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.
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.
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. “
In addition to these basic kinds of insurance you should also consider looking at getting collision insurance, which covers your car damages when you hit another car. WalletHub has a great piece on the difference between collision and comprehensive coverage if you are interested. You should also look at getting medical payment coverage, uninsured/underinsured motorist coverage, GAP coverage, and rental reimbursement. Uninsured/underinsured coverage is especially important as it covers an accident if you are hit by someone who doesn’t have enough coverage to pay for the repairs or has no coverage at all. According to the Insurance Research Council, a little more than 13% of drivers on the road do not have insurance. GAP insurance will cover you if you need to take a loan out on your new-to you car and may cover the difference between the balance of your loan and what your insurance company thinks your car is worth if they total it. Once you have taken all these factors into consideration you’re ready to start looking for the best insurance rate.
Start with your car. Depending on the year, make, and model of the car, your insurance premium may go up or down. A general rule of thumb is that the more expensive a car is, the higher the premium will be. Next, check out what your state liability limits are. As we mentioned before it differs from state to state and you don’t want to be underinsured for where you live. Check out coverage minimums here at Edmunds, or via your state’s insurance commission website.
Next, opt for a high deductible. We’ve all been told to use a similar rule when shopping for health insurance. It seems counterintuitive but saying you’ll pay more out of pocket in case of an accident is one sure way to reduce your monthly or bi-annual premium. You essentially are paying less up front but if you are in an accident, you’ll pay more before insurance kicks in.
Outside of keeping your credit in good shape and not getting pulled over for speeding, you should check out the reputations of the insurance companies you are auditioning. A. M. Best Company rates insurance companies and you can see where they fall on the list. The ranking is based on the insurance company’s financial state—something that we all have to be wary of since the great bank failures of 2008. The DMV site has a great list of how to shop intelligently for insurance. You can check it out here.
Once you’re ready apply for a quote from a few insurance agencies. You can do this online through many portals like the one at Nerdwallet, here. You can also visit sites like Progressive, Geico and Esurance, directly, to get quotes as well. You’ll need to provide the year, make, and model of your car, your driving history, personal information like your address, phone number, and Social Security number so that the insurer can run your credit, auto insurance history and whether or not your car will be driven by other drivers on a regular basis. The quote process doesn’t take long and you should have an idea of what your insurance might cost within a few minutes. Once you have the quotes in hand, compare coverage and cost and make a decision.
Digital media content producer/consultant & former CNN senior producer, now running CN'TRL : Cars, Tech, Real Estate & Luxury.