Car insurance can be one of the most confusing things you will buy, and shopping for car insurance is so confusing and stressful that many people just grab the first thing they are offered. While this is understandable, it also leads to people not understanding what coverage they have. After an accident, they are startled to find out that they aren’t covered at the level that they thought they were, and they have been left to pay bills they didn’t expect.
What are Your Legal Requirements?
Every state has minimum insurance requirements. You will definitely want to know what the requirements are for your state, and if you are comfortable with them. When shopping for the best car insurance in Texas, California, New York, or wherever you live, be knowledgeable about your state requirements. Most of the requirements are put into place to protect other drivers, not you, so you will probably want to increase your coverage above the required amount.
In addition to state requirements, any lien holder on your vehicle will also have requirements and if you can’t show proof of the necessary coverage, they may employ their own insurance and charge you for it, which is likely to be much more expensive than getting your own coverage.
What Hazards are Most Likely for You?
What hazards are the most likely in your area and in your situation? For a stay-at-home parent, a remote worker, or a retired person, the greatest risks to your vehicle might occur while it is parked! For other people, who commute or work from their vehicle, other drivers and road hazards are the biggest threat. If you are a poor driver, you might be your own biggest risk. Be honest with yourself and evaluate what hazards you need to prepare for before shopping for insurance.
Where Do You Live?
Where you live can affect your car insurance in many ways, from requirements to costs, to potential hazards. Insurance companies use statistics on crime, weather, car accidents, and other risks to set their rates. If you live in a low-risk area such as a suburban or rural area, you may have lower rates than if you live in an urban area.
The insurance companies know what they are doing. If you live in a high-risk area, in addition to expecting higher rates, you should also consider having more or better coverage. If the insurance company considers your area a higher risk to their profit, you should consider it a higher risk to your vehicle as well.
What Kind of Car Do You Drive?
You need to consider the kind of car that you drive when thinking about your insurance needs. Again, insurance companies use statistics to determine risk and set rates. If you have an expensive or foreign car that costs more to repair or replace, you can expect to have higher premiums. If your car is a target for theft or has few safety features, it’s a higher risk to the insurance company than other vehicles and will cost more to insure.
Follow the insurance company’s lead and ask for higher coverage on a vehicle that will cost more to repair. There’s no point in your insurance if you don’t get enough to cover potential damages. Consider talking to an auto shop and mechanic to get an idea of what it might cost to repair your vehicle after a fender bender and after a more serious accident.
How Important is Your Car to You?
You will determine your acceptable level of risk by asking yourself how much you care about your car. If you have a special car that means a lot to you and will cost a lot of money to replace, you will want to ensure your insurance can replace the full value of your car in case of an accident or theft. If you consider your car a simple transportation tool that doesn’t have much value to you beyond getting you to and from work, you might be happy with a lower-level policy that will cover your needs after an accident but might not replace your car with another of the same value.
Who Else Drives Your Car?
If you have other family members who regularly drive your car, they will also need to be on your insurance. If those family members happen to be teenagers or young adults, your insurance premium could potentially be much higher. Why do these premiums shoot up for young people? Statistics and risk, just like every other factor of insurance. Young people are much more likely to be involved in car accidents or engage in risky behavior.
Most companies have discounts that substantially lower your rates for young people who can demonstrate their level of responsibility. Healthy behaviors like attending a driver’s training class, having good report cards, and maintaining an accident-free driving record can save you a lot of money.
Do You Use Your Car For Business or Work?
If you use your car for your business or work you need to consider getting a higher level of coverage. You will also need to ensure you have enough liability coverage in case someone gets hurt or you damage something while working.
Even side gigs like driving people around, or delivering food, groceries, or newspapers are considered business ventures and your insurance company will want to know about them. In addition, you are on the road a lot more than someone who is simply driving to the office, and the more miles you drive, the greater your chances for an accident.
What is Your Risk Tolerance?
Finally, don’t overlook your own personal risk tolerance. If you are a safe driver living in a safe area, you might feel comfortable having a very low level of insurance. You will be carrying more of the risk yourself, but that might be more acceptable to you than paying the higher premium. On the other hand, if you constantly worry about accidents or other situations and wonder how you will deal with the stress and financial strain, your risk tolerance might be very low. In this case, you might be more comfortable paying a higher premium for greater peace of mind.