Auto Insurance Cost Guide
You’ve finally purchased a new car, but before you can get on the road you first have to insure it. Not all kinds of insurance are legally required (you can own a house without homeowners insurance, though most mortgage lenders require it). However, when you purchase a vehicle, auto insurance is a legal requirement in most states in the U.S.
According to Driving-Tests.org, on average there are 6 million car accidents in the U.S. every year, and that number is on the rise. This may not seem like a large number, but we’ve all seen an accident before, whether it’s a minor bump or a major accident, and the likelihood of it happening to you is pretty high.
As much as we’d like to think all of us are great drivers, accidents happen, and when they do insurance is what keeps our finances safe and sound. Whether an auto collision is your fault or somebody else's, your auto insurance coverage is there to protect you.
What is Auto Insurance?
Simply put, auto insurance is going to be your financial safety net when an accident happens, regardless of whose fault it was. Auto insurance covers you, your car, and others involved in a vehicular accident.
The way it works is you pay a premium based on the coverage you’d like. When something happens that is covered by the insurance, the insurance company will pay for car repairs, hospital costs, etc., based on your contract.
The 3 basic things that auto insurance covers:
Property – Such as damage to or theft of your car.
Liability – Your legal responsibility to others for bodily injury or property damage.
Medical – The cost of treating injuries, rehabilitation, and sometimes lost wages and funeral expenses. This is a big one because if you’re held liable for an accident, the financial costs can be very high if you don’t have the appropriate coverage.
Types of Auto Insurance Coverage
Generally, auto insurance policies include several different types of coverage, all of which are priced differently. Here are some common auto insurance coverage options:
- Liability Coverage
There are two types of liability coverage:
1. Bodily injury liability. This form of coverage protects you from:
This coverage also pays for the legal and court costs to defend you in a covered lawsuit. This form of coverage is mandatory in most states.
Medical bills, lost wages or income, pain and suffering, and even funeral expenses for those injured in an accident where you were legally responsible for the other party’s injuries.
2. Property damage liability. If you are guilty of causing an accident, you are held responsible for repairs to the other person’s vehicle or property. Property damage coverage will cover:
- Costs to repair the other person’s car.
- Repair costs of anything you hit with your vehicle, such as a street light, barrier, landscape, or structure. This type of coverage is required in most states.
The typical yearly rate of general liability insurance is $741.
- Collision Coverage
This type of auto insurance coverage pays for damage to your car as the result of a collision with another vehicle. Even if you are at fault for causing an accident, this type of coverage will reimburse you for the cost of fixing your car once you have paid the out-of-pocket deductible amount. If you are not at fault, your insurance company can seek reimbursement from the other driver to cover the cost of repairs to your vehicle. Collision coverage is voluntary in most states, but if your vehicle is financed, your bank or other lien holder will probably require you to have this coverage.
- Having collision coverage means that even if your car is worth less than the cost to repair it (this is what it means when someone says the car is “totalled”), the insurance company will at least pay out the current market value of the car.
- The average cost for collision coverage is $596 per year.
- Comprehensive Coverage.
This coverage protects you for losses due to hazards not caused by a collision with another vehicle. Think robbery, vandalism, fire, falling objects, earthquakes and storms, or contact with animals, such as a bear. Comprehensive coverage is optional in all states. Though, like collision coverage, if your automobile is financed, your bank or lending institution might require you to have it.
The average cost for comprehensive coverage is $200/year.
- Uninsured and underinsured motorist coverage.
As much as we’d like to think everyone on the road has auto insurance, this isn’t always the case. Uninsured motorist coverage safeguards you if you're in an accident with:
- A driver who doesn't carry liability insurance.
- Whose liability limits are too low to cover the damage or medical expenses.
- The cost for Uninsured/Underinsured Motorist coverage ranges from $20-$270/year.
The REAL question - how much do I have to pay?
The answer to this question is exactly what you’d expect: “it depends.” There are a lot of factors that go into the cost of your auto insurance. The four main factors that directly affect the cost of your auto insurance are:
1. The policy/coverage you choose
Your cost will reflect the variation/coverage you choose to have.
The more extensive and specific coverage you choose, the higher the risk the insurance company has to take to insure you, and the higher the cost will be.
2. The vehicle you are insuring
Now, obviously, if you’re insuring a 2009 Toyota Camry the cost will be much lower than insuring a brand new 2019 Mercedes Benz, due to the cost of the vehicle itself and how much the insurance company will have to pay if there is an accident.
3. Your driving record (claims history/insurance history)
Most people don’t know this, but this is a big point that insurance companies consider. How many insurance claims do you have on your record? This lets the insurance company know how risky it will be to insure you and they will charge the premium accordingly. This factor can improve over time.
4. Who you are (age, marital status, and more)
This is one of the biggest factors that relates to cost. Your age will impact your premium, especially if you are young or in your twilight years. Although this isn’t something you can change, it’s something that’s good to know. Your premiums can often be revisited every renewal period if you maintain a record of safe driving.
Statistics from the Insurance Institute for Highway Safety (IIHS) show that the fatal crash rate for teen drivers is three times that of drivers over the age of 20.
On the other end of the spectrum, older drivers tend to be involved in more accidents. CDC stats show that fatal crash rates increase around age 75 and skyrocket at age 80.
To give you an example, the cost to insure a 25 year old single male who lives in Houston, Texas, would be $65/month for collision and comprehensive coverage, with a $1,000 deductible for each. This cost may vary depending on which insurance company you choose, but it’s a strong average to help get an idea. Remember that every variable (age, gender, location, level of coverage, type of car, and driving record) will impact the final cost, and your premium will be uniquely tailored to fit your circumstances. That’s why it’s important to shop different companies to make sure that you get the best deal for your needs and situation.
How to get Auto Insurance
Most experts will tell you to shop online before making a final decision. Now, with the internet, you can quickly get quotes from a variety of different companies to see which will be the best for you financially and in terms of coverage.
1. First you’ll want to gather some basic information.
- What does your state require?
- What level and type of coverage do you want/need for your vehicle?
2. Go online and get a quote!
Simply fill out a quote form and get your auto insurance quote. The more information you provide to the insurance company, the more accurate the quote will be.
Currently the top 3 auto insurance companies are State Farm, Geico, and Progressive. But remember, just because they are the “top” companies, doesn’t mean they are right for you. Do some more exploring and do your homework before you choose.
3. Another thing to note is that, after the underwriting process, your final premium might be different from the initial quote. Underwriting is when the insurance company takes into account all the risk factors and makes a final decision on the contract.
4. Select the one that’s best for you.
Once you have the different quotes, you can compare them to see the costs and coverage for what suits your needs/requirements.
5. Drive happily insured!
The Bottom Line
Having sufficient and solid auto insurance is a significant part of owning a vehicle. After an accident, the last thing you want to worry about is single-handedly financing repairs or medical bills for yourself and/or the other people involved. Be a savvy purchaser, do your research, look at different auto insurance companies, and make a choice that suits both your protection needs and fits your budget.
Frequent Asked Questions
- What is a premium vs. deductible?
A deductible is the amount you’ll pay out of your pocket for a claim before your insurance coverage kicks in.
A premium is what you pay monthly to keep the insurance policy active. The deductible you choose to pay will directly affect your monthly premium.
- How do I get a discount?
There are lots of discounts available from different companies. Some examples are those for a good academic record, a clean driving record, and a high credit score. Be sure to talk to your insurance agent about it.
- Will auto insurance companies deny claims?
Companies can deny claims if you:
Document a false case overstating or creating a mishap or misfortune
File a claim that isn’t covered in your policy
If you significantly modify the vehicle without informing the insurance (think, adding a spoiler or a lift kit)
If you miss a premium payment
A few states let insurance organizations deny claims for a variety of other reasons, too, so it would be wise to understand the fine print in your contract.
Typical general liability insurance average is $741/year