Published: March 18, 2022Updated: March 21, 2022

Car Insurance First-Time Buyer’s Guide

Obtaining auto insurance is an adult obligation for which many are unprepared. After years on your parents’ policy or not driving in the U.S., it’s time to drive solo … but where do you even begin?

Like dealing with mortgages, medical plans, or investments, choosing the right coverage can be intimidating — especially if you don’t know the vocab. This brief guide will help you understand the main terms so you don’t waste money or end up underinsured … and can really impress your friends at parties!

Players in the Policy Game: How to Shop for Your Policy

In the Amazon age, consumers are accustomed to purchasing everything with just a few clicks — but buying auto insurance isn’t like stocking up on batteries. More a contract than a product, auto insurance can be pretty complex and should be tailored to individual needs.

For optimized coverage, you’re better off shopping with a real human being. No, that doesn’t include Alexa — it’s usually an insurance agent or an insurance broker. What’s the difference? Funny you should ask …

Insurance Agent

An insurance agent is a salesperson working directly for insurers, usually representing a single company (though independent agents may contract with several). This allegiance limits your options from a single agent, but they’ll be more familiar with the product. Agents remain a connection and consultant for the duration of your policy, able to bundle other coverage (health, life, home, etc.). They are paid by the insurer in the form of commissions.

Insurance Broker

Insurance brokers are independent operators who shop among providers to connect you with the best-suited policy. Their autonomy allows for a wider array of choices and makes them unbiased advisors, though varying commission rates sometimes influence their advocacy. Brokers cannot complete your coverage; they only connect you with the company you choose. They charge you a fee for the service and move on after the transaction.

Before reaching out to anyone, you should familiarize yourself with a few key terms so you can follow what the agent or broker is saying.

Learning the Lingo: How to Speak Insurance-ese

Shopping for insurance won’t require an interpreter, but some of the auto insurance definitions will sound unfamiliar unless you brush up on the buzzwords below.

  • Quote: The proposed cost of requested auto coverage. Insurance prices differ greatly based on statistical factors, driving patterns, location, coverage level, and the service or reputation of the insurer. There’s no such thing as an off-the-shelf price, so you should compare the rates of different companies. Starting with a broker is a great shortcut for assembling competitive quotes from an array of providers.
  • Policy: The written agreement that spells out the conditions and provisions of your coverage. Like any contract, it’s drafted by lawyers who aim for precision rather than clarity — meaning many civilians need a translator. Most policies follow the same basic template, but definitely ask your agent to explain anything confusing before you sign.
  • Premium: The payment due to keep a policy active. The quote outlines what coverage will cost, the policy puts it in writing, and the premium is the amount you must submit to keep your coverage current. Depending on your policy, premiums may be due monthly, quarterly, or annually (usually with price breaks for those who prepay or set up automatic billing).
  • Deductible: This is the amount you must pay out of pocket before any insurance reimbursement kicks in. For example, you might have to pay the first $500 in repairs, then your policy will cover the rest. Generally, the higher your premium, the lower the deductible, so saving money upfront may cost you later.
  • Added and excluded drivers: Members of your household specifically allowed to drive (added) or forbidden from driving (excluded) an automobile under the policy. Auto coverage generally follows the car rather than you as a driver. Other family members will usually be covered, but listing them on policies eliminates ambiguity. Some drivers may be specifically excluded from coverage (due to age or driving history) unless you pay higher premiums.
  • Claims adjuster: An investigator assigned to your case after an accident. They are part detective, part administrator, and in charge of assessing your insurance claim. They’ll often take photos, collect statements, and assemble records to establish fault, diagnose damage, resolve coverage issues, and recommend payments or settlements.
  • Totaled: When the cost to repair a car exceeds the vehicle’s value, insurers consider the auto “totaled” and cut you a check for its pre-collision value. This can be frustrating because cars depreciate so quickly but remain expensive to replace. Certain supplemental policy provisions can protect you from this fate (see below).

Are you starting to feel bilingual? We haven’t defined every tricky term, so you aren’t yet fluent, but it’s enough to get started and sound like you know what you’re talking about. There are more terms to learn regarding types of policies and coverage that we’ll explain in the following sections.

Coverage Type: Liability

“Auto insurance” is an everyday term that lacks a singular meaning. Before picking a policy, you need to understand what each type of protection covers, as there are different types of car insurance and coverage, from bodily injury and property damage to comprehensive and collision coverage.

The amount of coverage you get will determine your car insurance rates, as will your driving experience and other factors. For example, people who want full coverage will get more expensive car insurance quotes from all car insurance companies, as adding supplemental insurance costs more, whether they’re first-time drivers or not.

There are different insurance elements that cover repairs to your own car, personal medical bills, the damage and injuries you cause to others, or an assortment of extra expenses separately. We’ll go into specifics for each area, starting with policies that protect you from legal liability.

Liability insurance covers damage you cause to others. This coverage is required by almost every state, so it’s an excellent place to start with your policy. Liability coverage usually has two parts: bodily injury and property damage.

  • Bodily injury: This pays for injuries suffered by others in an accident you’ve caused. Bodily injury coverage generally covers passengers in any vehicle (excluding your own), other drivers, and even pedestrians — physical harm suffered by anyone other than yourself or your passengers, essentially. This insurance is required in 48 states (all except New Hampshire, Florida, New Jersey, and Virginia).
  • Property damage: Property damage coverage helps pay for the costs of non-bodily destruction resulting from an accident you caused. It includes repairs to other autos, damage to property, or losses of personal belongings, but it doesn’t cover any harm to your own car or possessions. This insurance is required in 47 states (all except New Hampshire and Virginia, the two states that don’t require car insurance, though opting out in Virginia requires a $500 annual fee).

Liability limits are defined in policies by three numbers, referenced in this format: Per-person injury limit/Per-accident injury maximum/Property damage coverage.

The most common state minimums are 25/50/10 policies, meaning coverage up to $25,000 in medical bills for each victim in an accident, with a cap of $50,000 for all injuries sustained in a single crash, along with $10,000 total to cover property damage.

These limits vary by state: Alaska and Maine require 50/100/25 policies, while California, New Jersey, and Pennsylvania only demand 15/30/5 coverage. Check your local laws in our comprehensive auto insurance guide.

NOTE

In all U.S. locations except New Hampshire and Virginia, you need car insurance to legally operate a vehicle. Not only is driving without liability coverage socially irresponsible, it also leaves you legally and financially vulnerable. Even with insurance, you could be held personally responsible for all damages beyond your policy limits. The average financial impact of a nonfatal accident is $100,000,1 so it makes sense to carry as much protection as you can afford.

Now that you’ve met your legal obligation, let’s look at how auto insurance can protect your investment and your health.

Coverage Type: Repairs for Your Car

There are nearly 20,000 auto accidents in America every day — thankfully, more than two-thirds cause property damage only.2 You’re more likely to end up with a dent than a bruise, but do you have savings to pay the mechanic?

Minor crashes can cause major headaches when they put your car out of commission. Repairs are expensive, but your car is essential, especially for getting to work. Will insurance cover the bill? What if the accident is your fault, or the other driver is uninsured?

Check out these coverage options that can get your ride rolling again after a collision.

  • Comprehensive coverage: Of all the confusing insurance lingo, “comprehensive coverage” may be the most misleading. Rather than offering protection against everything, comprehensive coverage reimburses vehicle damage caused by almost everything other than collisions. Theft, fires, break-ins, vandalism, and weather destruction are covered, but not damage stemming from an accident. Comprehensive coverage is particularly comforting for drivers who have new cars or live in urban environments. If you carry a loan or a lease, your creditor may require both collision and comprehensive coverage.
  • Collision coverage: Here’s a term that says what it means! Collision coverage will reimburse you for physical damage done to your car in an accident where you are at fault. This provision isn’t mandated by law, but your titleholder may require it in your contract.
  • Uninsured motorist property damage (UMPD): If you’re hit by a driver who doesn’t have insurance or flees the scene of the accident, uninsured motorist coverage for property damage pays for the damages they caused to your car.

FYI

Collision and comprehensive coverages are not legally required but can be financial lifesavers after a crash or another damaging incident. If you drive a new car, live in an area where accidents and vandals or thieves are common, or can absorb regular premium payments easier than one big collision bill, you should especially consider such policies.

These types of insurance help at the body shop but don’t cover shots to your body, so let’s look at policy provisions that aid with medical bills.

Coverage Type: Your Medical Bills

Auto repair can be expensive, but nothing like staggering hospital bills: Medical debt is a contributing factor in two-thirds of personal bankruptcies.3

Ideally, the cost of treating accident injuries should be borne by the at-fault party’s policy or your health insurance … but if you lack good coverage or they’re driving without insurance, the impact could be catastrophic.

Here are some provisions you can add to your auto coverage to help defray daunting doctor bills.

  • Medical payments coverage: Also known as MedPay, this coverage offers reimbursement for medical expenses regardless of who caused the accident. It covers passengers in your vehicle and protects all listed policyholders, even if they are passengers in another vehicle or struck by a car while on foot (or bike). The catch is that MedPay limits are usually low (around $10,000 per accident), so it helps with minor injuries but won’t fully cover extended hospital stays. It’s available in at-fault states.
  • Personal injury protection (PIP): This coverage is similar to MedPay in scope, but it generally offers higher coverage limits and also helps pay for injury-related expenses (like lost wages or personal services). PIP policies are only available in about half of the states and required in about a dozen (no-fault states).
  • Uninsured/underinsured motorist coverage (UM/UIM): Usually bundled together but sometimes offered separately, these provisions pay medical expenses caused by parties without insurance or whose limits won’t address all the bills. UM/UIM covers you and passengers in your vehicle, with separate limits for each person and each accident. For instance, a 25/50 policy will pay $25,000 per victim but no more than $50,000 for any one collision. Coverage generally cannot exceed your liability limits, but for a higher premium, insurers in some states will allow you to “stack” UM/UIM protection, combining the limits of each covered vehicle. Basic UM/UIM policies are available everywhere, and 20 states require minimal protection.

TIP

It’s a no-brainer where these policies are required. Even when optional, PIP and UM/UIM coverage are often good deals that prove invaluable in an emergency. Be sure to check your health insurance policy for gaps in coverage, high deductibles, or omitted out-of-pocket expenses that MedPay or PIP may offset. Keep in mind that an estimated 12 percent of drivers don’t carry insurance,4 so reimbursement can be like roulette without UM/UIM coverage.

Coverage Type: Other

If you’ve already evaluated liability, property, and medical coverage, you’ve covered the auto insurance basics. Before finalizing your policy, check out the assortment of supplements and specialized offers available from most insurers; some might be perfect for you.

  • Roadside assistance: This add-on component can supply real peace of mind and be a godsend if your car breaks down. If you encounter mechanical trouble, you can call your insurer, who will dispatch help to get you back on your way. Services vary by company but often include towing, tire changing, locksmith service, fuel delivery, and jump-starts. You need this if you have a less reliable car, aren’t a AAA member, often drive for long distances or in unfamiliar areas, or simply don’t want to worry about emergencies.
  • Rental reimbursement: Usually an add-on to collision or comprehensive coverage, rental car coverage helps pay for a rental car while your covered vehicle is undergoing repairs. It can save a lot of money if your car will be in the shop for a while. You need this if you don’t have another available car, you rely on your auto for work, or you live in an urban area where rental fees really add up.
  • Gap coverage: Gap coverage bridges the “gap” between what your car is currently worth and what you still owe in financing. Cars quickly depreciate, and collision insurance considers only an auto’s present value, so totaling a new(ish) vehicle could leave you owing far more on your loans than the check your policy delivers. This option will cover that difference. You need this if you owe more on your auto lease or loan than your vehicle is worth, which is usually the case with new cars or financing with long terms and/or a low down payment. You can drop the coverage once your position is no longer underwater.
  • New car replacement: Like gap coverage, this provision kicks in when a new car is totaled and collision coverage delivers only the depreciated value. Instead of paying the remaining financing obligation, this option supplies the additional funding to purchase a replacement of the same make and model. You need to have collision coverage first, and eligibility is generally restricted to cars less than 3 years old. You need this if you drive a new car, can’t replace it without assistance, or wish to eliminate anxiety, and/or if the coverage compensation from your insurer is insufficient to buy a new car.
  • Custom parts and equipment (CPE) coverage: Standard insurance only considers the value of a car’s baseline make and model, leaving you shortchanged for the add-ons that made your sweet ride even sweeter. CPE protection reimburses drivers for the extra investment in modifications or customization. You need this if you’ve put a lot of time and money into improving your car with tires, rims, paint, sound systems, spoilers, or more.
  • Accidental death benefit (ADB): ADB functions as a life insurance policy, covering only the deaths of policyholders in auto accidents. Fatalities needn’t occur in the collision, but usually within two years from directly attributable factors. Because of its limited scope, ADB shouldn’t be considered a replacement for life insurance but can be an affordable supplement. You need this if you are a young driver, provide for others, drive often, and/or believe that the additional payout to your benefactors is worth the minimal premium increase.
  • Extraordinary medical benefits: MedPay policies rarely cover health costs that exceed $100,000, but catastrophic injuries or extended hospital stays can quickly eclipse that amount. This option protects you from bills exceeding MedPay limits in increments up to $1 million. You need this if you desire security from crippling medical bills and lack other forms of catastrophic health coverage.
  • Umbrella liability coverage: This option also shields you from financial responsibility beyond basic policy limits — not your own medical costs, but the damages you cause to others. If you severely injure another person or people, cause extreme property destruction, or are responsible for a multi-car accident, your legal exposure can easily exceed liability coverage. An umbrella policy kicks in to protect you and your assets from judgments above basic limits. You need this if you have substantial assets that could be targeted by a lawsuit, often drive with others in the car (carpooling or ridesharing), or simply want to be safe and socially responsible.

Recap

Now that you’ve read everything there is to know about buying car insurance for the first time, learn how to get car insurance, or keep reading our car insurance FAQs for more information.

Auto Insurance FAQs

It’s tough to cover every question or contingency, so here are a few more common queries. If you don’t find your answer here, be sure to check our other guides.

How long can I stay on my parents’ auto insurance policy?

Unlike health insurance, auto insurance eligibility isn’t governed by age; rather, it’s connected to vehicle registration and domestic situation. As long as you live with your parents and drive their car, you can remain on their policy. If you live under their roof but have your own car, some companies will allow you to combine family coverage. If that option isn’t available or you move out, it’s time to find your own insurance.

Does it cost anything to get an auto insurance quote?

Since companies are hoping to attract your business and loyalty, getting an auto insurance quote is almost always free. Most major insurers even offer approximate quotes via interactive applications on their websites.

How many quotes should I get for comparison?

There’s no single answer to how many quotes you should get for comparison when shopping for car insurance. It depends on the complexity of the coverage, your personal comfort, or the consistency of what you find. You’ll want at least three quotes to start, then maybe seek more if you’re unsatisfied or there’s a wide range between them. Remember that an insurance broker can secure several quotes at the same time.

What (besides price) should I consider when comparing competing quotes?

For accurate comparisons, always ensure that competing policies offer the same level of coverage, both for limits and deductibles. Next, look carefully at all features. Basic liability, property, and medical policies tend to feature similar coverage, but differences may emerge among supplemental provisions.

If you have customized your car, need gap coverage, or are concerned with the elements of roadside assistance, take time to delve into details. On a broader level, consider the relative reputations and reviews of insurers, check out the company’s physical presence in your area, and see if any company will bundle other coverage you need (such as health, life, or renters insurance).

What determines the price of my premiums, and why is my friend paying less?

Even where basic coverage is consistent, costs can vary for each customer; there are no off-the-shelf prices. Premiums are determined individually by actuarial algorithms incorporating a wide range of factors.

You’ll notice that applications can get pretty intense and ask for detailed personal information (age, gender, occupation, marital status, driving record, credit score), vehicle information (make, model, mileage, year, color, VIN, safety features), and other demographic facts (mainly your ZIP code to check accident and criminal stats).

Citations

  1. Guide to Calculating Costs. National Safety Council Injury Facts. (2022).
    https://injuryfacts.nsc.org/all-injuries/costs/guide-to-calculating-costs/data-details/

  2. Summary of Motor Vehicle Crashes: 2019 Data. National Highway Traffic Safety Administration. (2021, Nov).
    https://crashstats.nhtsa.dot.gov/Api/Public/ViewPublication/813209

  3. Medical Bankruptcy: Still Common Despite the Affordable Care Act. National Center for Biotechnology Information, U.S. National Library of Medicine. (2019, March).
    https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6366487/

  4. Uninsured Motorists, 2021 Edition. The Institutes Insurance Research Council. (2021, Mar 22).
    https://www.insurance-research.org/research-publications/uninsured-motorists-2021-edition