparing car insurance quotes from different companies can help you find the right policy for your needs.
- Many factors affect your car insurance rates, including your age and gender (in most states), the type of vehicle you drive, your driving history and the specific coverage you buy.
Car insurance is an important purchase, but it doesn’t have to be intimidating. Bankrate’s insurance editorial team — which includes licensed agents — is here to help you feel more confident about getting quotes and buying car insurance. After reading this car insurance guide, you’ll better understand the parts of an auto insurance policy, the coverage you might need and the process of comparing quotes.
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Powered by Coverage.com (NPN: 19966249)
Coverage.com, LLC is a licensed insurance producer (NPN: 19966249). Coverage.com services are only available in states where it is licensed. Coverage.com may not offer insurance coverage in all states or scenarios. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way.
What is car insurance?
Car insurance is a contract between you and your auto insurance company in which, in exchange for payment, the company shares in the financial risk of potential car-related incidents. By spreading the risk of loss among a group of policyholders or a shared risk pool, car insurance companies help you mitigate financial losses from accidents, theft and other covered claims involving your vehicle.
Insurance is a financial product. It’s important to note that getting a car insured does not physically protect your car; it protects your finances. This means that choosing the right company, coverage types and coverage levels for your needs is important for your overall financial health. The following section of this auto insurance guide explains how various coverage types payout in the event of a claim and where to find more detailed coverage information within your policy contract.
Understanding your auto insurance policy coverage
Although car insurance has several coverage types, each type falls into one of two categories: first-party or third-party coverage. The term first-party refers to you and your passengers. First-party coverage pays for damage and injuries sustained by you, your passengers or your vehicle. Third-party refers to others, and these coverage types pay for the injuries or property damage you cause to another person.
First-party coverage types: claim payouts for you and your passengers
- Uninsured motorist bodily injury
- Uninsured motorist property damage
- Underinsured motorist bodily injury
- Underinsured motorist property damage
- Medical payments/Personal injury protection (PIP)
- Collision coverage
- Comprehensive coverage
Third-party coverage types: claim payouts for others
- Bodily injury liability
- Property damage liability
Upon purchasing coverage with a new carrier, you will receive a declarations page reflecting information about your policy, such as driver information, covered vehicles, coverage selection and policy premium. You will also receive a personal auto policy agreement with general information. This document usually opens with a definition glossary followed by six “parts” explaining how each coverage works. Here is an example of a typical policy agreement layout:
- Part A: Liability coverage
- Part B: Medical payments coverage
- Part C: Uninsured motorist coverage
- Part D: Coverage for damage to your auto
- Part E: Duties after an accident or loss
- Part F: General provisions
Understanding policy cancellation and nonrenewal provisions
Rules dictating how you or your insurance company can terminate the contract vary between states and carriers. Most policies can only be canceled by the insurance company due to non-payment or material misrepresentation once they have been in force for 60 days. After 60 days, carriers can opt to nonrenew your policy for additional reasons. However, this usually only happens if your policy is deemed too risky.
In most states, you can cancel your policy at any time by returning the physical policy to the insurance company or by sending a written letter of cancellation. Some states and companies may require proof of other car insurance or proof that the plates have been surrendered to the Department of Motor Vehicles (DMV) before allowing you to initiate a policy cancellation.
Check under Part F — General provisions to find out how and when your policy can be canceled, notification time frames and whether you may be subject to a termination or cancellation fee.
How much car insurance do I need?
Bankrate’s guide to car insurance can outline how auto insurance works, but how much car insurance you need will depend on your individual circumstances. You’ll have to purchase at least the required minimum coverage types and limits in your state to drive legally. Most car insurance experts recommend purchasing higher liability limits, even if you opt for a liability-only policy. You’ll pay more for coverage, but you’ll also likely have lower out-of-pocket expenses if you cause an accident and the damages exceed your insurance coverage limits.
States only mandate liability-only coverage, which does not pay for damage done to your car if you are at fault for an accident. If you have a loan or lease on your car, your financial institution will likely require you to have a full coverage policy, which includes comprehensive and collision coverage. Leasing companies also require drivers to have higher liability limits, usually 100/300/50. But even if you own your car outright, you might want to consider purchasing full coverage — especially if your vehicle is newer, relatively expensive or you do not have the funds to repair or replace it yourself after an accident.
Types of car insurance coverage
An auto insurance policy is a package of several coverage types. The kinds and amounts of coverage you choose will depend on your specific situation. Experts recommend speaking with an agent who can help you design a policy that best suits your circumstances.
Some common coverage types are:
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The core coverage on car insurance policies is the liability coverage. These are generally required by law and can help protect you financially from damage and injuries others incur after an accident you cause.
- Bodily injury liability: This is designed to cover the cost of injuries that you cause to another party in an accident.
- Property damage liability: This pays for the damage you cause to someone else’s property in an at-fault accident, like damage to another vehicle, a building or personal property.
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Some parts of a car insurance policy are designed to financially protect you and your passengers from the expense of injuries.
- Uninsured motorist coverage and underinsured motorist coverage: These coverage types can pay for your damages and injuries if you are hit by a motorist who does not have any insurance or does not have enough insurance to cover your expenses.
- Medical payments coverage: This pays for your and your passengers’ medical bills from an accident, regardless of fault. It may be mandatory, optional or not available, depending on where you live.
- Personal injury protection (PIP): This coverage is similar to medical payments but also covers lost wages and the cost of hiring someone to do household tasks if you or a passenger cannot complete them. It is required in no-fault states, may be optional in other states or, like medical payments, may not be available depending on where you live.
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If you choose certain coverage types, your car insurance policy could protect your finances from damage your vehicle sustains.
- Collision: This covers the damage to your car caused by colliding with another vehicle or object.
- Comprehensive: Often called “other-than-collision” coverage, this pays for damage to your car caused by various scenarios, including theft, vandalism, sudden weather damage and hitting an animal. Adding comprehensive and collision to your policy means you are purchasing “full coverage.”
Optional endorsements
An auto insurance guide would only be complete with showcasing some of the optional coverage types drivers may have available to them. For an additional premium, optional endorsements allow policyholders to customize their coverage. Endorsement options will vary between carriers, but here are some common coverage types:
- Gap insurance: Guaranteed assets protection pays for the difference between your car loan or lease balance and the actual cash value (ACV) payment when your car is totaled from a covered claim. Drivers likely to be upside down on their car loan or own more on the loan than the vehicle’s AVC may have put less than 20 percent down on their new car purchase or opted for a more extended loan period.
- Rental car coverage: If your vehicle is not inoperable due to a covered loss, this endorsement could reimburse you for the cost of a rental car up to the policy’s limits.
- Roadside assistance: This optional coverage can help cover the costs of service calls, like tows, locksmith services and battery jumps. However, this covers breakdowns, usually not towing services for a collision. Typically, recovery towing is covered under your collision coverage.
- Rideshare insurance: Your basic auto insurance policy isn’t sufficient if you use your car for rideshare or app-based delivery services. A rideshare endorsement will provide coverage when you are actively available but have yet to match with an order request or rider.
- Modified car coverage: Drivers who customize their vehicles for accessibility or style may need to add this endorsement to their policy to cover the added cost of equipment and labor in case of a covered claim.
- New car replacement insurance: Collision and comprehensive coverage pays out up to the vehicle’s ACV minus the deductible. With this optional endorsement, you may receive a claim payment equal to the cost of buying a new car of the same make and model.
How to compare car insurance rates
Average car insurance rates vary by company, vehicle and driver. Using this car insurance guide while comparing rates and coverage types among various carriers may help you find a policy that fits your needs for the most affordable price. When requesting car insurance quotes, ask each provider for the same coverage types and policy limits (or as close as possible). That way, you’ll be comparing apples to apples.
Factors that affect car insurance rates
Your car insurance premium is not just based on which company you choose. Numerous other factors can impact how much you pay for auto insurance, including:
- Age: Young drivers and those who have just earned their license are more prone to accidents and risky driving behavior compared to other groups. This typically equates to higher-cost car insurance premiums. In all states except California, Hawaii and Massachusetts, your age impacts your car insurance premium, with teens paying the most. As you age into your 20s and 30s, car insurance rates generally begin to drop. However, rates may slightly increase again once you reach 70 years of age.
- Gender: Males tend to pay higher rates than females due to an increased likelihood of getting into more accidents and more severe accidents. California, Hawaii, Massachusetts, Montana, North Carolina and Pennsylvania do not allow insurance companies to use gender as a factor to calculate your premium.
- Vehicle type: The vehicle you drive is another big factor in how much you will pay. Some vehicles are cheaper to insure than others.
- Credit rating: It may be surprising, but your credit score may impact your car insurance premium. Drivers with low credit scores tend to file more claims than drivers with higher scores, so insurance companies charge higher premiums to compensate for the increased risk. Not all states allow credit to be used in determining your rate.
- Driving record: If you have accidents, tickets or DUI convictions on your motor vehicle record, you will likely pay more for insurance.
- Insurance history: Drivers with continuous insurance tend to pay less than drivers with lapses in coverage or no insurance history.
- Coverage type and limits: Your premium will vary depending on your selected coverage type and limits. Generally, the more extensive the policy, the more you’ll pay.
- Discounts: If you qualify for one or more car insurance discounts, you may be able to lower your premium. You may also save money on car insurance if you are married. And if you are a military member or a veteran, you could find specialized discounts or less expensive coverage options.
Car insurance rates by company
When shopping for car insurance, you’ll need to decide which car insurance companies to request quotes from. Different companies have different ways of rating policies, so prices will vary even for the same coverage.
First, you may want to consider what factors matter most to you. Are you looking for the lowest price possible or certain features like a mobile app or high customer satisfaction scores? High-risk drivers may need coverage with a nonstandard carrier, while others with high-value vehicles may need enhanced coverage options. By deciding what you want from an insurance company, you may be able to narrow down which companies to approach for quotes.
Car insurance rates by state
In addition to the factors listed above, where you live significantly impacts your car insurance premium. Your state’s minimum coverage laws, the traffic density of your neighborhood, the average severity of accidents and the percentage of uninsured motorists can all impact the average car insurance cost in your state.
Car insurance rates by age
As previously mentioned, your age significantly affects how much your car insurance costs due to the risk of accidents and claims associated with different driver age groups. Younger drivers usually pay higher rates due to an increased risk of accidents, while older drivers tend to pay lower rates, since they have more experience behind the wheel. Currently, Hawaii and Massachusetts are the only two states that limit the use of age as a rating factor for car insurance. While Hawaii does not use age, Massachusetts allows carriers to rate for driving experience.
Tips for shopping for car insurance
Once you understand the different types of car insurance and the factors that impact your rate, you’re better equipped to shop around for coverage. Shopping for car insurance involves a bit of legwork, but it’s generally the same from company to company. Whether you shop online or work with an agent, you’ll be asked to provide some information about yourself and answer a few questions.
Here are some tips that could help:
- Compare quotes accurately. This may be the most important part of the car insurance shopping process. When you receive quotes back from each carrier, make sure that the coverage types, limits and deductible amounts are identical. Without checking for this, you may mistake one carrier as being cheaper without realizing it’s giving you less coverage.
- Understand your deductible. If you have comprehensive and collision coverage on your car insurance policy, you will have a deductible for each. The deductible refers to the amount you are responsible for paying out of pocket in the event of a covered claim, while your car insurance company covers the rest. A higher deductible might result in a cheaper policy, but make sure the deductible amount is something you could easily pay if you need to file a claim.
- Shop after life events. Buying a new car, getting married and adding a child to your policy could impact your car insurance rate. Because of that, these and other life events may be a good opportunity to reevaluate your car insurance coverage and premium.
- Shop before buying a new car. To save money in the long run, get quotes for several cars before heading to the dealership to pick out your new car. This way, you can select a vehicle that fits your car insurance budget.
How to file a car insurance claim
Even the most careful driver may experience an accident at some point. While this can be scary, understanding the steps to take when filing a claim can alleviate some stress.
- Gather information: Collect contact and insurance information for the passengers in your car and the people from any other vehicle involved in the accident. If there are any witnesses, try to get their contact information as well. They may help settle any disputes that can arise.
- Contact your claims department: Depending on your insurance company, you may need to call an agent to file a claim or submit it through your carrier’s mobile app. Be prepared to submit photos of any damage to your or the other driver’s vehicle, contact information for all parties involved and answer some questions. Claim agents can request specific information such as what time the accident happened, where you were driving to or from or what the weather conditions were like.
- Take notes: Your claim agent may give you a lot of information at a time when you may still be shaken up from the accident. Upon first contact with your carrier, they can usually tell you your deductible, where they towed your car and what repair shop to go to.
- Maintain communication: Respond to any communication from your insurance company immediately to ensure timely claim processing.
- Receive your claim payment: How you receive your claim payment depends on several factors. If your car is leased or still has a loan, you may receive a check made out to you and your bank. If you go to a repair shop recommended by your insurance carrier, they may pay the shop directly, and you will only be responsible for paying the deductible.
Frequently asked questions
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There is no single insurance company that offers the cheapest coverage for everyone. That means you’ll need to shop around and compare quotes from multiple insurers to find the cheapest policy available. To keep premiums low, maintain a good driving record, improve your credit and consider things like opting for a higher deductible or purchasing a minimum coverage policy rather than full coverage. However, experts recommend consulting an agent before making any big changes to your insurance to ensure you fully understand how it could impact you financially should you need to file a claim.
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In the vast majority of states, driving without car insurance is illegal. You must purchase at least the minimum required types and levels of coverage in your state; if you don’t, you could be fined and have your license suspended. If you cause an accident and don’t have insurance, you’ll be personally responsible for the costs of the damage and injuries you cause. Even if your budget is tight, purchasing car insurance is an important step in your financial planning. If your bill is too high, you may be able to lower your premium by taking advantage of discounts, shopping around and evaluating your coverage.
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“No-fault insurance” is an insurance term that’s often misunderstood. It refers to personal injury protection (PIP), which is typically a required coverage in no-fault states. This coverage helps pay for your accident-related injuries and the injuries of any passengers you have in your car, regardless of fault. PIP may also pay for other qualifying expenses. However, fault is still a factor in car accidents, even in no-fault states. You’re still expected to pay if you cause damage to another party’s vehicle or other property. Additionally, while PIP may pay for injuries initially, you could still be found liable and your bodily injury liability coverage could help pay. If your bodily injury limit is lower than the cost of the injuries, you’ll be responsible for the rest out of pocket.
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Unfortunately, yes. Based on Bankrate’s analysis of data from Quadrant Information Services, average car insurance rates are increasing — from June 2022 to June 2024, insurance rates rose 20 percent. Car insurance companies take numerous factors into account when pricing policies. Inflation has driven up the cost of claims as auto parts, mechanic’s labor and medical care steadily increase in price. Furthermore, the severity and frequency of auto accidents continue to rise. Consequently, auto insurance companies are raising rates to ensure they have enough money to pay out claims.
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Each year, Bankrate evaluates dozens of car insurance companies and finds the best carriers for various car insurance needs. The 2024 Best Overall Auto Insurance Award was a tie between Amica and Geico. While other auto insurers won awards for different categories, this doesn’t mean they are the best insurance company for you. Every driver is different and should find a company that works best for them. Some people like an agent with a brick-and-mortar location to provide them with personal service. Others want to avoid agent interaction as much as possible. High-risk drivers may need an insurer that offers SR-22 filings, which isn’t available with every company. By comparing coverage options, benefits and rates among several carriers, you can find the one that suits your needs best.
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