How to Assess Your Car Insurance Needs

If you listen to the radio or watch TV, you’ve likely heard countless car insurance commercials. In these ads, actors (or digital geckos) play out scenes with car accidents and customers calling their insurance agent. Of course, each insurance provider claims to have the best coverage.

While it seems simple on TV, choosing a car insurance plan takes a lot of research and consideration. You have endless provider and policy options, and these policies all depend on applicant-specific factors. The best car insurance policies aren’t universal—they’re the policies that are designed to customer-specific needs. Before choosing a policy, you’ll have to assess those needs.

Step 1: Know the Law

First, you should take the time to you need to study and research the laws in your state. Car insurance rules and regulations differ from state to state, so you’ll want to know which forms of coverage you need and which are optional. States also have varying mandatory minimums for coverage.

Step 2: Know Your Needs

Auto insurance policies have numerous components that are individually priced then bundled together into a policy. Typically, a combination of the following coverage types make up an insurance policy:

  • Collision Coverage– Covers car repairs (or replacement) when the policyholder gets into an accident with someone else or if they hit an object.
  • Comprehensive Coverage– Used when something other than an accident damages the policyholder’s vehicle—for example, weather-related damages or vandalism.
  • Liability Coverage– Most states require car owners have this form of insurance. When a policyholder is found at fault for an accident, liability coverage pays for property damage and the necessary medical treatments for the other driver and their passengers.
  • Medical Payments Coverage– Some, but not all states require this insurance form. When an accident occurs, it covers medical costs for the policyholder and any passengers in their vehicle.
  • Personal Injury Protection– Not all states allow insurance companies to offer this form of coverage. Also, some states require it while others offer but don’t mandate the coverage. PIP helps to pay for the policyholder’s medical costs after an accident as well as other expenses resulting from the injury, such as lost income.
  • Uninsured and Underinsured Motorist Coverage– This coverage comes into play when an uninsured or underinsured driver hits a policyholder’s vehicle. Some states require it, and others make it optional. Also, this insurance type covers hit-and-run accidents in some states.

For the mandatory forms of coverage, car owners should assess the value of their vehicles and their particular risk-factors.

Step 3: Know the Determining Factors

Insurance providers use expansive data sets to assess the risks that correlate with specific demographics and locations. They then use this data to price their rates for those who fit each demographic-based group. Insurance companies can legally base insurance rates on the following factors:

  • Geographic location (which indicates local crime levels, traffic patterns, and weather-associated risks)
  • Age (younger drivers tend to have higher rates)
  • Gender (typically, women pay less than men)
  • Marital/family status
  • Length of driving experience
  • Driving record (for example, insurance providers can look at speeding tickets and DUI arrests)
  • Claims history
  • Credit history
  • Vehicle model
  • Vehicle usage
  • Miles on a vehicle

Step 4: Know Your Budget

Within the U.S., the drivers with a clean record and good credit pay an average of $1,427 each year, according to analysis by Nerd Wallet. However, the average amount spent on car insurance and the minimum coverage required varies significantly across states. Before shopping for insurance, do enough research to get a sense of how much insurance should cost based on your location and circumstances.

Step 5: Know Your Options

With this information in hand, it’s time to start researching and considering your provider and policy options. When shopping around, talk to insurance agents and request quotes—don’t just search online. Before picking up the phone, record the information you gathered from the first four steps to ensure you get a good deal.

Essential Information

As with all major purchases or financial decisions, having information is essential to choosing the right car insurance policy. With so many factors that contribute to rates and premiums, knowing your profile as a prospective policyholder is key—with this knowledge, you’ll know what prices to expect and can choose a provider accordingly.

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