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Overpaying on car insurance?

Overpaying on car insurance?

Overpaying on car insurance?

Beginner Car Insurance: A Simple Guide for First-Time Buyers

young female driver smiling behind the wheel
TABLE OF CONTENTS

Buying car insurance for the first time isn’t so overwhelming when you have all the facts.

That long-awaited day when you can get in the car and experience the freedom that comes with being able to go anywhere you want is finally here! Driving a car comes with many rights and responsibilities. One of the most important responsibilities you have as a new driver is obtaining beginner car insurance.

In most states, laws mandate drivers to have car insurance any time they drive on the road. When you need car insurance for the first time , how do you do it? We will take you out of a state of overwhelm and give you the confidence to know you have adequate and necessary car insurance  protection before you get behind the wheel.

Our easy-to-read beginner car insurance guide covers everything you need to know before you make that call to an insurance agent or start shopping for car insurance online.

Why Is Car Insurance Important?

There are a lot of costs with driving a car – fees for registration and license plates, driver’s license fees, auto maintenance, gas and oil, car washes, parking fees, and car insurance. These expenses are all in addition to car payments or lease payments.

Unless you drive an electric car, your car will run better when it has the proper amounts of gas and oil. These lubricants protect your car much like car insurance protects you, your passengers, other drivers on the road, and pedestrians.

Here are six reasons it is important to have car insurance:

  1. The law requires it in most states. If you get stopped by a police officer for any reason, the first thing they ask for is your driver’s license and proof of car insurance. If you cannot produce these items, the officer may not only cite you for whatever they stopped you for, but also for not having a license or insurance. The fines and court costs can add up quickly.
  2. To compensate for damage caused by you. Accidents happen. If you hit a vehicle, inanimate object, person, or animal, there will likely be damage to your car. There may also be medical bills, damage to another car, or other expenses you are liable for. Depending on your policy, your car insurance may pay for some or all of these expenses. Without car insurance or sufficient car insurance, you will be required to pay it out of pocket.
  3. To get compensation for damage to you or your car caused by another driver. Other drivers do not always have car insurance even when the law requires it. If another driver hits your car, your car insurance policy may pay for the loss.
  4. To get your car repaired. Depending on your car insurance coverages, your car insurance may pay to repair your car after an accident.
  5. To protect your assets. Big lawsuits typically follow serious car accidents. If you have no insurance or insufficient coverage, a court could go after your home or investments to cover a loss they deemed you to be responsible for.
  6. To compensate your passengers. Passengers in your car may also sue you if they get injured while riding in your car. Car insurance compensates them for medical bills.

Now that you understand why car insurance is important, you need to know how it works.

How Does Car Insurance Work?

Regardless of how safely you drive, there is always a chance you may be involved in an accident. If it happens, take a deep breath. This is the very reason you purchased beginner car insurance.

The following steps will walk you through how car insurance works.

  1. Check for injuries. If anyone is injured, call 9-1-1 immediately.
  2. Take photos of the damage to the cars and the positioning of the cars with your cell phone.
  3. Exchange insurance information and contact information with other drivers. A claims adjuster will need this information to process the claim.
  4. Call your insurance agent or file a claim with your insurance company right away. It is best to give them the details while everything is fresh in your mind. You do not need to tell them who is at fault in the accident. Just give them the facts as you remember them.

Record the claim number, claim adjuster’s name, and phone number. Keep this information handy in case you have any questions. The adjuster will tell you how to get your car fixed and explain what is and is not covered by your policy. 

Whether you need to pay anything for your car repairs depends on whether you have collision coverage on your car. Collision coverage is subject to the deductible you chose when you purchased your policy.

As an example, we will say you have a $500 collision deductible and you get into an accident where you were at fault. The cost of the car repair is $5,000. You will pay $500 and the insurance company will pay the remaining $4,500 for the repair.

Damage to your car may happen for a reason other than an accident. Different parts of your car insurance policy may cover your loss in those incidences.

Types of Car Insurance Coverages

When speaking with an insurance agent about purchasing beginner car insurance, they will ask many questions about you and other drivers on your policy. An insurance agent will also ask you questions about the types of insurance coverages you want and the limits you want for each type of coverage.

The more coverage you buy and the lower the deductibles you choose, the more your car insurance will cost. That said, do not give in to the temptation to get the minimal amount of coverage and highest deductibles as it could cost you far more if you have a claim.

Car insurance policies contain several different types of coverages. Before you can decide which coverages and limits you need, it’s important to understand the purpose of each of them.

Here is a breakdown of the six parts of a typical car insurance policy:

  1. LiabilityBodily injury and property damage make up the liability portion of a car insurance policy. Both apply if you cause an accident. Bodily injury will cover medical costs for another person’s injuries, and property damage covers someone else’s car or property.
  2. Uninsured/Underinsured Motorist – This coverage pays for losses where a driver who is at fault injures you or damages your car and they do not have any insurance or enough insurance to cover the loss. In this case, your insurance company will pay for the loss.
  3. ComprehensiveThis is an optional coverage that pays for losses where no one is at fault. It covers damage to your car if it gets damaged by fire, theft, hail, falling objects, hitting a deer, or vandalism.
  4. Collision – This coverage pays for damage to your car if the adjusters deem you to be at fault in an accident. It is an optional coverage that pays the actual cash value (meaning the depreciated value) of your car less your deductible.
  5. Medical Payments – This coverage will pay for medical bills for you or your passengers, such as X-rays, emergency room visits, or hospital stays.
  6. Personal Injury Protection (PIP)PIP is much like medical payments coverage. It also covers things like lost income or childcare expenses. This coverage is required in some states, and it may be optional in others.

If you are leasing a car or have a loan on it, the lender or leasing company will require you to have liability, uninsured/underinsured motorist, comprehensive, and collision coverage. A lender may also require you to have gap insurance which is a coverage that pays the difference between the actual cash value of your car and the amount you owe the lender. This is important coverage if you owe more on the car than the actual cash value.

Some states have minimum limits for liability and medical payments coverage.

A liability-only policy is a car insurance policy that does not have comprehensive or collision coverage. A no-deductible car insurance policy means the insurance company will not require you to pay a deductible in the event of a loss.

What Does Car Insurance Cover?

To help you sort out the confusion about your car insurance, the following chart gives you a snapshot of what the different parts of a car insurance policy covers.

Purpose of CoverageLiabilityComprehensiveCollisionUninsured Motorists &Underinsured MotoristsPersonal Injury Protection
Covers You or Your Passengers  
Covers Other Drivers   
Covers Your Car’s Damage Due to an Accident   
Covers Your Car’s Damage to a Non-Collision Claim    
Mandatory in Most States   ✔(in most states that offer it)
Optional Coverages   

For example, collision and comprehensive coverages will not cover maintenance, mechanical repairs, or body damage that is not in connection with an auto claim unless you add mechanical breakdown insurance to your policy. Some insurance companies offer mechanical breakdown insurance as an add-on for a slight additional premium, but not all. In most cases, if you blow a tire, have engine trouble, or rust is eating away at the body, you are on the hook for those repairs. You will also have to pay for your oil changes and to replace your tires as needed.

Comprehensive coverage will cover such issues as hail damage, a cracked windshield, vandalism, or hitting an animal. It will also cover if something gets stolen from your car or if a thief takes the entire car. By contrast, collision coverage pays for damage to your car as a result of a covered accident.

Will car insurance cover my rental car? 

If you have additional coverage on your car insurance policy, you will have coverage for a rental car if you get into an accident. However, your car insurance policy will not pay for you to take a rental car on vacation.

Will car insurance pay for missed work?

An auto accident can cause you to miss time from work, especially if you are injured and need to take time off for doctor visits. Does your car insurance pay for your lost income in such a case? It depends. If another driver is responsible for the accident, you may be able to collect for lost income under their policy. You may also be able to get payments for lost income if you have personal injury protection coverage.

What Are the Requirements for Car Insurance?

Your state’s department of motor vehicles determines the requirements for car insurance. Car insurance is required in every state except New Hampshire and Virginia.

In New Hampshire, drivers who have insurance must purchase the state’s minimum limits of liability. In Virginia, drivers who do not purchase the minimum liability must pay an uninsured motorist fee.

When do I need to purchase car insurance?

You do not need to purchase car insurance if you own a car, but you must purchase it before you drive it. In most cases, young drivers can remain on their parent’s policy as long as they live with their parents or are going to school full time.

The following chart shows the state minimum limits for car insurance.

StateType of Coverage RequiredMinimum Liability Required
DefinitionAbbreviations:
BI – Bodily Injury
PD – Property Damage
UM – Uninsured Motorist
UIM – Underinsured Motorist
PIP – Personal Injury Protection
25/50/25 = 25,000 in coverage for bodily injury liability Per Person, $50,000 for bodily injury liability Per Accident, and $25,000 for Property Damage liability.
AlabamaBI, PD25/50/25
AlaskaBI, PD50/100/25
ArizonaBI, PD15/30/10
ArkansasBI, PD25/50/25
CaliforniaBI, PD15/30/5
ColoradoBI, PD25/50/15
ConnecticutBI, PD, UI, UM20/40/10
DelawareBI, PD, PIP15/30/10
District of ColumbiaBI, PD, UM25/50/10UM/UIM $50,000 per person UM/UIM $5,000 PD
FloridaPD, PIP10/20/10
GeorgiaBI, PD25/50/25
HawaiiBI, PD, PIP20/40/10
IdahoBI, PD25/50/10
IllinoisBI, PD, UM25/50/20, UM $25,000/person, $50,000/accident.
IndianaBI, PD, UM25/50/10, UM 25/50/10
IowaBI, PD25/40/15 Not compulsory, but must prove financial responsibility
KansasBI, PD, PIP, UM25/50/15 and PIPUM $25/person, $50/accidentSurvivor benefits: Disability $900/month and in-home services $25/day for a year, and$4,500/person medical expenses$900/month for one year for disability/loss of income$25/day for in-home services$2,000 for funeral, burial, or cremation expense$4,500 for rehabilitation expense
KentuckyBI, PD, PIP25/50/10 and 10 PIP
LouisianaBI, PD15/30/25
MaineBI, PD UI, UIM50/100/25 and $50,000 UM/person, $100,000 UM/accident, $2,000 medical payments
MarylandBI, PD, PIP, UM30/60/15
MassachusettsBI, PD, PIP, UM20/40/5 and $20,000 UM/person, $40,00/accident, $8,000 PIP
MichiganBI, PD, PIP20/40/10
MinnesotaBI, PD, PIP, UI, UIM30/60/10PIP $20,00 medical$20,000 loss of incomeUM 25/50
MississippiBI, PD25/50/25
MissouriBI, PD, UM25/50/10UM 25/50
MontanaBI, PD25/50/10
NebraskaBI, PD25/50/25
NevadaBI, PD15/30/10
New HampshireNot required25/50/25 for those who purchase it
New JerseyBI, PD, PIP 15/30/5 and $15,000 personal injury protection
New MexicoBI, PD25/50/10
New YorkBI, PD, PIP, UM25/50/10
North CarolinaBI, PD30/60/25
North DakotaBI, PD, PIP, UM25/50/25UM 25/50
OhioDemonstrate financial responsibility or maintain minimum insurance25/50/35
OklahomaBI, PD25/50/25
OregonBI, PD, PIP, UM25/50/25
PennsylvaniaBI, PD, PIP15/30/5
Rhode IslandBI, PD, UM25/50/25
South CarolinaBI, PD, UM25/50/25
South DakotaBI, PD, UM25/50/25
TennesseeBI, PD25/50/15
TexasBI, PD30/60/25
UtahBI, PD, PIP25/65/15
VermontBI, PD, UM, UIM25/50/10
VirginiaNot required, but must pay UM fee25/50/20
WashingtonBI, PD25/50/10
West VirginiaBI, PD, UM25/50/25
WisconsinBI, PD10/25/50
WyomingBI, PD25/50/20

How Much Car Insurance Do I Need?

Now that you have an idea of what type of beginner car insurance you need, let us look at how much car insurance you should buy.

While your state may have state minimum limits for liability, they may not be sufficient to cover a claim. It is generally better to have at least $100,000 of liability coverage or more.

The important thing to remember is that you are financially responsible for any damage or injuries you cause while driving your car. Car crashes and other incidents can be expensive. A small fender bender may only be a few hundred dollars, but a major car accident with injuries may end up costing tens of thousands of dollars. Whether the damages are small or large, you are responsible if the accident is your fault.

Car insurance is the best way to be sure you have the funds to pay for an accident. The premium you pay every term is very small compared to what the insurance company may have to pay out.

From the state motor vehicle department’s perspective, they want to make sure you are financially responsible. That is why most states require drivers to have car insurance, and it is also the reason for states having minimum liability limits.

Whether you need comprehensive and collision insurance depends on whether you could repair or replace your car in the event of a loss. You may find it easier to pay the deductible.

If you drive an older vehicle that is only worth a few thousand dollars and do not have a loan on it, it may not be worthwhile to carry comprehensive or collision coverage on it. Why? If your deductible was $1,000, you would have to pay that first, and you would get very little money back from the insurance company if you had a claim. In this case, you may decide to carry comprehensive coverage only with a smaller deductible to cover smaller claims such as glass repairs or minor hail damage.

You only need gap insurance if you owe more on your car than its actual cash value or if your lender or leaseholder requires you to have it.

While it is nice to have low deductibles on your car insurance, the lower they are, the more your premium will be. Choose the highest deductible you can afford to pay if you get into an accident. Get quotes with various deductibles to help you make a decision about which policy to buy.

How Much Does Car Insurance Cost?

Insurance companies take many factors into account when determining beginner car insurance premiums including the type of car, driving record, coverage limits, marital status, age, gender, location, and even your credit history.

As the charts below show, the state of residence and driver age significantly affect car insurance rates.

StateAverage Annual Insurance Cost for First-Time Drivers
Alabama$3,470
Alaska$2,311
Arizona$3,838
Arkansas$2,990
California$2,845
Colorado$3,632
Connecticut$5,636
Delaware$5,473
District of Columbia$5,813
Florida$3,390
Georgia$4,924
Hawaii$596
Idaho$2,138
Illinois$3,626
Indiana$2,254
Iowa$1,497
Kansas$2,587
Kentucky$4,300
Louisiana$6,860
Maine$2,351
Maryland$4,629
Massachusetts$2,408
Michigan$6,508
Minnesota$3,139
Mississippi$2,896
Missouri$2,952
Montana$2,159
Nebraska$2,271
Nevada$4,870
New Hampshire$2,265
New Jersey$5,580
New Mexico$2,504
New York$7,305
North Carolina$1,608
North Dakota$1,921
Ohio$2,113
Oklahoma$3,450
Oregon$3,765
Pennsylvania$2,093
Rhode Island$6,719
South Carolina$3,689
South Dakota$1,682
Tennessee$2,553
Texas$3,892
Utah$3,681
Vermont$1,648
Virginia$4,300
Washington$3,613
West Virginia$2,411
Wisconsin$2,488
Wyoming$1,342
National Average for First-Time Driver$3,343

How Age Affects Insurance Cost

Average rates for all states:

AgeState Minimum CoverageFull Coverage
20$1,185$3,344
30$574$1,682
40$549$1,586
50$520$1,479
60$511$1,429

As you can see, car insurance rates decrease as people get older, at least until they get into their 70s. Statistics show that younger drivers with little driving experience are more likely to be involved in accidents, so they charge more. Car insurance rates may go down at the renewal term, but they may also go up, even if you have a clean driving record.

How to Pay Less for Car Insurance

Without a doubt, beginner car insurance can be expensive. Fortunately, there are several ways to pay less for your car insurance.

  1. Stay on your parent’s policy as long as you can. They likely get a multi-policy discount, homeowner discount, discounts for having multiple cars, and more.
  2. Get quotes from different companies. You will be surprised to find how different the rates are even when the coverages are the same.
  3. Ask for discounts. Insurance companies offer numerous discounts for things like anti-theft devices, higher deductibles, and safe driving courses.
  4. Purchase the right coverages with adequate limits. For example, you may be able to save money by deleting coverage for towing and car rental assistance.
  5. Drive a car with low insurance rates. Base-model older cars will have lower rates than newer, sportier models.
  6. See if you qualify for an affinity group rate. Certain businesses contract with insurance companies to offer a group rate on home and car insurance. You may qualify for such a program through your employer, credit union, or other association.
  7. Improve your credit rating. Most companies use your credit score as part of an overall insurance score. A good credit rating can bring your premiums down.
  8. Get a quote for “pay-as-you-go” car insurance. Several major car insurance companies offer a telematics program that tracks your driving experience. A device tracks how far you drive, when you drive, and how safely you drive. Safe drivers who drive very little may get lower rates.
  9. Remove coverages you do not use. Car insurance companies offer a lot of nice features, but they are of no use to you unless you use them. Review your policy to see if you can remove extra coverages such as towing or rental car coverage to save a few bucks.

You cannot stop car insurance premiums from increasing, but you can keep your car insurance as low as possible by shopping around and only paying for the coverage you need.

Take Advantage of These Discounts

  • Good student – For good grades such as a “B” average or above
  • Safe driver course – For showing proof of completion of a safe driver course
  • Military service – For enlisting in the armed forces
  • Student away – For a student away at school without a car (usually 100 miles away)
  • Low mileage – For driving less than a certain number of miles per year
  • Violation free – For having a clean driving record within three years

What Are the Cheapest Car Insurance Companies?

Car insurance companies use different data and reasoning to learn which drivers qualify for the lowest rates.

Some companies increase premiums for drivers who do not commute to work. The idea is that such drivers may be driving more during the daytime and would have a greater risk of getting into an accident. Other companies do the opposite and charge more for drivers who commute long distances as their statistics show that long-distance commuters are at greater risk of getting into an accident.

Car insurers may also charge more for people who live in urban ZIP codes as there is more traffic than in suburban or rural areas.

Insurance companies also use your credit score as a factor in rating your car insurance. Statistics show that people with good credit scores tend to be involved in fewer accidents.

Most car insurance companies add charges for paying for your premiums over time. You will pay less if you can pay the full amount of the premium upfront.

Also, be aware that while electric vehicles are gaining in popularity, car insurance rates are higher for them as they are more expensive to repair and replace than gas-powered cars.

In your quest to save money on car insurance, you might consider getting quotes from car insurance companies that offer the lowest rates.

The following chart will give you an idea of the average cost for full coverage for some of the major car insurance companies.

Car Insurance CompanyAverage Cost for Full Coverage
AAA$2,409
Allstate$1,994
American Family$1,454
Farmers$1,745
Geico$1,233
Liberty Mutual$1,200
Nationwide$1,332
Progressive$1,739
State Farm$1,381
Travelers$1,426
USAA$1,238

If you still do not know where to start, we have done some of the work for you. Check out our blog on Cheap Car Insurance to learn more about the companies we recommend and the types of customers who are a good fit for each company.

Fast Cars With Cheap Insurance

Younger drivers tend to like fast cars. You can count on fast, sportier cars to have higher car insurance premiums. Why? They cost more to fix and replacement parts are harder to find. Insurance companies consider a fast car with a younger driver a big risk which contributes to higher rates.

This is a sampling of rates for fast cars:

VehicleAverage Cost to Insure/month
Cadillac ATS$2,076
Porsche Boxster$1,572
Chevrolet Camaro$1,572
Dodge Challenger R/T$1,752
Fiat 124 Spider$1,560
BMW Z4 Roadster$1,560

Best Car Insurance for New Drivers

 To find the best car insurance for beginner car insurance, consider the average rates, available features and add-ons, repair mechanic grade, and the number of complaints.

All things considered, these are some of the best car insurance companies for new drivers:

 CompaniesOffers Good Student DiscountLevel of ComplaintsA-F Rating by Repair MechanicsStar Rating by Online Reviewers
NationwideYesLowC-5 stars
GeicoYesVery lowC5 stars
USAA (military only)NoLowC+5 stars
TravelersYesVery lowC+5 stars
Auto-OwnersYesLowB+4.5 stars
State FarmYesLowC-4.5 stars

While these companies are all good bets, it is also important to consider the types of companies to avoid. Avoid companies that have low financial ratings, poor reviews, and lots of complaints.

The following resources will help you to evaluate car insurance companies as a beginner:

A good place to start is by checking for car insurance complaints at the Better Business Bureau’s website. A good next step is to check the star-ratings at Trustpilot, as this will tell you how other people just like you feel about particular insurance companies.

If you get a red flag on a particular company at either of these junctures, it may be best to look at a different company.

NAIC is a regulatory agency that lists all licensed insurance agents. This site will inform you of whether insurance agencies are legally operating and which states they are authorized to operate in. It will also tell you the types of insurance licenses a particular insurance agent holds.

AM Best is a website that lists the financial ratings of all registered insurance companies in the country. Insurance companies with strong financial ratings are positioned well to pay claims.

By using all these sites, you will get the full scope of whether you are choosing a good car insurance company.

 How to Compare Car Insurance

The more familiar you are with how car insurance companies work, the better position you will be in to compare car insurance companies.

There are a few useful ways to go about comparing car insurance companies.

  1. Contact companies individually. Most companies have an online quoting platform where you can get a quote right away. Alternatively, call or email them for a quote. Get quotes with higher and lower deductibles and compare the rates.
  2. Use an online aggregator. An online aggregator is a platform where you can input your driver and car information once and get quotes from multiple insurance companies. Be aware that all companies will check your driving record before offering an exact quote.
  3. Set up a spreadsheet. Add headings for company names, coverages, discounts, deductibles, and premiums.
  4. Contact an agent. A car insurance agent can be extremely helpful in helping you understand your car insurance policy and the claims process. Independent agents represent multiple insurance companies, and they can save you time by getting quotes for you.
  5. Apply for car insurance with a reputable insurance company. You only need them if you have a claim. When you do, you will want to have the peace of mind they will pay for your loss according to the terms stated in your policy.
author-maurice

Maurice Draine is a former licensed insurance agent, broker, underwriter tech, and agent sales support rep with over 15 years of experience. He has written for dozens of insurance agencies around the world, and when he’s not educating consumers on insurance and finance topics, he spends a lot of time at home with his wife Heather, their two daughters, and their Maltese and PeekaPoo.

We’re here to help you simplify car care and save, so this post may contain affiliate links to help you do just that. If you click on a link and take action, we may earn a commission. However, the analysis and opinions expressed are our own.

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About the Author

Maurice Draine

Maurice Draine

Maurice Draine is a former licensed insurance agent, broker, underwriter tech, and agent sales support rep with over 15 years of experience. He has written for dozens of insurance agencies around the world, and when he's not educating consumers on insurance and finance topics, he spends a lot of time at home with his wife Heather, their two daughters, and their Maltese and PeekaPoo.

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