Your First Car! Here’s What You Need to Know About Auto Insurance

Here's what to know if you are a first-time car insurance buyer. 

Barbara MarquandJun 22, 2015
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The first time you settle into the driver’s seat and start the engine of your very own car is special, whether your ride is a sporty, new model you received as a college graduation gift or a clunker you bought with summer job earnings. Before you hit the road, though, take a moment to learn how to buy car insurance so you can get the protection you need where you live.

When you drive your parents’ cars, you’re covered under their policy. Once you’re the registered owner of a vehicle, however, you need to buy your own car insurance.

Car insurance not only protects you financially in an accident, but it also keeps you within the law. In most states, you must buy at least a minimum amount of coverage to drive legally.

Important terms about auto insurance

If you are a first-time car insurance buyer, it’s a good idea to understand the different types of coverage a policy can include. Some types are required, and some are optional:

  • Liability insurance pays for the repair of damage and the treatment of injuries other people suffer if you cause an accident. Coverage limits are often expressed as a series of three numbers, such as 100/300/50. This means your policy would pay up to $100,000 for injuries to another person, up to $300,000 in total bodily injury claims in an accident and up to $50,000 for property damage. Most states require you to buy a certain minimum amount of liability insurance, but you can (and often should) buy more.

  • Personal injury protection (PIP) or medical payments (MedPay) insurance covers your and your passengers’ medical bills for accident-related injuries, no matter who caused the accident. Some states require you to buy PIP or MedPay. The coverage varies by state, but at its broadest, PIP also pays for lost wages and the cost to replace services the injured person would normally have performed, according to the Insurance Information Institute. It might also cover funeral costs.

  • Uninsured motorist coverage pays for your medical treatment if you’re hit by a driver who doesn’t have insurance. Underinsured motorist coverage pays for your treatment if the driver doesn’t have enough liability coverage to pay all your medical bills. You may also be able to buy uninsured motorist property damage coverage, which pays for repairs to your vehicle. Some states require drivers to carry some form of uninsured motorist coverage.

  • Collision and comprehensive insurance are optional as far as states are concerned. Collision coverage pays to repair your car if it’s damaged in an accident, or reimburses you for the market value of the car if it’s totaled. Comprehensive coverage pays out if your car is stolen or damaged by something other than a traffic accident, such as a natural disaster, vandalism or collision with an animal (for example, if you hit a deer on the highway).

  • Extras are available, such as roadside assistance and rental reimbursement coverage, which pays for a rental car if yours is in the shop due to a claim.

Knowing a little about auto insurance can go a long way toward making sure you have sufficient coverage in place.

Decide how much you need

You should have enough liability insurance to protect your assets — meaning property and savings — in case you’re sued after an accident. A homeowner, for instance, should have car insurance liability limits at least as high as the home’s value, plus the value of any savings and other property. You may not have many assets to protect if you’re young, but keep in mind that the minimum liability amounts required by states are generally very low, and increasing your limits is inexpensive.

If you leased or financed your new car, then the lender or leasing company will require you to buy collision and comprehensive insurance. Even if you don’t need to buy them, remember that if you don’t, you’ll have to pay to repair your car after an accident or mishap.

Shop around

Car insurance rates vary widely by company, so it pays to shop around. Get quotes from several companies. The NerdWallet car insurance comparison tool can help.

To keep premiums low:

  • Drive safely to avoid accidents and tickets.

  • Make sure you get every possible discount. Many insurers offer discounts if your car is equipped with safety features, such as airbags and anti-lock brake systems, and anti-theft devices. You can also save by paying your yearly premium in full instead of in monthly installments and choosing paperless billing.

  • Pay your loan and credit card bills on time, and keep your credit card balances low. A good credit history can help you earn low rates in most states.

  • Raise your deductible for collision and comprehensive insurance, if you have them. The deductible is the amount your insurer subtracts from your claim check after your car has been damaged or totaled. It’s the portion you’re responsible for paying to repair the car or buy a replacement. The higher your deductible, the lower your premiums, in most cases. But have the amount of your deductible set aside in case you ever need to pay it.

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