Call it a necessary evil—car insurance—that monthly or bi-annual fee you pay for those “just in case” moments when you or someone else has a very bad day. It’s a factor that plays into the True Cost of Ownership of a new-to-you car and something you have to consider when you’re on the hunt for a new car.
First, it's important to know that car insurance rates can vary wildly from state to state and from company to company. You may find an “amazing” deal only to discover that it could cost you should something happen. Or you may find that some older cars have higher premiums than newer cars. There are a ton of factors that come into play when shopping for insurance, but we at Instamotor are here to help make shopping for insurance for that new to you car a bit less like conjuring a Patronus in Harry Potter.
First, realize that the cost of car insurance is based on a number of factors. What’s your driving record like? Have you had a lot of accidents or traffic violations? What’s the value of the car you are considering buying? What’s the value of the cars you own? How old are you? Where do you live? What’s your credit history like? All of these pieces factor into one larger puzzle that gives insurance agencies an idea of what kind of risk you present.
Debunking Auto Insurance Myths
Next, know that there are lots of myths about how the cost of car insurance is determined. You’ve probably heard that red cars have higher costs because they are more likely to be pulled over. Wrong, according to the Insurance Information Institute’s story on the “Eight Auto Insurance Myths.” Think that you’ll get charged higher premiums the older you get? Think again—many over age 55 can qualify for a reduced rate by completing an accident prevention course. You may have noticed that when you turned 25, your rates went down. That’s because insurance compaies consider that you are less at risk of having an accident because you’ve become a more experienced driver. Maybe you think that buying a cheaper car is the answer to keeping your insurance costs down. Not necessarily so, says Progressive. If your car is an unusual model or weighs a lot it could cost more to insure regardless of how much you paid for it.
What Kind of Coverage Do You Need?
So how do you go about finding a good rate? First decide on how much and what kind of insurance coverage you need. Carrying the state required minimum isn’t always the most cost effective or affordable idea. In fact, according to the DMV “the smallest amount of insurance is most likely not enough coverage.” Almost all states require that drivers have liability insurance. This is insurance that helps pay for injuries and damages to others in case you are in an accident. This coverage doesn’t take care of things like theft or damage by a falling tree, however.
For that you need comprehensive coverage. Comprehensive coverage will take care of things like fires, vandalism, and theft. Beyond that you have collision insurance, which covers some portion of damage from hitting another car or object. It’s important to realize that the maximum payout you can get from comprehensive and collision insurance is the value of your car. Insurance companies determine the value of the car using three factors; the value quotes they can get from places like KBB and Edmunds, the market in your local area, and computerized vendor quotes. Each individual company has its own way of determining value, so there is some behind-the-curtain kabuki that goes into it and as Lifehacker puts it, “if your insurance company writes off your car as a total loss, it’s their job to pay you as little as possible. “