- First-time car buyers may pay triple what experienced drivers pay for insurance premiums.
- It typically costs 25% more to insure a teenage male driver than teenage female driver.
- State minimum car insurance requirements set the bar for the coverage you absolutely need, expressed as three numbers in this format: XX/XX/XX
When you get off your parents’ car insurance and buy your own policy, you’ve unlocked a new level of adulting. But how exactly is liability insurance different from comprehensive insurance, again? It’s hard to keep these things straight. If you’re a first-time car insurance buyer, reading through policy jargon feels a lot like a math class flashback.
What’s more, if you get the wrong type of insurance or don’t buy enough coverage, you could end up in financial trouble after a fender bender. Never fear, we’re here to help. Here’s how to pick your first car insurance policy and what affects your premium costs.
How to Shop for Car Insurance for the First Time
So, where do you start? Buying car insurance for the first time sounds overwhelming, but it’s not so scary when you divide it into manageable to-dos. Follow these four steps to get your first car insurance policy without getting hosed.
1. Research state laws about car insurance
Each state has its own car insurance laws. The local authorities want to make sure you’re able to be financially responsible for any accident you may be involved in. More often than not, states have what they call “mandatory minimums.” These laws let you know the bare minimum coverage you’re required to have.
Insurance minimums are often reflected in this format: 25/50/25 (the exact numbers might be different). The digits here reflect financial values for specific types of car insurance coverage.
In other words, 25/50/25 coverage translates to:
- $25,000 of coverage for personal injury damage insurance
- $50,000 of coverage for all personal injury damages in a single accident
- $25,000 of coverage for all property damages in a single accident
Make sure you know what your state covers before you buy a policy.
2. Get multiple quotes
The first insurance quote you get may not be the best for you. Just like when you’re searching for a place to rent or a new pair of shoes, you want to compare a few options. Getting at least three to five quotes is a good place to start. You can always go back and adjust coverage limits if the quoted premiums are too high for your budget (as long as you meet mandatory minimums).
3. Apply every discount you can
Oh, you didn’t think you should pay full price, did you? There is always a discount. Student discounts, good driver discounts, and discounts for having a good car alarm are all on the table. If you don’t see discounts online, make sure you call someone on the phone (ugh, we know) and ask how to lower your premium.
4. Add insurance to your vehicle immediately
Once you make a decision, give your insurance company your car’s make, model, year, and VIN. It will also need your driver’s license information. If you’re on your way to buy a car, you should make contact with your insurer of choice beforehand and let it do some preliminary work to get you in the system. Then you can call the company from the dealership and add the car to your policy before you drive off the lot.
We also have to mention that bundling does wonders when you’re buying insurance for the first time. New drivers or car insurance buyers often have a shorter driving history and fewer discounts available. Bundling your car insurance with renters insurance is one almost sure-fire way to pay less, and your renters insurance company already has your good payment history on file, which might help you save more.
Factors That Affect Car Insurance Premiums
Lots of things affect how much you’re quoted for car insurance. Both your driving record and the car itself play a part. Insurance companies will primarily consider:
- Driver profile
- Age, gender, credit score, and zip code all inform your premium quote.
- Drivers under the age of 25 tend to pay higher premiums.
- Drivers with better credit may also save on car insurance.
- City drivers also pay more, because the chance of accidents and theft is higher than in rural areas.
- Male drivers may also pay more for insurance (especially in their teens and early 20s).
- New cars have a higher value, and therefore higher insurance costs.
- Insurance premiums also consider the make and model of a car, as some cars are more likely to have expensive repairs.
- The purpose of your vehicle (work or leisure) also matters. If you use your car for work, you may pay more.
- Driving history
Auto Insurance Terms You Need to Know
We know you didn’t learn anything about how car insurance works in school, so here’s some basic vocab to get you up to speed on the different aspects of car insurance.
It’s pretty self-explanatory, we know, but as the name suggests, collision coverage is for any damage to your vehicle caused by a collision with another car.
Not everyone has enough coverage or follows the rules of the road, so underinsured and uninsured motorist coverage is for instances when an at-fault driver hits your vehicle and doesn’t have enough insurance — or no insurance at all — and can’t fully pay for the damage caused.
Again, it seems pretty simple enough. Bodily injury coverage is a part of car insurance that covers injuries caused by an accident and includes coverage for medical expenses, lost wages, physical rehabilitation, and even funeral expenses.
Property damage coverage, also called property liability, is for the times you hit something with your car. So that includes other people’s vehicles and non-vehicle property. Let’s say you run into a fence — property damage liability coverage will cover the repairs.
This is commonly confused with your deductible. Your premium is like a monthly subscription to car insurance — it’s the bill you pay every month for active car insurance coverage. Drivers can also opt to pay lump sums every six months or year for auto insurance coverage.
A car insurance deductible is like an upfront fee that you have to pay before your coverage kicks in when you file a claim. For example, a $500 deductible for comprehensive insurance means that if there’s $1,000 worth of damage done to your car, you pay $500 and insurance will cover the rest.
If you have a car loan or lease your vehicle, gap coverage will financially protect you in case your car is totaled. Let’s say there’s $9,000 left on your auto loan and someone hits you and totals your car. Gap coverage will kick in and pay for the remainder of your auto loan or lease agreement.
Limits are the maximum amounts that an insurance company will pay out when you file a claim. If a policy has $100,000 for personal injury liability coverage, then that is the max amount that the insurance company will pay out for injuries after an accident. There are minimum coverage limits set by each state that every driver must have to drive legally. They are expressed as three numbers, for example: 25/50/25. This means at least $25,000 bodily injury per person, $50,000 bodily injury per accident, and $25,000 property damage liability.
When a car is damaged — in a multi-car accident, single-car accident, vandalized, or damaged by nature events — the policyholder then files a claim with their insurance company. This can be done on a mobile app, online, or over the phone. Once the claim is submitted with pictures, a description of the damage, and sometimes a police report, the insurance company will investigate and process the claim. After it’s all said and done, the company will cut checks for repairs, medical bills, and any other monetary losses covered under the policy.
How Much Car Insurance Coverage Do I Need?
Consider the following when you’re narrowing down your top insurance options.
- Leasing vs. financing: Leased cars usually have higher insurance premiums than financed cars and may require higher-end coverage than you’d choose on your own. As Geico explains, “Leasing a car usually requires a higher insurance premium because the leasing company technically owns the car in full and wants to make sure the car is well-covered in case of an accident.”
- New vs. used: Buying a brand new car? You probably want comprehensive coverage. Since the value of your car is high, you want to make sure you can recover the total cost of the car if (knock on wood) you total it after three months. Used cars may be better suited for plans that just meet mandatory minimums.
- State minimum: You always want to make sure you meet state minimum requirements. In a way, your state makes some of your insurance decisions for you. That can be frustrating, but you don’t want to get caught in a situation where you are liable for an accident and your insurance can’t cover the cost — you could get sued personally.
- Dropping comprehensive coverage: It’s not usually worth it to carry comprehensive coverage if your car’s value is far less than the deductible. Once your car is paid off or at a certain age, you may want to downgrade to strictly state-minimum liability insurance.
- Medical payments limits: Medical payment coverage is essential. This protects you in case you injure someone in an accident, or you get injured yourself. Regardless of the state of your car — you want to be covered well in this department.
- At-fault and no-fault states: There are 18 states that offer no-fault insurance. In no-fault states, few lawsuits are allowed. Instead, each party’s insurance covers their own injuries and property damage, regardless of who was at fault. Some states may require you to carry this coverage, often called personal injury protection (PIP) insurance.
How Car Insurance Works During WFH
Insurance companies don’t explicitly offer work-from-home discounts, but they may offer low mileage discounts. And if you’re working from home or you walk to work down the street — you should definitely jump on these benefits. California actually requires insurance companies to consider mileage driven when giving premium quotes. According to California Insurance Code Section 1861.02(a) and Title 10, California Code of Regulations, Section 2632.5(c)(2), a mandatory automobile rating factor is “…the estimated number of miles driven annually for the twelve months following policy inception.”
You may be required to drive as little as 5,000 miles per year to qualify for low mileage coverage. If you can’t quite meet that threshold — don’t throw in the towel just yet. You might also be able to enjoy a lower premium just by switching your primary vehicle usage from commuting to work to leisure.
Whatever you do — be honest with the insurance company. Your insurance provider may ask for an odometer reading if you apply for low-mileage coverage. If you drive an average of 16,000 miles a year after reporting 4,000-mile averages, it could deny any claim you submit later on. We call that an expensive and avoidable mistake.
Are You Ready to Buy Your Own Car Insurance?
First-Time Car Insurance FAQ
First time car insurance holders can pay almost triple the cost of premiums for an experienced driver. Keep in mind you may be able to get your annual premiums lower with discounts.
If you’re buying an older used car as your first vehicle, it’s usually all right to stick to liability insurance. Whenever possible, go with a policy offered by a renters insurance company you already use to enjoy a bundle discount.
Online shopping is the best way to get fast car insurance quotes. However, you should always follow up with a phone call to discuss discounts that may not be advertised on a company’s website.