Published: May 25, 2022Updated: August 15, 2022

The Complete Auto Insurance Guide

Your complete guide to what you need and how much you should pay for auto insurance

Almost all U.S. drivers are legally required to have auto insurance, but few know the specifics of how much coverage you need and how to shop for it. You may not be aware of what your state requires, what will be covered, and how much it will cost you.

In this guide, we’ll take you through the ins and outs of auto insurance, from your state’s minimum requirements to choosing a policy and provider.

What Is Auto Insurance?

Auto insurance is a contract between an insurance provider and an insured driver that protects the latter against financial losses if accidents or auto thefts occur. The insured pays the insurer a monthly premium to keep the auto insurance policy current, while the insurer agrees to pay or reimburse the insured for any losses as dictated by the insurance policy.

What Is Auto Insurance

Basic Auto Insurance Terms

When you buy auto insurance, you’ll pick out a premium and a deductible. Let’s define these terms.

  • Premium: The premium is the amount you pay to your insurance provider either monthly, quarterly, every six months, or every year. Paying your premium keeps your policy active, so if you don’t pay, you aren’t covered.
  • Deductible: The deductible is the amount of money you pay out of pocket toward a covered claim before the insurance kicks in.

You’ll start with the bare minimum coverage your state requires (listed below), and then you can add on supplemental coverage, which will increase the cost of your premium. Almost all states require liability for property damage or bodily injury, while New Hampshire and Virginia have no insurance requirements apart from fees— but we’ll detail the requirements and costs below.12

What Affects My Rate?

When it comes to purchasing auto insurance, most people are concerned with one thing: the bottom line. However, the cost of auto insurance depends on many factors, so there’s no one-size-fits-all policy. Here are the factors that can affect your rate.

  • Your policy and deductible: Your policy could have the minimum state requirements or more add-ons, if you prefer. Additionally, a higher deductible means lower premiums, and vice versa.
  • What you drive: Some automobiles are safer than others. In fact, insurers have vehicle safety ratings based on data from industry safety reports as well as customer claims. Safer vehicles could have lower premiums, while less safe vehicles could have higher premiums. Providers determine safety based on how susceptible the vehicle is to theft, damage, and injury, as well as the protection it provides to both the driver and the passengers.
  • How often or how far you drive: Those who use their cars for long-distance commutes may pay more for premiums. To save money, you can take public transportation, carpool, or move closer to your workplace.
  • Where you live: Unfortunately for us living in Brooklyn, urban drivers have higher premiums than their suburban and rural counterparts. That’s because urban areas have higher rates of collisions, auto vandalism, and theft, as we know all too well.
  • Your driving record: Drivers who have caused accidents can expect to pay more for auto insurance.
  • Your credit history: Bad credit could also result in higher costs for auto insurance, while good credit can lower the cost.
  • Your age, sex, and marital status: Statistically speaking, drivers under the age of 25 are at higher risk of collision — single males in particular. Therefore, first-time drivers pay more for premiums, while costs decrease when they turn 25. That being said, some auto insurers, such as State Farm, have auto insurance policies designed for students with rewards for good grades, so there are ways to lower those premiums.
  • Buying a house or moving: If you buy a house or move to another home within your state, that could alter factors such as road conditions, population density, crime rates, and weather, which could affect your rates negatively or positively.
  • Moving states: As we said, changing states may affect your minimum liability requirements, which will factor into costs directly.
  • Getting married, divorced, or widowed: Aside from the tax benefits, getting married could mean lower auto insurance rates, especially if you combine policies. Conversely, getting divorced or widowed could mean higher rates.
  • Having gaps in coverage: If you lived in a big city for years and didn’t have auto insurance, that could make your premiums rise.

FYI

Not all life changes will affect your auto insurance rates. Having kids or retiring won’t necessarily change your rates unless you change your driving habits as a result of these life changes.

What Does Auto Insurance Cover?

Although individual auto insurance policies differ, in general, they cover and don’t cover the following losses.

What It Covers

Auto insurance typically covers:

  • Property: Any damage or theft to an automobile
  • Liability: The legal responsibility for others if there are any bodily injuries or property damages
  • Medical: The costs of covering rehabilitation services, funerals, injuries, or wages lost due to the injuries that took place in your car.3

Policies don’t cover just the insured, but also their family members on their policy who drive their car or someone else’s car with permission. For example, a father of three might put his wife and children on his policy, given they are of driving age, so they can get losses covered as well.

What It Doesn’t Cover

Traditional liability auto insurance doesn’t cover:

  • Driving for commercial purposes: If you drive an Uber or Lyft and get into an accident, your personal auto insurance policy won’t cover you. To get coverage, you’ll need to buy supplementary ride-sharing coverage.
  • Wear and tear: Auto insurance doesn’t cover wear and tear or routine maintenance.
  • Fuel: You’ll have to pay for gas or electricity to power your car yourself.
  • Stolen items: If someone steals something for your car, your auto insurance policy won’t reimburse you for the value of the stolen goods. Your homeowners or renters insurance may cover these items instead.

Why Do I Need Auto Insurance, and What Do I Need?

All states have some requirements for auto insurance, although they differ on a state-by-state basis or if you’ve financed your car. Beyond the statutory, or required coverages, there are also supplemental add-ons available to cover additional losses.

Anatomy of Auto Insurance

All states require property damage liability, while every state except Florida and New Jersey requires bodily injury liability. Here’s a little more information on what those terms entail.

  • Bodily injury liability: Bodily injury liability includes the costs associated with deaths or injuries that occurred as a result of you or another person on your policy driving your car. On average, the minimum bodily injury liability required is about $25,000 for the first person and $50,000 for accidents involving two or more people. Individual coverage is $50,000 on the high end, and $25,000 on the low end. Coverage for multiple people is $100,000 on the high end in Alaska and Michigan, and only $30,000 in Pennsylvania and California.
  • Property damage liability: Property damage liability reimburses third parties for damage that you or another person caused to another vehicle or property such as a fence. The minimum amount of property damage liability by the state is around $18,000 on average. On the low end, the minimum is only $5,000, while Michigan has the highest amount by far at $1 million for damages that took place within the state.

Additionally, many states require:

  • Medical payments or personal injury protection (PIP): PIP reimburses policyholders for any medical expenses that occur as a result of injuries to them or their passengers, as well as lost wages. In no-fault states, PIP is required, with an average minimum of around $13,000 per person per accident, and ranges from $2,000 to $250,000 (sometimes higher). Again, Michigan has the most stringent policy, as the state will pay all necessary medical expenses and lost wages due to auto accidents.
  • Uninsured motorist coverage / underinsured motorist coverage: Uninsured/underinsured motorist coverage reimburses drivers for costs incurred in accidents with other drivers who have no or inadequate insurance of their own. This coverage also applies to hit-and-runs. The minimum coverage required is about $26,000 per person and $53,000 per accident on average. Per person, the uninsured/underinsured coverage ranges from $20,000 to $50,000. Per accident, coverage ranges from $40,000 to $100,000.

Finally, the following coverage is optional in every state.

  • Collision: Most auto insurance companies offer collision coverage, which reimburses you for damage to your vehicle that results from a collision with another object or vehicle, even if you’re at fault. However, collision coverage doesn’t cover normal wear and tear or mechanical failure; rather, it covers damage from potholes, rolling your car, and the like.
  • Comprehensive: Comprehensive insurance coverage includes theft or damages caused by incidents aside from collisions, such as natural disasters like falling rocks, fires, or floods.
  • Glass: Glass coverage pays for damages to your windshield, side windows, rear windows, and sunroof.
  • Gap: Comprehensive and collision coverage only covers the current market value of your car, not the price you paid for it. The value of your car depreciates as soon as you leave the lot, so gap insurance can pay the difference to make sure you get your money back if the car is scrapped or totaled. For leased cars, gap coverage is often rolled into lease payments.

Did You Know?

Sometimes, glass coverage is available as an add-on, while other times, it’s included in policies.

  • Towing, labor, and emergency road service: This covers the costs associated with breaking down on the side of the road and getting stranded, such as towing, battery jumps, and lockouts.
  • Accidental death and dismemberment (AD&D) coverage: AD&D covers any deaths or permanent impairments resulting from an accident, such as loss of sight or speech.4
  • Classic car insurance: Vintage or classic cars require specialized auto insurance policies that account for extra expenses, such as replacing rare auto parts that are difficult to find.
  • Rental reimbursement: This option covers car rental costs if your car is being repaired under a covered claim.
  • Ride-sharing coverage: Ride-sharing coverage is necessary for Uber or Lyft drivers, as auto insurance doesn’t cover commercial driving.
  • Mechanical breakdown insurance: If you’ve purchased a car that is under 15 months old and has less than 15,000 miles, you can purchase mechanical breakdown coverage, which is renewable for up to seven years or 100 miles (whichever comes first). This covers all repairs to a car’s mechanical parts after the deductible is paid, excluding maintenance and wear and tear. We’ve seen mechanical breakdown insurance from companies like GEICO.
  • Optional basic economic loss (OBEL): OBEL coverage adds anywhere from $25,000 to $50,000 in basic economic loss due to an auto accident, meaning that you can decide what expense accesses the funds, be it a rehabilitation center, physical therapy, or general income loss.5
  • Customer equipment coverage: If you want to protect aftermarket products not installed by your car’s manufacturer, such as dash cams or stereo systems, you can add customer equipment coverage, which will repair or replace stolen or damaged items.
  • Transportation/travel expense coverage: Lastly, your policy can cover lodging, meals, and transportation expenses, such as a replacement rental car, that you incur if your car isn’t drivable due to damage that happened over 50 miles away from home. This only applies to damages already covered by comprehensive/collision insurance and also includes the costs of the return trip to pick up your car. However, it does not cover security deposits, mileage, or gas.

What’s Required to Get Auto Insurance?

What’s Required to Get Auto Insurance

If you wish to request a quote or speak to a local agent about auto insurance, you might be asked for the following information:

  • Your vehicle’s make, model, and vehicle identification number (VIN)
  • The names and driver’s license numbers of the drivers the policy will cover
  • Your current coverages and limits
  • Personal information like your Social Security number and birthdate
  • Your driving history, including your history of tickets and/or accidents

When it comes to choosing your liability coverage limits, your agent may ask for more information, such as:

  • Whether you rent or own your home
  • Your assets
  • Your income

Your agent will use this information to determine your coverage limits and premiums. We’ll discuss costs more later on.

What if There’s an Accident?

While auto insurance can reimburse you for financial losses from accidents, it can’t prevent accidents from happening. Follow these steps if you have an auto accident:

  1. Document everything for your insurer; take pictures of the accident and get the personal, vehicle, and insurance information of everyone involved.
  2. Call your insurer to see what’s covered.
  3. File a claim or contact your local agent directly.

Auto Insurance Buying Guide

Once you understand the minimum requirements to meet the law, you can choose a policy based on your needs and preferences. When you’ve selected your coverage, the next step is to decide whether you want a split vs. single limit policy.

A split limit policy includes three numbers:

  • Maximum bodily injury payment per person
  • Maximum bodily injury payment for all people involved in the entire accident
  • Maximum total property damage payment for all property in the accident, which cannot exceed the bodily injury payment per person

A single limit policy, on the other hand, is one number that includes the total limit of property damage and bodily injury insurance. In other words, a single limit policy combines all of the coverage for injuries or property damage.

Split limit coverage is more common because it is more affordable than single limit coverage, especially for those with lower-cost cars.

How Much Does Auto Insurance Cost?

Once you’ve chosen your coverage and limits, it’s time to choose your deductible and premium and find out what your auto insurance costs.

Most of the time, you’ll be able to choose your deductible, but remember that a lower deductible usually means a higher premium, and vice versa. Unfortunately, your insurance provider will set the cost of your premium, taking into account factors such as your age, gender, driving record, credit score, and how much you drive.

How to Save on Auto Insurance

While some things that impact the cost of your auto insurance, like your age, are out of your control, you can save on auto insurance in a few ways:

  • Adjust your deductible. Raising your deductible will mean lower premiums.
  • Drop coverage. If you have an older car, you could get rid of your collision or comprehensive coverage. Additionally, all drivers can save money by dropping medical payments coverage, rental reimbursements coverage, and the like.
  • Bundle your insurance. If you have home insurance or another type of insurance, you can bundle it with your auto insurance to save money.
  • Take a safe driving course. Most insurers offer discounts if you take a driver’s safety course, as well as other promotional deals.

Can I Show My Auto Insurance ID Card From My Phone?

If you’re pulled over by the police, they might ask you to show your driver’s license, registration, and proof of your auto insurance.6 You probably received multiple insurance cards from your insurer when you signed up, but if you didn’t, contact your provider to send more.

Once you get your physical card, we recommend taking a picture of it on your phone, keeping one copy in your wallet, and storing another copy in a locked drawer or safety deposit box at home. But even if you don’t have your physical auto insurance card when the police request it, you may be able to show it on your phone as proof. We suggest using your carrier’s app, which can hold your insurance information and even lets you file a claim from your phone.

Check with your local DMV to see if you can use a digital insurance ID. Some insurers provide you with electronic proof of insurance on a mobile app or a digital version for convenience.

What to Do if You Have a Claim

If you have an auto insurance claim, you can report it to your insurer, as well as the local police and DMV, depending on the incident and your state. In New York, where we’re based, if we get into a car accident and the damages exceed $1,000, we are legally required to report it to the DMV.7

Check your state’s laws to find out when you need to alert a government agency of accidents, injuries, and the like.

Problems With Your Auto Insurance

No auto insurer is perfect. If you run into problems with your auto insurance provider, such as a denied claim or a delayed payment, take the following steps:

  1. Review your insurance policy with the appraisal or arbitration department.
  2. If your problem still isn’t solved, contact your state’s insurance department. Tell them the information you know, and someone will let you know if your case will be reviewed individually.8
  3. You can also get an independent arbitrator to decide if you received a fair settlement. You can find one from the American Arbitration Association, which has resolved nearly 360,000 cases in the year 2021 alone.9
  4. If all else fails, consult a lawyer who specializes in auto insurance, which you can find through your state’s bar association.

Canceling Auto Insurance

If you’re not paying your premiums, or if you’ve committed fraud or misrepresented yourself on your application, your auto insurer could cancel your policy. This can also happen if your driver’s license has been suspended or revoked.

Canceling Auto Insurance

On the flip side, you can choose to not renew your auto insurance policy once it expires. Use the contact information below to cancel your policy.

Auto insurance provider Phone number Mailing address
Allstate Call agent N/A
Dairyland 800-334-0090 N/A
Esurance 800-378-7262 N/A
Foremost 800-532-4221 N/A
Geico 800-841-1587 N/A
Kemper 866-860-9348 N/A
Mercury Call agent N/A
Nationwide 877-669-6877 N/A
Plymouth Rock Call agent N/A
Safeco Insurance 800-332-3226 N/A
State Farm 800-782-8332 State Farm Insurance
One State Farm Plaza
Bloomington, IL 61710
The General 844-328-0306 The General Insurance Headquarters
2636 Elm Hill Pike, Suite 100
Nashville, TN 37214
Travelers 800-842-5075 N/A

Recap

Auto insurance may be an opaque and intimidating industry, but we’re here to help. If you’ve gleaned anything from this guide, it should be one of our key takeaways:

  • Most states require bodily injury and property damage liability insurance, but the exact requirements will differ based on what state you live in.
  • Auto insurance will cover all of the members on the policy on any car they drive with permission, not just your car.
  • The cost of auto insurance can differ based on your age, accident history, gender, where you live, and other factors.

If you’re ready to find a policy that’s right for you, explore our list of the best auto insurance.

FAQs

For more information on auto insurance, read our frequently asked questions below.

We recommend bodily injury and property damage liability for car insurance coverage. We also recommend medical payments or personal injury protection, as well as protection against uninsured motorists and underinsured motorists.

These are the six types of auto insurance:

  1. Bodily injury liability
  2. Property damage liability
  3. Uninsured/underinsured motorist coverage
  4. Medical payments or personal injury protection
  5. Collision coverage
  6. Comprehensive coverage

Use our auto insurance Request a Quote tool to get quotes from the top auto insurance providers in your area. Additionally, read our company reviews to find the right provider for you that offers the required and supplemental coverages you desire.

The six zones around a car are:

  • Front
  • Front left
  • Front right
  • Rear
  • Rear left
  • Rear right

Citations

  1. Insurance Requirements. Virginia DMV. (2022).
    https://www.dmv.virginia.gov/vehicles/#insurance.asp

  2. Insurance Requirements/SR-22. New Hampshire Department of Safety. (2022).
    https://www.nh.gov/safety/divisions/dmv/financial-responsibility/insurance.htm

  3. What is auto insurance? Insurance Information Institute. (2022).
    https://www.iii.org/article/what-auto-insurance

  4. AD&D and Accident Insurance. University of Wisconsin. (2022).
    https://www.wisconsin.edu/ohrwd/benefits/accident/

  5. Professional Insurance Agents. (2022).
    https://pia.org/

  6. WHAT TO DO IF YOU’RE STOPPED BY THE POLICE. NYCLU. (2022).
    https://www.nyclu.org/en/know-your-rights/what-do-if-youre-stopped-police

  7. Shopping for Auto Insurance. New York State Department of Financial Services. (2022).
    https://www.dfs.ny.gov/consumers/auto_insurance/filing_claims_under_your_own_policy

  8. Insurance Departments. NAIC. (2022).
    https://content.naic.org/state-insurance-departments

  9. The Latest from the AAA. ADR. (2022).
    https://www.adr.org/