Car Insurance for Beginners: How It Works + How To Buy It

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, you might not know or remember the steps to getting car insurance coverage. 

Here's everything you need to know about car insurance for beginners, from what the different types of coverage mean to how much it costs and how to buy it.

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 if you're liable for an accident. If you rear-ended 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 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 total your car, GAP insurance could help you pay off the remainder of the loan to 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 car insurance coverage works

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 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.

As mentioned, liability insurance coverage is required to some extent in almost all states, and coverage limits for this are often 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, the not-at-fault driver could get up to $50,000 in total to cover the damage done to their car.

How much does auto insurance cost?

According to Insurance.com, the average customer pays $1,895 per year for full-coverage auto insurance. This is the average for the whole country, however. Your personal rate will vary vastly depending on a number of factors. 

Here are factors that will affect your insurance premium.

Age

Statistically, young drivers get into more accidents and, therefore, file 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 ones. 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

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, especially if you park on the street, you're more likely to have your car stolen or vandalized than those living in rural areas. That means that city drivers will likely 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, so they typically have lower car insurance costs.

Type of vehicle

There are definitely certain vehicles that insurance companies prefer. 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 we recommend shopping around for coverage.

Type of coverage you want

If you're just looking for the most basic, minimum coverage, you'll pay less than those who opt for comprehensive and collision coverage. You'll also 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.

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. Follow these steps.

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.

Optional: Talk with an agent

This step is optional, but it can be helpful to talk through the insurance-buying process with a real person when you're doing it for the first time. Alternatively, you can often get quotes and apply for coverage completely online. Once you've gotten quotes and can see who may offer you the best rates, narrow down your list to a few and contact an insurance agent who works at the company. Most companies have a contact page on their website with a listed email, phone number, or chat option.

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. You might be able to get coverage in the same day you apply for a policy, but how long it takes to get insurance depends on how you shop.

Auto insurance discounts

The best car insurance companies 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 who 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

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.