- How to Choose What Auto Insurance Coverage Levels You Need | Reviews.com
- State Minimum Auto Insurance Requirements
- States with the lowest minimum coverage levels
- Do You Need More than the Minimum Coverage?
- How Much Bodily Injury Liability Coverage Should You Have?
- How Much Property Damage Liability Coverage Should You Have?
- Do You Need Personal Injury Protection (PIP)?
- Do You Need Medical Payments Coverage (aka MedPay)?
- Do you need comprehensive and collision coverage?
- Do You Need Uninsured/Underinsured Motorist Coverage (UM/UIM)?
- Do You Need Umbrella Liability Insurance?
- What’s Next?
- How to Find Insurance for a New Car
- The average cost of car insurance for a new vehicle
- AVERAGE CAR INSURANCE RATES FOR A NEW CAR
- Car insurance coverage for a new vehicle
- Must-have: collision coverage
- Must-have: comprehensive coverage
- Must-have: uninsured motorist coverage — bodily injury and property damage
- Should-have: gap insurance
- Consider: new car replacement
- Auto insurance for your first car: what you should know
- What you'll need to get a quote
- How to transfer insurance to a new car
- How to get car insurance for a second vehicle
- How to save on insurance for a new car
- Use your insurance coverage sparingly
- Choose the right insurance coverage
- Double-check for discounts
- Compare rates
- Compare car insurance quotes for free today
- Buying Car Insurance for Your New Car
- How to get auto insurance for a new car
- Insurance grace period when buying a new car
- How much does new car insurance cost?
- What insurance do you need when buying a new car?
- New-car replacement and gap insurance
How to Choose What Auto Insurance Coverage Levels You Need | Reviews.com
Choosing the right auto insurance coverage levels is important not only to keep you legal on the road, but to keep your personal assets protected in the event of an accident. This guide will help you balance cost with coverage.
First, it’s important to understand three of the key components of an auto insurance policy:
- (BI) Bodily Injury Liability Per Person: Coverage limit, per person, for the expenses, medical bills and lost wages, due to injuries you cause to others in an accident.
- (BI) Bodily Injury Liability Per Accident: Coverage limit for the expenses due to injuries you cause to others, in total for the accident.
- (PD) Property Damage Liability Per Accident: Coverage limit for damages you cause to other people’s property in an accident, which could include cars, fences, etc.
When you compare coverages, policies will often be written this: 25/50/25.
Which means your liability coverage is:
State Minimum Auto Insurance Requirements
Every state determines its own laws regarding what types of coverage it requires its drivers to hold, and what level it requires of each. No matter how much insurance you decide is appropriate for your circumstances, it’s important to make sure you meet at least the minimum requirements for your state where your car is registered.
States with the lowest minimum coverage levels
New Hampshire and Virginia do not require car insurance coverage.
Do You Need More than the Minimum Coverage?
When it comes to car insurance, you’re paying for protection, so don’t assume the minimum coverage required by law is the same thing as the level of coverage to feel adequately protected.
Think about it this way: If you get into an accident, you’re not going to be asking if you have the state’s legally required minimum coverage. You’re going to want to know whether you will have to pay pocket for the damage you unintentionally caused.
In many cases, state minimum coverage simply isn’t enough.
Overall, as you choose your coverage levels in each category, it is important to cover all of the financial assets you have that would be at risk from a large insurance claim by protecting your net worth. You may also want to consider whether you want to extra coverage in case an accident extends to a civil lawsuit.
How Much Bodily Injury Liability Coverage Should You Have?
Injuries caused by accidents have a wide range of potential costs.
In a fender bender, there could be little to no expense, while a more serious accident could result in a claim demanding hundreds of thousands of dollars for someone a surgeon or other highly paid professional who suffered an injury that put them work. This is why it’s helpful to reframe the question of how much coverage to get as a question of how much you personally have to protect.
Arriving at a number for this coverage involves tallying up the financial assets you currently have, such as a house, car, savings accounts, and (in some cases) retirement savings.
And if you don’t have many assets yet, but are at the beginning of a lucrative career path, it may make sense to consider the earning potential you’d to protect in case you are involved in a serious accident where wage garnishment could be possible.
The good news is, if you’re looking for higher bodily injury liability coverage, you can typically increase your limits significantly without paying too much more in your premiums.
How Much Property Damage Liability Coverage Should You Have?
Depending on the vehicles (or other property) involved, property damage resulting from an accident can vary widely, but the potential for a catastrophic loss is smaller than it is for bodily injury.
For example, luxury cars may be worth more than typical minimum property damage limits, but even a fancy car can’t sue for lost wages or pain and suffering. In this category, you’ll want to make sure you’re comfortable with your level of product liability coverage for both your assets and your circumstances.
Do you mainly drive in a smaller, rural town where older vehicles are more commonplace? Or do you commute regularly in a city or affluent suburb, surrounded by newer BMWs and other luxury vehicles?
Do You Need Personal Injury Protection (PIP)?
It mostly depends where you live.
Personal injury protection, or PIP, is mainly used, and required, in “no-fault” states, although it may be possible to get protection in other states.
In these states, your own insurance will pay for your injuries up to your PIP limit, and then you may be able to sue the other party if you meet a certain threshold.
This type of coverage will pay for your medical costs and those of your passengers as well as lost income related to the accident, regardless of whose fault it was.
Even if you don’t live in a state where this coverage is a requirement, this could be useful protection if you don’t have great health insurance to rely on, which would normally cover many of the same costs.
Do You Need Medical Payments Coverage (aka MedPay)?
It depends mostly on your other insurance coverages.
MedPay is coverage that specifically covers any medical expenses you and your passengers have after an accident, regardless of whose fault the accident was.
This is useful because it is coverage that kicks in right away while your insurance companies work things out, and usually has a lower limit around $1,000 to $5,000.
It can help pay for health insurance deductibles and even your PIP co-pay. Un PIP, however, MedPay will not cover the replacement of any lost wages.
It is possible that your health insurance may not cover costs related to a car accident, and in that case MedPay would be very valuable protection. Even if your insurance will kick in, MedPay may also be worthwhile if you have a relatively high deductible.
Do you need comprehensive and collision coverage?
It mainly depends on the value of your car.
Comprehensive and collision coverage are coverages that protect the value of your own car.
- Collision coverage will pay to repair or replace your car if you are at fault in an accident.
- Comprehensive coverage will pay to repair or replace your car if it is damaged outside of an accident or stolen.
If you lease or finance your car, you’re most ly going to be required to hold these coverages.
If you own your car outright, it’s up to you whether you want to add these protections and this will depend on the value of your car, the cost of coverage, and your comfort level taking the chance of paying pocket for these expenses, or having no coverage in the event of certain types of accidents or damage to your vehicle. According to III analysis of NAIC data, 77% of consumers purchased comprehensive and 73% purchased collision coverage in 2016.
Industry experts have their own rules of thumb for this decision:
“When 6 months of collision coverage exceeds 25 percent of the vehicle’s value, it’s no longer worth it because two years of collision coverage would cost more than replacing the car.”
Chane Steiner, CEO of Crediful
“A general rule of thumb is your vehicle needs to be older than 10 years or worth less than $4,000 to drop comprehensive or collision.”
Ava Lynch, Resident property insurance expert for The Zebra
Adding this type of coverage is usually costly, and in some cases could even double your premium. But as with any insurance, for those who end up needing it, it is money well spent.
Do You Need Uninsured/Underinsured Motorist Coverage (UM/UIM)?
We highly recommend it.
Nearly every insurance expert we consulted stressed the importance of this protection for people in all situations.
Not only does this coverage protect you if the driver at fault in an accident doesn’t have enough insurance to cover your expenses, but it can also provide coverage after a hit-and-run.
Personal injury attorney Gabriel Levin describes UM/UIM this way: ”It insures that you get properly compensated for your harm regardless of the amount of insurance the defendant has.”
“The one tip I would give consumers when deciding coverage limits is to make sure their UIM/UM limits, at a minimum, match the coverage limits they have purchased for their liability insurance. It insures that you get properly compensated for your harm regardless of the amount of insurance the defendant has.”
Gabriel Levin, Attorney, The Levin Firm
Do You Need Umbrella Liability Insurance?
If you have a large net worth, probably.
Umbrella liability insurance is not coverage that is specific to auto insurance, instead it’s a separate insurance policy that sits on top of your other coverages (home and auto) and protects your assets from claims above those policy limits. Because policies are usually issued in million-dollar increments, this coverage is typically appropriate for people with substantial assets to protect or with a higher risk of attracting a lawsuit, owning a pool or being a landlord.
“[S]ince these policies don’t begin to pay out until after the liability limits of the related homeowners or automobile policy are exhausted, the rates for umbrella policies are generally quite reasonable.”
Timothy G. Wiedman, Personal Finance Professor, Retired, Doane University
Keep in mind that although rates for umbrella insurance are typically low, you may be required to increase your liability coverage on your auto insurance policy in order for the umbrella coverage to apply, which will add to the cost.
- Ready to find a quote for your car insurance? Check out our reviews of the The Best Car Insurance Companies.
- Ready to buy your auto insurance? Find out everything you need to know with our choose your coverage levels.
- Still have questions about coverage, the buying process, or getting quotes? We probably have the answer to your question in our Auto Insurance FAQ.
How to Find Insurance for a New Car
Car insurance is the least exciting aspect of buying a new vehicle. But if you just spent a fair amount on your new vehicle, you want to make sure it’s properly protected. Whether it’s brand new or new to you, let’s outline the best ways to get and save on auto insurance.
The average cost of car insurance for a new vehicle
Using a methodology outlined here, we learned the average insurance cost of a new vehicle was $913 per six-month policy — 22% more expensive than insuring a five-year-old used car. On average, the cost of auto insurance drops by about 3.4% with each additional year your vehicle ages.
AVERAGE CAR INSURANCE RATES FOR A NEW CAR
Because car insurance is so specific, you need to find a quote specific to you. Enter your ZIP code below to compare quotes from popular auto insurance companies across the nation.
Car insurance coverage for a new vehicle
Given its relatively high value, a new vehicle warrants special insurance considerations. Below are some coverages you absolutely must have, should have, and might consider for your car insurance policy.
Must-have: collision coverage
If you're leasing or financing your vehicle, you must include collision coverage. It protects your vehicle if you collide with another car or a fixed object.
Must-have: comprehensive coverage
your collision coverage, comprehensive insurance is required if you’re leasing or financing a vehicle. It protects your vehicle from damage that occurs outside of a collision claim — weather, vandalism and theft, for example.
Must-have: uninsured motorist coverage — bodily injury and property damage
Depending on your state, uninsured motorist coverage is required by state law. If it's not, this coverage is highly recommended. Your uninsured motorist bodily injury coverage will cover your medical expenses in a not-at-fault accident. Your uninsured property damage coverage will cover your new car if it’s hit by a driver without insurance — for instance, a hit-and-run.
Should-have: gap insurance
Gap insurance is offered by many insurance companies or through car dealerships. Gap coverage accounts for the difference between the value of the vehicle and the value of the vehicle after depreciation.
Consider: new car replacement
The specifics of this coverage vary by insurance company. It covers the value of a new replacement vehicle if your car is totaled in a covered claim. If you’re dead set on driving a new vehicle, consider the price of this coverage with your provider.
Auto insurance for your first car: what you should know
If your new vehicle is new to you, we have some additional tips you should consider. If you buy your car from a dealership, they’ll most ly require you to show proof of insurance prior to driving the vehicle off the lot.
This is especially true if you lease or finance the vehicle. Understanding what you’ll need to get insurance quickly is imperative if you don’t want to spend your entire day at the dealership (who does?).
Let’s outline some simple tips to get you in the driver's seat and road-legal as soon as possible.
What you'll need to get a quote
In order to get the more accurate car insurance quote, you’ll need the following:
- Date of birth of all drivers using the vehicle
- Driver’s license numbers of all drivers using the vehicle
- Garaging address of the vehicle (most ly your home address)
- Insurance history of drivers using the vehicle
- Driving history of drivers using the vehicle
- Vehicle Identification Number (VIN) — this tells the insurer the vehicle’s vital information, including make and model
Helpful auto insurance hint:
Once you find the vehicle you want, you can get a car insurance quote prior to purchasing the vehicle by using the VIN. Many dealerships list the VIN on their website, allowing you to get an accurate estimate of your car insurance quote. Most insurance companies will then give you a quote number to retrieve the saved auto insurance quote.
Once you activate the auto insurance policy, your new insurance company will send you or the dealership your proof of insurance and you’ll be able to drive off the lot.
How to transfer insurance to a new car
There’s potential for confusion when insuring a newly purchased car, but unless your driving situation changes dramatically it’s unly you will need to purchase an entirely new policy right away.
As long as your previous policy is in place when you drive off the lot, your new car purchase should be covered. Your previous policy will usually extend to the new vehicle for a short amount of time — known as a grace period — until you can have it added to the policy. It’s best to make sure that your company offers such a grace period beforehand.
The amount of time insurance companies allow before requiring a new car to be formally added to the policy varies, usually ranging from one week to 30 days. It's important to notify your insurance company or insurance agent as soon as possible to transfer your insurance to your new car.
During this time, your new vehicle will be insured up to the same limits for auto insurance coverage as your old one. If your old car only had minimum liability coverage, that would apply to the new vehicle. If you want full coverage, you would need to add it when you transferred the new car to your insurance policy.
The process of transferring insurance coverage to a new car is fairly straightforward and often only takes a single call to your insurer.
You’ll need to provide certain details about the vehicle, but your coverage should be implemented the same day. Bear in mind that transferring insurance to a new car can cause your rates to change.
For example, if you switch from a minivan to a sports car, you should expect an insurance rate increase.
How to get car insurance for a second vehicle
While the process of insuring your first vehicle and your second is largely the same, having an established policy does give you some leeway in terms of when you can add your second car.
Depending on your policy, you could have a grace period of anywhere between seven and 30 days to list your additional vehicle on your policy.
If this is a feature of your insurance policy, the coverage you carry on your other vehicles would extend to the new vehicle for a predetermined amount of time.
The only caveat here is if the dealership requires you to add the coverage immediately. If this is the case, you should follow the steps listed above for getting a quote.
How to save on insurance for a new car
After the sum cost of the vehicle, your car insurance is the second most expensive part of owning a vehicle. Let’s explore ways to save on car insurance.
Use your insurance coverage sparingly
If you don’t know much about car insurance, you might be more inclined to use it if you damage your vehicle, rather than just covering the cost yourself. Unfortunately, car insurance companies may financially penalize you if you file a claim, no matter if it’s your collision or liability coverage.*
Prior to filing an insurance claim, follow these steps:
- Get an estimate for the repairs at a local mechanic.
- Use our State of Insurance analysis to see how much an at-fault accident (what this would be considered as) would raise your premium in your state. Consider this increase each year for three years, as that’s how long most insurance companies would charge you. Include your collision deductible in this, if it applies.
- Choose the cheapest long-term option.
- Let’s look at this from a specific example. You back your vehicle into a pole, causing $1,500 worth of damage. This type of accident — with the amount of damage ranging between $1,000-$2,000 — would fall under a collision at-fault claim, which raised premiums by $686 per year in 2019. If we factor this rate increase over three years, that will equate to $2,058 in extra premium.
If you file a claim, you’re required to pay your collision deductible prior to receiving coverage. If you factor in a $500 deductible, this claim will cost you over $2,500 versus the $1,500 out-of-pocket one-time expense. In this case, it makes sense to not involve your insurance company.
Bear in mind, this does not take into consideration not-at-fault accidents such as comprehensive and uninsured motorist claims.
Comprehensive claims, because they happen outside the control of the driver, are often rated on your car insurance premium as a not-at-fault accident.
If, however, your insurance company rates your not-at-fault accidents as at-fault accidents, consider it as a good opportunity to explore other insurance options.
This solution only applies to instances pertaining to your vehicle. If the other party involved in an at-fault accident wants to go through your insurance company, which is common, you don't have a choice.
Choose the right insurance coverage
If your vehicle really is “new,” you do not have a lot of wiggle room in terms of what coverage you can have.
Most of the time, if you have a lease or loan on the vehicle, having “full coverage” is a requirement of your lender agreement.
By full coverage, we’re referring to comprehensive and collision insurance — physical coverages that aren’t required by law and only protect your own vehicle.
So, if your vehicle is paid off and an older model, you might not need this additional coverage. A general rule of thumb in the world of insurance is if your vehicle is worth less than $4,000, you probably don’t need physical coverage. You can determine the value of your vehicle by using Kelley Blue Book or NADA guide online.
If, however, your vehicle is worth more than $4,000 but you still want to save, consider increasing your deductible. If you raise your deductible on your collision or comprehensive coverage, you lower your premium.
Another benefit of this is it decreases your incentive to use your deductible rather than pay out-of-pocket. As we learned from the section above, using your collision coverage can have long-lasting effects on your insurance. By decreasing the dollar value of what you would receive in compensation, there is less of an incentive to file a claim.
Double-check for discounts
While most of these discounts are small (3-5% in savings), grouped together they can add up to make your premium more affordable.
Learn more about popular car insurance discounts.
After it’s all said and done, you might just be paying too much because your current car insurance company is too expensive. Your best bet is looking at as many car insurance companies as possible to see if you could get a better rate elsewhere. Use our comparison tool to see if you can get a better rate. Enter your ZIP code below to get started.
Compare car insurance quotes for free today
Buying Car Insurance for Your New Car
Auto insurance is required in nearly every state, and new cars are no exception.
Before you drive off the dealership's lot, you'll need to show you have insurance coverage that meets your state's minimum requirements.
The cost of insurance for a new car is a bit higher than for an older model, usually due to increased comprehensive and collision coverages. Planning ahead and looking for discounts can save you a lot of time and help you find an affordable policy.
How to get auto insurance for a new car
Purchasing automobile insurance is a necessary step when buying a car, but you need to know exactly which car you're buying to activate the policy. If you know the make and model of the car you want to buy, start by collecting several sample quotes online. Once you purchase the car, contact your insurance company to provide the VIN and pay for the policy.
Even if you haven't chosen a car yet or you change your mind at the dealership, you should still spend a few minutes collecting at least three insurance quotes.
You can get a quote and purchase an auto insurance policy all from a smartphone, so there's no reason to skip this step. Typically, insurance companies will send you proof of insurance immediately after you buy it.
So in most cases you can sign the paperwork at the car dealership, purchase your insurance online or over the phone, and drive home in your new car.
But every insurance company works differently, so if you can, check with the insurer before you head to the dealership to buy the car.
Insurance grace period when buying a new car
If you already have a vehicle, you may be able to purchase a new car without purchasing a new auto insurance policy.
Most insurance companies offer a grace period for new vehicles, where any new cars you buy will be covered under your existing policy for a short time. This period varies with each insurer.
For example, Progressive gives drivers 30 days to add a new car to their policies, while other insurers may give you less than a week.
Before you buy your new car, make sure you know the length of your grace period and what you need to bring to the dealer to prove you're eligible for that temporary coverage.
Once you've bought your car, don't forget to add your new car to your policy before your grace period is up. Even a short lapse in insurance coverage can make a lasting impact on your insurance rates.
If you don't already have car insurance or you're changing insurers, you must purchase a new policy before you drive your car home — you can't “back-date” insurance to apply retroactively.
Alternatively, in a few states you can buy a short-term insurance policy, also referred to as “seven-day” or “30-day” policies. Short-term insurance is intended to give you time to shop around for the lowest insurance rate. Unfortunately, short-term insurance is often significantly more expensive than a normal policy, reducing your net savings.
How much does new car insurance cost?
Newer cars are generally more expensive to insure than old ones, particularly if you carry comprehensive and collision insurance, as they are worth more and are therefore more expensive to replace. However, car manufacturers continually add new safety features — such as lane assist, backup cameras and blind-spot warning — which can make driving a new car safer and thus cheaper to insure.
In our research, we found a slight difference in monthly premiums between brand-new and 4-year-old cars of the same make and model. The 4-year-old model was about 5% cheaper to insure overall. Your own insurance quote will depend on the car you choose, the vehicle's features and the coverages you select.
The best way for drivers to get the best deals on car insurance for a new car is to shop around for the best price. We found a much bigger price range between insurers than we did among different car ages.
So when you're shopping for cars, collect a few quotes online or call your insurance agent and have them pull quotes for you as part of your research.
In particular, drivers looking to save money on insurance for a new automobile should look for discounts for their car's safety add-ons.
For example, if your car is equipped with features such as advanced collision detection or anti-lock brakes, some insurers may give you a significant discount.
What insurance do you need when buying a new car?
You'll ly need to fulfill two insurance requirements for your new car. The first is your state's mandatory insurance minimum, and nearly every state has one.
State minimums most commonly include liability insurance for bodily injury and property damage, but many states also require you to have uninsured motorist and personal injury protection, too.
The second requirement you may face is imposed by the lender that finances your new car.
According to the terms of your lease, you might be required to purchase collision and comprehensive coverage, which both pay to repair damage to your car.
This helps protect the lender's investment in your car. You may also be required to carry higher liability insurance limits than your state's minimums.
Beyond the minimum requirements for car insurance, you should also consider whether you need optional coverages to protect your new car, especially if you are transferring your insurance coverage from an older vehicle. A new car is a significant expense, so increasing your comprehensive and collision insurance limits, for example, will help protect your investment.
New-car replacement and gap insurance
New-car replacement insurance and gap insurance — both optional — can help you recoup financial losses if your car is totaled in an accident.
Gap insurance is typically available to people with a loan or lease. If your car is totaled in an accident, gap coverage will pay the difference between your car's actual cash value and how much you owe on the loan or lease.
For example, let's say your car is totaled in a collision, and the car's actual cash value is $20,000 and you owe $22,000. Your insurance policy's collision coverage would reimburse you $20,000. Gap coverage would pay the remaining $2,000 you owe, so you're back at square one: You don't own a car, but you also don't owe your lender any money.
Gap insurance is sometimes included in the terms of new car leases and loans. In these cases, you wouldn't need to purchase coverage from an insurer.
New-car replacement coverage goes a step beyond gap coverage in terms of payout amount. It's not offered by as many insurance companies, but it's available even if you paid cash for your car. If your car is totaled in an accident, new-car replacement coverage will pay for the cost of an entirely new car that's equivalent to the one you had.
Let's say you purchased a new car for $25,000, and it's worth $20,000 when totaled in a collision. Your collision coverage would give you $20,000 and the new-car replacement coverage will give you $5,000 — enough for you to buy a brand-new vehicle.