Car Insurance 101

  • Car insurance is necessary for helping society function and recover after accidents since these losses can be difficult to overcome out-of-pocket.
  • There are several coverage options available to choose from, based on where you live, and it’s important to compare pricing between different providers.
  • When you are searching for car insurance, it’s important to remember there are some factors that can influence your policy cost, and these factors aren’t the same for every car insurance provider.
  • Having car insurance allows you to file a claim when you’re involved in a loss or when you cause a loss.
  • If you find yourself encountering trouble locating car insurance, there are still options available to you outside traditional providers.

Car insurance is a function within a society that helps protect you from financial loss while also protecting other individuals from losses you may cause.

The importance of car insurance is so great that almost every state has a compulsory insurance requirement in place; this means you must carry coverage before operating a car. Understanding car insurance can be a daunting challenge, but there are basics that everyone needs to know.

Car Insurance and You

The first auto insurance policy was issued in 1897 by Travelers Insurance Company. This leads to future policies being written with broader coverage, for a price, and eventually the involvement of other insurance providers in the market, leading to more competition and more affordable car insurance.

While the federal government has some stipulations in place regarding how funds are allocated based on a state’s insurance requirements, it’s up to the state to determine the coverage their drivers need before operating a car.

Some states require you to carry minimum levels of liability coverage, others may require no-fault insurance, and even others may accept financial solubility over a certain dollar threshold.

It’s important to remember that car insurance is required in almost every state, meaning you need to have it to drive. This helps protect you from financial and property losses that you cannot recover from, but more importantly, it protects other individuals that share the road with you.

Additionally, car insurance can help pedestrians or those in their home recover from losses you cause, even if they are not on the road.

What are my car insurance coverage options?

OK, so there are a lot of options here. Purchasing coverage for your car can seem daunting, but there are many options available to make it easy to accomplish.

There is no “right” way to purchase insurance anymore, since you can buy coverage online, through an insurance agent, or even through an insurance broker. Agents typically work for a specific insurance provider, while a broker may compare coverage options from different companies to find the best choice for your needs.

When you’re shopping for coverage, you’ll often hear the terms basic coverage and full coverage mentioned. Basic coverage is often the state-required minimum liability coverage, sometimes called compulsory coverage, while full coverage usually means carrying many optional coverage choices in addition to the required coverage.

If you’re leasing your car, most lenders require that you carry full coverage. If you don’t keep full coverage car insurance on your vehicle until it’s paid off, they can put force-placed insurance on your car, which is pricey and can cause you to become high-risk.

Coverage Options and Their Value

Basic liability insurance coverage is the most commonly required coverage, which applies when a policyholder causes bodily injury or property damage to another party; this party does not have to be in a car for coverage to apply.

Collision and comprehensive coverage are two options that protect your vehicle from losses. Collision coverage applies when your car collides with another car, an object, or flips over; this does not include colliding with an animal. Comprehensive coverage, sometimes called “other-than-collision” coverage, covers loss from theft, vandalism, fire, flooding, hail, animal damages, and other unforeseen losses.

Medical Payments (MedPay) and Personal Injury Protection (PIP) are two coverage options that can help protect the driver and passengers of your car if they are injured. Depending on your coverage, this can extend to medical bills, lost wages, funeral costs, and even temporary services that the driver or passenger was providing.

Uninsured and Underinsured Motorist Coverage (UM and UIM) applies when you, an authorized driver, or your car are either involved in a hit-and-run, hit by a driver without insurance, or hit by a driver without sufficient levels of coverage to handle your loss. If you are hit as a pedestrian, this coverage will also provide protection.

Guaranteed Auto Protection, known as GAP insurance, is a coverage that helps protect you when you purchase or lease a new vehicle. When a new car leaves the lot, it immediately starts to decrease in value. Since your insurance policy covers the depreciated value of your vehicle, GAP insurance can help settle the difference between the depreciated value and the amount you still owe on your loan.

There are other coverage options you may need to consider, based on your specific needs. These options may include:

These options should be discussed with your provider before making your final decision.

What discounts can you get on car insurance?

When you are looking at coverage through a provider, be sure to ask about discounts for your policy. Providers offer a number of different car insurance discounts that you may qualify for. If you already carry coverage for a home or another car, you may qualify for different bundle discounts. Your employment or membership in specific groups can also provide you with money-saving options.

Every provider offers different discounts for your loyalty to the company, the number of miles you drive, your driving habits, and even your vehicle safety features. Be sure to speak to your provider to see if you qualify for these or other discount opportunities.

Shopping for Car Insurance

When you are searching for coverage, there are different things to consider before making your decision. You should look at quotes from different providers, looking at the coverage they offer, the benefits or discounts they can provide, and the overall price.

Whether it’s your first purchase or you’re reviewing your policy and getting quotes from other providers, make sure to look at quotes from three or four different providers; this allows you to get a better idea of where your pricing should be for the coverage options you need. However, the price should not be the determining factor as some providers offer better service and long-term benefits compared to others.

Make sure to assess your coverage needs on a semi-annual basis, since your situation may have changed since the last time you purchased coverage. This allows you to review your coverage choices and compare pricing among multiple providers, which can help you determine if you’re getting a good rate.

The Financial Strength of Your Insurance Provider

There is also the provider’s financial standing and consumer standing to consider before purchasing your policy. This means looking at how likely it is that your provider will be around in the future, how easily they can provide financial security to you, and how they work with consumers when handling losses or policy transactions.

Just take a look below at the financial statistics for the top car insurance companies in the country.

A.M. Best Financial Strength Ratings for the Top Car Insurance Companies in the U.S.
Auto Insurance CompanyA.M. Best RatingsDirect Premiums Written (in Billions)Market Shares (in Percent)Loss Ratios (in Percent)
State FarmA++ (Superior)$40.3 (↓)16.20 (↓)63 (↓)
GeicoA++ (Superior)$33.9 (↑)13.60 (↑)71 (~)
ProgressiveA+ (Superior)$33.1 (↑)13.30 (↑)62 (~)
AllstateA+ (Superior)$25.8 (↑)10.40 (↑)56 (↓)
USAA (Military & Family Members)A++ (Superior)$15.7 (↑)6.30 (↑)77 (~)
Liberty MutualA (Excellent)$11.8 (~)4.70 (↓)62 (~)
FarmersA (Excellent)$9.9 (↓)4.00 (↓)61 (~)
NationwideA+ (Superior)$5.7 (↓)2.30 (↓)58 (↓)
American FamilyA (Excellent)$5.1 (↑)2.10 (↑)69 (~)
TravelersA++ (Superior)$4.8 (↑)2.00 (↑)60 (~)

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There are different sources that offer assessments of an insurance provider’s financial status and customer service ratings, such as JD Powers and Consumer Reports. However, there are four independent rating agencies known for their quality evaluations of insurance companies.

These agencies are A.M. Best, Moody’s, Fitch, and Standard & Poor’s, and your potential provider should be researched through one or more of these before making your decision.

Factors Affecting Your Car Insurance Rates

Every insurance provider looks at different factors to determine how responsible you are as a driver, how likely it is that you will be in an accident, and how much risk they are taking on when providing you with coverage. The factors they review boil down to two categories, the controllable factors, and the uncontrollable factors.

The Controllable Factors

There are several factors that any insurance provider will look at that you have control over, which means you can work hard and behave responsibly to alter these factors. These factors can include:

  • Your credit history
  • Your miles driven annually
  • The type of car you drive
  • Where you garage your vehicle
  • Your driving record

Your credit score and credit history can influence your ability to obtain coverage at a reasonable price since this can indicate how likely you are to handle finances responsibly and act responsibly in other aspects of your life.

The type of car you drive and how many miles you drive each year is another factor providers consider. Classic and collector car insurance differs from typical car insurance.

Married individuals that drive a 4-door sedan 10,000 miles each year may be looked at as safer, more responsible drivers. On the other hand, single individuals that drive a 2-door convertible 20,000 miles each year are exposed to higher risks and are more likely to engage in riskier driving behaviors.

You may not realize it but the place you store or garage your vehicle can affect your policy. Vehicles that are parked or stored in areas with high rates of theft, vandalism, or accidents can often carry higher premiums for coverage; it is more likely that you will file a claim due to the storage environment.

Your driving record is a commonly known factor that any insurance provider will consider; this record shows if you have tickets, violations, or other incidents tracked by your state’s Department of Motor Vehicles. This will also show incidents like Driving While Intoxicated (DWI), Driving Under the Influence (DUI), suspensions of your license, or even driving without insurance or a license.

The Uncontrollable Factors

There are a few factors that are considered uncontrollable, which means you cannot change these through hard work or safe driving. The three biggest uncontrollable factors are:

  • Your age
  • Your gender
  • Your years of experience

There is no way to change your age or your years of experience behind the wheel, so this factor is outside your control. Young drivers will almost-universally pay more for their car insurance than those with a few more years under their belt.

Additionally, your gender, unless changed legally, will remain another factor that’s outside your control.

Filing Car Insurance Claims

Your car insurance policy is created with protecting you and protecting others in mind; this protection exists regardless of fault. The facts of the loss and who was responsible will determine if your policy covers the loss or if the other person’s policy should cover the loss.

Before Filing a Claim

Once a loss has occurred, it’s important to take your safety into account first. If you are safe and do not require medical attention, check on others involved if there were others involved. Once everyone has been spoken to, local law enforcement should be contacted to assess the incident, document the facts, and determine fault if it applies.

If you are in an accident, make sure to get basic contact information about the other parties involved, the vehicle information and license plate for any vehicles involved, and details of any witnesses. If possible, take photographs or videos of any damage to share with your insurance provider or any other insurance provider to help the claim investigation.

During the Claim Process

The claims process works differently with each provider, though they all follow a similar structure. Once you have reported the claim, the insurance provider will often investigate the loss; this can include getting any witness testimony, police reports, and pictures or videos of the damages.

Then the coverage on the policy will be taken into consideration, determining what coverage you carry and coverage applies. This includes looking at any applicable deductible, any physical damage coverage you carry, and even rental car coverage if it’s needed.

After the Claim Resolution

Resolving the claim can take varying amounts of time, depending on the number of parties involved, the damages, and the time to repair or replace the vehicle. If there are injuries, this can prolong the claim process even further. Many insurance providers want to resolve your claim in a quick, fair manner that lines up with your coverage; this allows you to return to your normal life as soon as possible.

It’s important to remember that filing a claim can affect your policy later, possibly increasing your premium or causing your provider to non-renew your policy. Before filing a claim with your provider, make sure you’ve assessed the amount of the loss, your deductibles, and any alternative options you have.

Difficulty Finding Car Insurance

If you’re encountering problems obtaining car insurance, remember that you’re not alone. There are always drivers running into this same issue, and your state usually has programs in place to help you with this.

There are two common options you can pursue when traditional insurance providers are unwilling to issue you a policy; these options are state assigned risk pools and private insurance companies.

State Assigned Risk Pools

State assigned risk pools are groups of high-risk drivers that are provided coverage through one of the providers that operate within your state; the percentage of high-risk drivers is determined by the amount of business performed in the state. This means that the company is not given an option when it comes to providing you with coverage, but they do have options regarding what non-compulsory coverage to provide. These policies will carry a high premium compared to a traditional policy.

Private Insurance Companies

Private insurance companies are another option you can pursue because their risk pool is often more flexible due to their diversity. Unlike state assigned policies, you may find that you can still choose optional coverage choices through these providers for a fee. Just like state assigned risk pools, private insurance policies often have a higher premium.


Understanding car insurance is no simple task, but by carrying some basic knowledge, you can be better equipped to handle the challenges it brings. Remember that there are resources available in different forms that you can reference; this includes written resources, audio resources, video resources, and even your insurance provider or agent.

Some great resources that you can review before and after purchasing your coverage include:

Doing your research before purchasing your policy can help keep you from encountering future headaches, so make sure you understand what policy coverage you are purchasing. Any insurance agent, broker, provider, or online website you utilize should be able to provide a reasonable understanding of each coverage option available. If you do not feel you know what coverage you are purchasing, speak to someone before finalizing your choices.