Car Insurance for Beginners: What You Need to Know Before Purchasing Your First Policy

INSURANCE - CAR INSURANCE
Getting your first car insurance policy means you need to understand the many types of coverage available and which insurer works best for your needs.
Last updated April 3, 2023 | By Christopher Murray Edited By Melinda Sineriz
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Insurance can often be intimidating. If you’ve been on your parent's car insurance policy until now or it’s been a while since you’ve switched companies, it can be difficult to know what you really need in a policy. You don’t want to pay too much, but you also don’t want to be underinsured in the event that you get into an accident or something else happens to your car.

Here’s everything you need to know about car insurance for beginners so you can find the best policy for your needs.

In this article

How to buy car insurance

When you need to purchase car insurance, you’ll want to take the time to look at all of your options. Here are a few steps to follow.

Gather the necessary paperwork

You’ll be asked a lot of questions when you apply for car insurance coverage. Insurance companies need this info to offer you the best car insurance rate possible.

Make sure you have the following information:

  • Personal information:
    • Birthday
    • Address
    • Social Security number
    • Driver’s license number
    • Payment information, such as a bank account number
  • Vehicle information:
    • Make
    • Model
    • VIN number, and mileage

You will also need to provide information about your driving history, including any tickets or accidents.

Get quotes from multiple companies

Before officially applying for insurance, take the time to get car insurance quotes from various companies. Different insurance companies cater to different types of customers. Some are designed to offer simple coverage to drivers with a poor history. Others focus on offering a huge number of discounts. Others focus on a fast and easy online claims service.

Tip
Be sure you’re getting quotes for the same type of coverage with each company. This is the only way to compare apples to apples and ensure you’re getting a price for the coverage you really need.


Talk with an agent at the companies you like best

Once you’ve gotten quotes and can see who may offer you the best rates, narrow down your list to the top three (or however many you’re comfortable with) and contact an insurance agent that works at the company. Most companies have a contact page right on the front of their website with a listed email, phone number, or chat option.

Make sure when you’re talking with an agent to ask the following questions:

  • What type of coverage works best for my car?
  • What discounts do I qualify for?
  • How else can I lower my premium?

Purchase your policy

Once you’ve found a company you’re happy with, you’ll need to complete an application and pay an initial premium. Be sure to review your policy to make sure it covers what you expected it to, and don’t hesitate to ask questions if anything isn’t clear.

Types of coverage

Each state, with the exception of New Hampshire and Virginia, will require that you have a minimum amount of insurance. Often, this is just enough to cover another driver in the event you cause an accident.

Here are the main types of coverage you’ll come across when looking for insurance:

Liability

Liability insurance isn’t actually meant to protect you — it’s to protect other drivers in the event you’re liable for an accident. If you rear-end someone at a stop light because you were texting, your liability policy will help to cover the damage done to the other driver’s car.

Liability insurance includes two types of coverage — bodily injury liability and property damage liability. Bodily injury helps to cover medical expenses for any injured drivers. Property damage helps cover the car of the other driver and any other damaged property.

Medical payments/PIP

Medical payments and personal injury protection (PIP) can both help pay for your medical treatment or the medical treatment of your passengers if you’re in an accident. PIP may also help pay for lost income, child care, and funeral expenses.

Uninsured/underinsured motorist

If you’re hit by a driver who doesn’t have insurance or whose policy doesn’t offer enough auto coverage to pay for your car repairs or medical costs, uninsured motorist coverage will reimburse you for these costs up to your policy limits.

Collision

Although liability insurance covers the other driver involved in an accident, collision coverage will help pay for repairing or replacing your car.

Comprehensive

Comprehensive car insurance will help you cover the cost of damage done to your car from incidents other than accidents. For example, if your car is stolen or items in your car are stolen, comprehensive insurance could help with that. If a tree falls in your car during a particularly windy day, comprehensive can cover that, too.

Gap insurance

Gap coverage covers the gap between your loan and the car’s retail value should you get into an accident. If you own more on the loan than the car is worth and you total your car, gap insurance could help you pay off the remainder of the loan so you can purchase a new car.

New car replacement

If your car is completely totaled in a covered event, this coverage will replace your car with one of equal value. Covered events may include fire, theft, and flood.

How coverage works

After deciding on the coverage you need and deciding on the right company, you’re going to get the terms of your policy. Some of these terms can be complicated to understand, so let’s break down what you might see in your paperwork.

For starters, let’s talk about the big one: deductibles. Your insurance deductible is the amount you’ll pay out of pocket before your insurance kicks in. For example, if you have a $500 deductible and you get in an accident, causing $5,000 in damages, you’ll have to pay $500 toward the damages before your insurance company covers the next $4,500.

Additionally, you’ll see a description of your coverage limits on your policy. Typically, this will be expressed in a three-number sequence. For example, 100/300/50. These three numbers, also referred to as split limits, correspond to the following:

  • The maximum bodily injury liability payout per person injured in an accident.
  • The maximum bodily injury liability payout per accident.
  • The maximum property damage liability payout per accident.

So, in the 100/300/50 example, each person involved in an accident could potentially qualify for $100,000 in bodily injury damage coverage. However, the maximum payout in a single incident is capped at $300,000. Finally, for the property owned by the not-at-fault driver, they could get up to $50,000 total to cover the damage done to their car.

How much is auto insurance?

According to the NAIC, the average customer pays $1,204 per year for auto insurance. This is an average of the whole country, however. Your personal rate will vary vastly depending on a number of factors. Certain factors drive up your premiums; others lower them.

Here are the factors that will affect the price of your monthly insurance premium:

Age

Statistically, young drivers get into more accidents and therefore make more insurance claims than older drivers with more driving experience. This means even if you’re a teen driver with a clean driving record, you’ll likely have higher auto insurance rates.

Driving history

Drivers with poor driving records typically pay more than those who have squeaky clean one. If you’ve gotten into an accident and the insurance company had to pay out for a claim, they’re likely going to charge you for that by raising your premiums.

Gender identity

Because insurance costs are largely determined by statistics, men, who are statistically more likely to get into accidents, often pay more for auto insurance than women.

Where you live

If you live in the city, and especially if you park on the street, you’re more likely to have your car stolen or vandalized than those who live in rural areas. That means that drivers in cities are likely going to pay more for insurance because they’re more likely to make claims.

Credit score

Many auto insurance companies will perform a soft credit pull when you apply for insurance. This means your score won’t be affected, but the company can still see the basics of your score and credit history. Those with better credit are often seen as more reliable, which means they typically have lower car insurance costs.

Tip
Using your credit history to determine insurance rates is banned in Massachusetts, Hawaii, and California.


Type of vehicle

There are definitely certain vehicles that are preferred by insurance companies. They typically charge higher rates for luxury and sports cars, for example. Newer cars often have higher insurance rates than older cars because they’re worth more. This varies by vehicle, however, which is one more reason why it’s important to shop around for coverage.

Type of coverage you want

If you’re just looking for the most basic, minimum coverage, you’re going to pay less than those who opt for comprehensive and collision coverage. You’ll potentially have to pay out of pocket for repairs to your vehicle if you’re in an at-fault accident, however.

Your deductible

A higher deductible means lower monthly insurance costs. It also means you’ll pay more out-of-pocket in the event of a car accident or another incident that requires you to file an insurance claim.

A lower deductible means you’ll pay more each month for insurance, but you’ll pay less out-of-pocket if you file a claim.

Auto insurance discounts

The best car insurance companies will offer many discounts drivers can use to drive their monthly premiums down.

Here are common car insurance discounts:

  • Good student discounts: For teens, one of the easiest ways to lower their monthly insurance costs is to maintain a good GPA. Many major car insurance companies offer discounts to high school and college students that consecutively get good grades.
  • Multi-policy discount: Insurance companies want your business, so they’ll reward you if you take on multiple policies. For example, if you have homeowners insurance or renters insurance, you can often bundle these policies and qualify for a discount.
  • Safety features discount: If your vehicle has added safety features, such as adaptive headlights or anti-theft devices, you may qualify for a discount.
  • Safe driver discount: The longer you keep your driving record clean, the more reliable you look to an insurance company.
  • Defensive driving course discount: If you take one of these courses to improve your driving skills, you may get a discount.
  • Pay-in-full discount - If you pay your entire bill upfront, typically every six months, your insurance company may offer a discount.

FAQs

What is the most basic car insurance I can get?

The most basic car insurance you can get is the minimum coverage your state requires. This may be liability-only coverage, or it may include medical payments, PIP, or uninsured/underinsured motorist coverage.

What type of car insurance is cheapest?

The cheapest car insurance is a plan that meets your state’s minimum requirements. These policies typically don’t include collision and comprehensive.

What are the benefits of car insurance?

Although car insurance is a legal requirement in most states, it offers benefits that go beyond legally keeping you on the road. First and foremost, an auto policy could help lessen the financial burden of an accident for both you and the other driver(s) if others are involved in an accident. If your car needs repairs or replacing, insurance covers the brunt of the cost.

Car insurance goes beyond just covering accidents. There are other things that can happen to your car — vandalism, a tree falling on it, rocks damaging the windshield, etc. Comprehensive coverage offers protection for those events so you don’t have to pay as much out of pocket to get your vehicle fixed.

What is the difference between liability and comprehensive car insurance?

Comprehensive coverage protects you in the event of theft or damage. In other words, damage that’s typically done while you’re not driving. Liability, on the other hand, protects other drivers from incidents you cause on the road. In the event that you cause an accident, your liability coverage will help repair or replace the other driver’s vehicle.

Bottom line

Car insurance isn’t easy to understand. Don’t hesitate to ask potential insurance companies questions about your coverage, and always take time to compare your quotes. That’s the only way to be sure you’re getting the most affordable and comprehensive auto insurance policy you qualify for.

  • You could save up to $500 with some companies
  • Compare dozens of providers in under 5 minutes
  • Fast, free and easy way to shop for insurance
  • Quickly find the perfect rate for you

Author Details

Christopher Murray Christopher Murray is a professional personal finance and sustainability writer who enjoys writing about everything from budgeting to unique investing options like SRI and cryptocurrency. You can find his work on sites like MoneyGeek, Money Under 30, Investor Junkie, and MoneyCrashers. You can find out more about Christopher on his website or via LinkedIn.