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!
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 …
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 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.
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.
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.
“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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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).
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).
Guide to Calculating Costs. National Safety Council Injury Facts. (2022).
Summary of Motor Vehicle Crashes: 2019 Data. National Highway Traffic Safety Administration. (2021, Nov).
Medical Bankruptcy: Still Common Despite the Affordable Care Act. National Center for Biotechnology Information, U.S. National Library of Medicine. (2019, March).
Uninsured Motorists, 2021 Edition. The Institutes Insurance Research Council. (2021, Mar 22).