Car insurance in the USA gives you tons of options and varying state requirements. While we would all like to have the best coverage possible with our insurer paying for any accident we may incur, not all policies are suited to all policyholders. To help you clear up the confusion and better understand which type of coverage is best, here’s the ultimate guide to car insurance. We’re taking you through the five basic types of auto insurance while also looking at which factors affect your rates. Be sure to check out our glossary if there are any terms you are uncertain about.
The 5 Basic Types of Coverage
Liability coverage gives you protection for bodily injury or property damage where the insured driver is the responsible party. There are two basic types of liability insurance. Property damage liability coverage handles scratch-and-dent repairs like dented fenders and dented doors. Bodily injury liability coverage handles the costs incurred from accidents involving people. Physiotherapy charges, counseling, and doctor’s visits all fall under bodily injury liability insurance. Almost every state requires drivers to have liability insurance, protecting a driver against all damages or injuries when they’re responsible.
Comprehensive coverage gives you insurance which will cover the repair or replacement of a vehicle which has been damaged by any other occurrence other than a vehicle accident. This is the insurance which covers you against hail damage, a falling tree, a deer struck in the road, and other things such as vandalism, theft, and riots. Medicals bills and damage to other cars are not covered by comprehensive coverage, nor is the damage incurred when running into a fixed object. This form of insurance is optional if you have purchased your vehicle outright but it often comes as a condition of a motor vehicle loan or lease agreement.
Collision coverage is the insurance that picks up everything that was left by comprehensive coverage. This coverage sorts out all the repair costs when you hit another object regardless of whether it was stationary or not. You’re also insured in any vehicle that you drive, not only your own car. The only damage which isn’t covered is damage from hail and damage incurred from striking an animal. Certain states provide collision coverage which even pays for any repairs needed to rental cars. Damages and repairs from hit-and-run accidents are covered, and any time that you’re in an accident where the other party’s liability insurance doesn’t cover the repairs, your collision coverage will. A deductible is charged each time that you need to repair your vehicle. A collision policy’s limit is relative to the value of your car with this limit setting the deductible.
Collision coverage is therefore not always worthwhile for older cars as the deductible may be so large relative to the cover that it offers poor value. New cars with a higher policy limit and high repair costs find far better value from collision coverage. Financed or leased cars often come with mandatory collision coverage.
Personal Injury Protection
Personal injury protection supplies cover for the driver and the passengers in the car regardless of whose fault the accident is. This coverage pays for medical bills incurred, rehab, childcare while recuperation, and can even cover you as a pedestrian. Most forms of personal injury protection cover funeral costs as well.
Medical Payments Coverage
Medical payments coverage is optional insurance for you and any of your passengers. It covers family members even if they’re in another car involved in an accident. As long as the policy members (family members) are in a vehicle and in need of medical care, medical payments coverage will handle the bills. It also pays for your healthcare if you’re involved in an accident while cycling and while a pedestrian. When you opt for medical payments coverage you have no deductibles or co-payments liable. It becomes active after your health insurance. For example, if your health insurance only covered $100,000 for the year but the medical bills tallied $125,000, then your medical payments coverage pays the $25,000 surplus.
Uninsured Motorist Protection
State law may declare that motor insurance is mandatory but you still find lots of drivers without any form of coverage. Uninsured motorist protection covers the repair costs and medical bills incurred when you are involved in an accident with someone without insurance. Certain states have implemented this form of insurance as mandatory so be sure to check. It’ll cover a driver who doesn’t have enough insurance as well, while also handling hit-and-run accident costs, death expenses, and any type of injury. Uninsured motorist coverage is highly recommended in states where minimum insurance requirements are low.
Do I Need Car Insurance?
In short, yes. Some level of car insurance is required in almost every state by law. Penalties for not having car insurance range from fines, up to license suspension and vehicle impoundment in some states.
When one looks at studies between 2008 and 2017, it becomes clear that liability insurance and either comprehensive or collision coverage is needed. Claim frequencies have remained stable at least one per year per policyholder. This shows that every vehicle owner carrying insurance will inadvertently end up needing to make one moderate-sized claim once a year. Claim severity proves to be medium, falling halfway between the scale but this still results in a significant unexpected expenditure for those who remain uninsured.
The Most Common Accidents in the US
The majority of vehicle accidents can be attributed to human error rather than a combination of external factors. The most common type of car accident on average is nose to tail collisions. These occur due to factors ranging from impatience to distraction, tailgating, and poor driving practices. Given that this is the most frequently occurring accident, with collisions with stationary objects coming in second, proper insurance is essential. If you want to cover the accidents which have the highest chance of occurring, also being events where you are responsible for the incident itself, you need collision coverage and liability insurance.
Average Cost of Car Insurance
When shopping around for car insurance, always keep in mind state averages. The AAA’s 2018 Your Driving Costs study determined the average cost for owning a vehicle in the USA. A 2018 model car costs approximately $8,849 to own and operate per year, but that includes the running cost of your vehicle. The average cost of auto insurance equates to $1,426 per year or $118.63 per month. Yet this is a very broad average. In certain states with the right risk profile and insurer, you could get away with as little as $560. Yet with a high-end high-cost vehicle and the wrong combination of scoring factors, your insurance could cost as much as $36,900 per year.
Factors Affecting the Cost of Car Insurance
Every car insurance provider will use their own algorithm to score any particular applicant according to his or her risk profile. While this information is proprietary to each insurer, there are common rating factors which companies look for. The main rating factors affecting how much you pay for your car insurance are:
Geographical Location – Insurance companies include your location in their calculations. Your zip code reveals the rate of vehicle theft & vandalism in your area, weather concerns, and the number of claims.
Age – Your age is a prime determining factor of your risk. The Insurance Institute for Highway Safety determined that drivers between the ages of 30 and 69 are less likely to have an accident. Between these ages, premiums are fairly flat (as long as you keep a clean record). Elderly drivers can expect a hike to the price of their premiums thanks to their slower reflexes and the risk of being injured or killed in an auto accident rising. The only states which don’t rate on age are California, Hawaii, and Massachusetts.
Gender – Crash statistics vary between men and women, making gender a prime rating factor. There are no fixed distinctions granting higher rates to either gender. Not all states allow gender-based rating. Hawaii, Massachusetts, Michigan, Montana, North Carolina, and Pennsylvania do not allow gender to affect insurance scoring.
Marital Status – Married couples are statically less likely to be involved in an accident. Your car insurance rates can change as much as 15% due to being married. Married couples also receive extensive discounts for combining their policies. The only state which doesn’t factor in your marital status is Massachusetts.
Driving Experience – Your driving experience makes a big difference to your insurance rates. The more years you have driving the better but a long-running clean driving record is still the biggest factor towards getting great discounts. Some insurance providers also offer discounts for completing drivers education courses.
Driving Record – Accidents, moving violations, speeding tickets, DUIs and all violations minor affect your rate. Something as straight-forward as a speeding ticket on your driving record can cause your rates to jump up between 20 to 40%.
Claims Record – Car insurance companies will gather reports on claims made with pre-existing insurers. Your frequency of claiming, at-fault claims, and not-at-fault collisions are all factored in.
Credit History – A lower credit score has proven to indicate more claims filed, inflated claims, and even more cases of insurance fraud. Most insurers use your credit score to help determine the cost of your policy. The only three states that prohibit the use of credit scores being factored into your insurance risk score are California, Hawaii, and Massachusetts.
Previous Coverage History – Insurers check records to see what insurance you’ve held previously and for what reasons (if any) your policies lapsed. If you kept continual coverage with an insurer at some point for a few years, you’ll most likely get a loyalty discount on your policy. However, if you lapse for even a day you can expect higher rates.
Vehicle Type – The type of car makes a big difference to your insurance rates. Other than the purchase price, theft rate, repair costs, accident rates, safety statistics and more are all factored in relative to which car you are driving when being insured. Vehicles with safety features often warrant a discount on your policy.
Use of Car – The reason that you’re driving your vehicle also changes your rates. Personal use primarily rewards you with a lower premium while business use and ridesharing all cost more due to the higher risk.
Annual Mileage – The less distance driven in a year, the lower your rates. The risk of an accident is naturally much lower if you drive less.
Must-Know Auto-Insurance Terms
Here’s a handy look at some of the most frequently used terms in car insurance. Without understanding the basic jargon and frame of reference for certain terminology, you could easily misinterpret your insurance coverage.
Combined Single Limit – The combined single limit is the total limit set for liability payments for property damage insurance and bodily injury cover.
Co-payment – A co-payment is similar to a deductible. It is a fixed amount which needs to be paid for a service before the service is received and the remainder of the payment paid by the insurer. Insurance policies typically refer to co-payments when referring to the amount due for medical services.
Deductible – The deductible is the amount that you have to pay for covered losses before your insurance company will release payment for a claim. You can pick your deductible with a higher deductible saving you money on your premium but requiring you to fork over a considerable sum before any repairs or injuries are paid.
Endorsement – An endorsement is a written agreement which either adds or detracts coverage from a pre-existing policy.
Extended Coverage – Any endorsement added to a poly or clause supplying addition coverage is referred to as extended coverage.
Free Look Period – The free look period refers to the duration wherein an insurer can cancel their policy. Most car insurance comes with a 30-day free look period.
Full Coverage – The term ‘full coverage’ is used loosely to refer to having comprehensive coverage and collision cover. At times liability insurance is also implied. Misunderstanding this term and accepting that full coverage implies that your insurance pays for everything all the time leads many individuals to be hugely underinsured.
Grace Period – Certain auto insurers allow a grace period which allows a deductible, co-payment or premium to be paid after the due date.
Premium – The premium refers to the payment needed for an insurance policy to remain in effect. Most car insurance premiums are quoted at either annual or six-month policy periods.
Primary Driver – The term primary driver refers to the main insured driver of any given policy. Most insurers advise that you make every driving-age member of your household a primary driver of your policy
Surcharge – A surcharge is a fee that you will be liable to pay as an increase to your car insurance premium due to an accident which is your fault or a moving violation
The Value of Comparing Car Insurance Providers
Average insurance costs give an extremely broad variance and are not an accurate measure of what it will cost have yourself covered. When you factor in the countless criteria which large insurers use to determine your rate, every quote is truly individual, and it’s important to compare quotes to make sure you get the best rates for you.
The Zebra searches over 200 companies to find the best match. They even have a team of independent agents to answer your questions. Backed with the enriched data of over 50 million auto insurance quotes making up the backend of a powerful quote engine, the best value is guaranteed.