Choosing The Right Auto Insurance: A Step-By-Step Guide

Choosing an auto insurance policy can be a daunting task. There are many factors to consider, from understanding the different types of coverage to finding a policy that fits your budget. Here are some key things to keep in mind when selecting an auto insurance policy:

- Understand the types of coverage: Familiarize yourself with the different types of auto insurance coverage available, such as liability, collision, comprehensive, uninsured/underinsured motorist, and medical or personal injury protection. Each type offers different protections, and some may be mandatory in your state.

- Determine how much coverage you need: Consider your financial situation, the value of your vehicle, and your driving habits to decide how much coverage you need. Remember that state-minimum coverage may not be sufficient to protect you financially in the event of a serious accident.

- Compare rates and shop around: Get quotes from multiple insurance companies to find the best rates and coverage options for your needs. Prices for the same level of coverage can vary significantly across insurers, so it's worth shopping around to find the most competitive offer.

- Consider the insurance company's reputation: In addition to price, research the insurance company's customer service reputation, claims service, responsiveness, and financial stability. You want to choose a company that will be easy to work with and financially reliable if you need to make a claim.

- Look for discounts: Many insurance companies offer discounts for various reasons, such as low mileage, safety equipment on your vehicle, or being a student or alumni of certain universities. Ask about available discounts to lower your premium.

- Review your policy regularly: Insurance needs can change over time, so it's important to review your coverage periodically. This could be when your policy is up for renewal or when your circumstances change, such as adding a new driver or improving your driving record.

Understand the types of coverage available

Understanding the types of auto insurance coverage available is essential when selecting a policy. While the specific mandates differ across states, most basic auto insurance policies consist of six types of coverage: bodily injury liability, personal injury protection, property damage liability, collision, comprehensive, and uninsured/underinsured motorist coverage. Each type of coverage is priced separately, allowing for customisation based on individual needs and budgets. Here is a detailed overview of each type of coverage:

Bodily Injury Liability

Bodily injury liability coverage applies to injuries that you, the designated driver, or any other policyholder cause to someone else. This coverage also extends to family members listed on the policy when driving someone else's car with their permission. It is recommended to purchase more than the state-required minimum liability insurance to protect your assets in the event of a serious accident.

Personal Injury Protection (PIP)

Personal injury protection, or medical payments coverage, pays for the treatment of injuries to the driver and passengers of the policyholder's car. PIP can also cover lost wages, funeral costs, and the cost of replacing services normally performed by someone injured in an auto accident.

Property Damage Liability

Property damage liability coverage pays for any damage you or someone driving your car with your permission causes to someone else's property. This typically includes damage to another vehicle, but it can also cover damage to buildings, utility poles, fences, or other physical property.

Collision Coverage

Collision coverage pays for damage to your car resulting from a collision with another vehicle, an object such as a tree or telephone pole, or if your vehicle overturns. It is generally sold with a separate deductible, and your insurance company will reimburse you for the repair costs minus the deductible. Collision coverage does not include damage from mechanical failure or wear and tear but will cover damage caused by potholes.

Comprehensive Coverage

Comprehensive coverage, also known as "other-than-collision coverage," reimburses you for loss or damage caused by something other than a collision with another vehicle or object. This includes fire, falling objects, theft, vandalism, natural disasters such as floods and earthquakes, and encounters with wildlife. Comprehensive coverage is usually sold with a separate deductible, although some insurers may offer glass coverage without a deductible.

Uninsured/Underinsured Motorist Coverage

Uninsured and underinsured motorist coverage reimburses you, a family member, or a designated driver if you are hit by an uninsured driver or a driver who doesn't have sufficient insurance to cover the total loss. This coverage also protects you in the event of a hit-and-run or if, as a pedestrian, you are struck by an uninsured or underinsured motorist.

Assess your financial situation

When assessing your financial situation to pick an auto insurance policy, it's important to consider your assets and liabilities, as well as your income and expenses. This will help you determine how much coverage you need and what you can afford. Here are some key steps to follow:

• Be honest with yourself about your financial situation. This includes recognising any patterns or habits that may be financially detrimental, as well as acknowledging any past financial decisions you're not proud of.
• Calculate your net worth by subtracting your liabilities from your assets. This will give you an understanding of your overall wealth.
• Familiarise yourself with the different types of insurance coverage available and decide which ones are most relevant to your situation. For example, if you have a brand new vehicle, collision coverage will be essential to cover any damage to your own vehicle in an accident.
• Evaluate your financial resources. If you have more assets, you may want to opt for higher liability coverage to protect them. On the other hand, if you have money in the bank, you may be able to afford a higher deductible and save on your premiums.
• Consider your liquidity when deciding on a deductible. Ask yourself how much you can comfortably afford to pay out of pocket per claim. A higher deductible will result in lower monthly premiums, but ensure it's not so high that it becomes a financial burden in the event of an accident.
• Assess your budget and spending habits. Create a budget if you don't already have one, and track it monthly to ensure you're not spending more than you earn. This will help you determine how much you can allocate towards insurance premiums.
• Calculate your debt-to-income ratio by dividing your total monthly debt payments by your monthly income. A high DTI indicates that you may be spending beyond your means, and it's recommended to keep it below 40% if possible.
• Evaluate your investments and ensure they align with your risk tolerance, goals, and objectives.

Compare quotes from multiple insurers

Comparing quotes from multiple insurers is the best way to get cheaper insurance. In fact, the average comparison shopper saves $60 per month on their car insurance by comparing quotes. That said, here are some tips for comparing quotes from multiple insurers:

Determine your budget

Before you start comparing quotes, you need to determine your budget, the type of insurance you need, and how much coverage you require. By doing this as your first step, you can quickly weed out overpriced insurance companies and focus on the insurers with the lowest prices. The average U.S. driver pays $135 per month for car insurance, so that’s a good place to start.

Gather the relevant information

Make sure you have the right information available, like your:

• Social Security number
• Driver’s license number
• Vehicle identification number (VIN)
• Current coverage details

Use an insurance-comparison website

Insurance-comparison websites make comparing quotes faster and easier because you only have to provide your information once. Plus, you can compare prices and coverage options from different companies at the same time. However, not all comparison sites are created equal. Several sites advertise the ability to compare quotes, but many are just lead-generation websites that sell your personal information. True comparison sites — like Compare.com, Insurify, and Jerry — partner with insurance companies to provide real-time quotes.

Research companies with the best quotes

The largest insurance companies won’t always have the best price for your specific needs. Do your research before committing to an insurer. Third-party websites — like J.D. Power and AM Best — analyze insurance companies based on customer feedback and experiences with things like website and mobile performance, the shopping experience, the claims process, and financial strength.

Select the best quote for you

After researching, you should have narrowed down your list to a few insurance companies. It’s time to choose which company best meets your coverage needs and budget. Review your auto insurance quotes again and select the best quote for you. Then, complete the application for your new policy.

Compare quotes again at renewal

When your policy comes up for renewal, you’ll typically get a renewal notice about 30 days before your renewal date. Take some time to compare car insurance quotes again to see if your current insurer is still the best deal. You won’t know if you could find lower rates or get a better deal if you don’t get new quotes.

Choose a reputable company

When choosing an auto insurance company, it is important to select a reputable and reliable provider. While price is a key consideration, it should not be the only deciding factor. Here are some things to keep in mind when choosing a reputable company:

• Financial Stability: Opt for an insurance company with strong financial stability and a good track record. You can refer to ratings from companies like J.D. Power, or check reports from independent rating agencies such as A.M. Best, Fitch, Moody's, and Standard & Poor's. These agencies evaluate the financial health of insurance companies, ensuring they can fulfil their claims.
• Customer Service: Choose a company with a reputation for excellent customer service. This includes responsiveness, attentiveness, and a fast claims process. You can refer to reviews and testimonials from current and former customers to gauge their level of satisfaction with the company's service.
• Licensing and Compliance: Ensure that the company is licensed to operate in your state or region. Complying with local regulations is crucial, as it ensures the company is held to certain standards and provides you with recourse if issues arise.
• Transparency: Look for a company that is transparent about its policies, coverage limits, exclusions, and claims process. Read the fine print and understand the terms and conditions before making a decision.
• Additional Services: Consider the additional services and benefits offered by the company. Some providers may offer roadside assistance, rental car reimbursement, or other perks that could be valuable to you.
• Discounts: Inquire about potential discounts. Many insurance companies offer reduced rates for students, safe drivers, low mileage, or the inclusion of safety features in your vehicle. Bundling your auto insurance with other types of insurance, such as home or renters insurance, may also result in cost savings.

Remember, selecting a reputable and reliable auto insurance company is crucial to ensuring you receive the coverage and support you need in the event of an accident or incident. Taking the time to research and compare different providers will help you make an informed decision.

Ask about discounts

Discounts are a great way to save money on your auto insurance policy. While insurance companies will often apply discounts based on the information you give them, it's always worth asking about what other discounts are available to you.

Multi-Policy Discounts

Also known as "bundling", this is when you buy multiple types of insurance policies from the same company. This could include bundling your auto insurance with your home insurance, renters insurance, or another type of insurance. This is often one of the biggest discounts you can get, with savings of up to 25% off your premium.

Vehicle Safety Discounts

If your car has safety features such as anti-lock brakes, airbags, or daytime running lights, you may be eligible for a discount. Airbag discounts can be as much as 40% applied to your medical payments or personal injury protection coverage.

Anti-Theft Device Discounts

If your car has anti-theft features such as a GPS-based system, a stolen vehicle recovery system, or VIN etching, you can typically get a discount of up to 25% off your comprehensive coverage.

Good Driver Discounts

Insurance companies often reward safe drivers with savings. For example, Geico offers up to 26% in potential savings if you haven't had any accidents in five years. Good driver discounts can range from 10% to 40% off your premium.

Defensive Driver Discounts

Some insurance companies offer discounts to drivers who take an approved defensive driving course. This discount may only apply to qualified drivers of a certain age, typically 50 or older. Defensive driver discounts typically range between 5% to 10%.

Good Student Discount

If you or your student driver is enrolled full-time in high school or college and maintains good grades (usually a B average or above), you could qualify for a discount. Good student discounts can range from 8% to 25% off your premium.

Student Away at School Discount

If your student is away at school and doesn't have regular access to your car, you may be able to get a discount. The student is usually required to be under 25 years old and more than 100 miles from home.

Pay-in-Full Discount

If you pay your full policy term upfront, insurance companies typically offer a discount of 6% to 14% off your premium.

Electronic Funds Transfer (EFT) Discount

If you pay in installments using automatic withdrawals from your bank account, you may be able to get a small discount of around 3% to 6% off your premium.

Paperless Discount

Insurance companies may offer a small discount of around 3% off your premium if you opt for paperless billing and receive all policy documents electronically.

Online Quote Discount

Some insurance companies offer a discount of 4% to 12% if you get an online quote and sign up for a policy through their website.

Advance Quote Discount

Shopping around and buying a policy in advance of your current policy expiring can bring about a discount. A discount of 2% to 15% is typically offered if you purchase a new policy around 7 to 14 days before your current one expires.

Occupational Discounts

Depending on your occupation, you may qualify for discounts. For example, Liberty Mutual offers special policy features for educators, and Geico offers up to 15% off for military personnel.

Alumni Associations and Professional Organizations

You may be able to get a discount if you are a member of certain organizations, such as college alumni associations, fraternities, sororities, or professional organizations like your state's bar association.

Low-Mileage Discounts

If you drive fewer miles per year than the national average of 13,500, you may be eligible for a low-mileage discount. Insurers may offer a rate tailored to your driving habits, which can be tracked through an app or other device installed in your car.

Frequently asked questions