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Convenient transportation is one of the leading reasons to own a private vehicle, but one unavoidable operating expense for every driver is sufficient auto insurance.
Cheap auto insurance rates may sound appealing when the monthly bill arrives, but one of the most important components of any auto insurance policy is the peace of mind that comes from knowing an auto insurance claim will be paid and your personal loss will be mitigated.
Refer to the information in this guide prior to choosing a car to buy, finding a reputable auto insurance company, selecting components of the coverage, trying to figure out the truth about no-fault auto insurance laws, and attempting to lower your car insurance rates.
Prior to Vehicle Purchase
Automobiles have an attraction like no other, and most people tend to purchase more car than is necessary. Even if the actual price is affordable for the buyer, the cost of insurance may be unmanageable within the monthly budget.
Careful consideration must be given to the following factors prior to the purchase of that expensive automobile.
Automobile Type & the Effect on Insurance Rates
Every vehicle is rated by the perceived risk associated with ownership of the car. Insurance companies rate makes and models of every vehicle style introduced by the automobile manufacturers.
In subsequent years, those ratings are changed based on actual loss records. Each style attracts drivers with certain driving characteristics.
- Four-door sedan: This style of car has low annual insurance rates. Corporations providing cars to executives will offer four-door sedans with higher purchase prices because the insurance rates are substantially lower. Insurance companies know that responsible drivers tend to choose this vehicle style.
- Sports car: Sports car drivers may take more risks and drive faster, but the replacement cost of stolen vehicles weighs more on the insurance companies than repair costs. Sports cars sustain more extensive damage in a collision than other makes and models. Plus they are stolen at a higher rate than other makes.
- Pickup: Drivers use pickups for anything under the sun which means more opportunities for injury and property damage. Most providers will ask specific questions about the intended use to determine your rate. Some larger pickups have high theft ratings that affect rates.
- SUV: Sports Utility Vehicles have some of the highest safety ratings which directly influences the annual insurance premium. Certain models have ratings that reflect the increased occurrence of property damage and personal injury because of the unique uses of these vehicles.
- Hybrid: Most car insurance companies are waiting to see how hybrid cars are affected by collisions. Concern exists within the industry about the risk of fire from the battery system in a direct impact. Farmers and Travelers offer a 10 percent discount on the annual insurance premium for a hybrid car.
Make sure you understand how the type of automobile you choose can and will affect the cost of your auto insurance coverage.
Additional Vehicle Insurance Considerations
- Price: Higher purchase prices also mean higher replacement costs in the event of a claim. Insurance rates are directly affected by the replacement cost of the car. Used cars are less expensive to purchase and usually cheaper to insure, but if the used car is rare, the insurance rate could be higher.
- Safety features: Vehicles with air bags, roll bars, crash bars, and automatic seatbelts will be less expensive to insure. Structural reinforcement features also decrease the damage the vehicle sustains in a crash, which lowers repair costs.
- Anti-theft devices: Factory-installed security systems will reduce the annual insurance premium more than a system that is added later. Satellite-monitoring systems have reduced the number of thefts in certain areas of the country.
- Insurance Institute for Highway Safety: Read the “Insurance Losses by Make and Model” summary sheet information for each car that might be of interest. These info sheets are created for a range of model years and provide the potential buyer insight about cars ratings for injury, accident, and theft.
How do I choose an auto insurance company?
The auto insurance industry is closely regulated by the government, and every car insurance company must provide information concerning the health of their company on a quarterly basis.
This oversight creates confidence in the insurance industry’s ability to insure individuals and companies against loss. When choosing an insurance company, review the following ratings for each company of interest.
A.M. Best Company Rating
Since 1905 the A.M. Best Company of Oldwick, New Jersey, has published A+, A, B+, B, C+, or C grades for every insurance company that sells insurance across the United States.
This report is available at most public libraries or of course at ambest.com. The strongest ratings for insurance companies are stated as, “Most substantial,” or “Most favorable.”
Descriptive words, such as “very,” are used to indicate companies that are not as strong as the highest rated insurers. If a qualifier does not precede the company description, the financial strength of the company is weaker than its peers.
|Insurance Company||A.M. Best Ratings||Direct Premiums Written|
|Allstate||A+ (Superior)||$22.7 (↑)||9.19% (↓)||56% (↓)|
|American Family||A (Excellent)||$4.7 (↑)||1.9% (↑)||69% (~)|
|Farmers||A (Excellent)||$10.5 (↑)||4.26% (↓)||61% (~)|
|Geico||A++ (Superior)||$33.1 (↑)||13.41% (↑)||71% (~)|
|Liberty Mutual||A (Excellent)||$11.8 (↑)||4.77% (↓)||62% (~)|
|Nationwide||A+ (Superior)||$6.7 (↓)||2.73% (↓)||58% (↓)|
|Progressive||A+ (Superior)||$27.1 (↑)||10.97% (↑)||62% (~)|
|State Farm||A++ (Superior)||$41.9 (↑)||17.01% (↓)||63% (↓)|
|Travelers||A++ (Superior)||$4.7 (↑)||1.9% (↑)||60% (~)|
|A++ (Superior)||$14.5 (↑)||5.87% (↑)||77% (~)|
Customer Service/Complaint Ratio
A specific rating scale for customer service departments does not exist, but one of the ways to know how well an insurance company handles customer requests and claims is to evaluate the insurer’s complaint ratio.
The National Association of Insurance Commissioners maintains statistics from the complaints filed with the state insurance commissioner in each of the fifty states.
A complaint ratio is calculated when the insurance name and the state name is input. Compare the company-specific ratio to the national average.
|Companies||Ratings (out of 1,000)|
|Liberty Mutual Insurance||810|
Types of Auto Insurance Coverage
Every auto insurance policy is composed of the coverage types required by the state that apply to the driver’s situation.
An experienced auto insurance agent will work with the auto owner to assemble the most appropriate coverage for the best possible annual car insurance rate.
Accurate information should be provided to the agent for sufficient coverage to be provided without overinsuring the vehicle. Here is a definition of key auto insurance terms:
- Collision: Damage sustained in a collision with another vehicle or a stationary object. Replacement coverage should be purchased for vehicles under an outstanding loan to cover the risk of loss.
- Comprehensive: If the car is stolen or sustains damage from any act of nature, this component of the insurance policy would pay the repair or replacement costs. This component covers a rental car throughout the duration of your rental period.
- Liability: Every state requires licensed automobiles are covered by the minimum amount of liability coverage. Substantially higher liability rates may be recommended to cover the possibility of lawsuits exceeding minimum state liability amounts. Liability coverage is split into two major categories (see below).
- Property: Any property damage (public or private) that belongs to another party will be covered. Your personal property is not covered under the liability coverage.
- Bodily injury: When other people are injured in a collision with your vehicle, including unrelated passengers inside your car, their medical expenses are covered by this component of liability coverage.
- MedPay: This component covers medical expenses sustained by you and your immediate family in the event of an automobile accident. If other health insurance coverage exists, this coverage may not be necessary.
- Uninsured/underinsured: Even though every driver is required by law to carry insurance, many drivers do not have any insurance or do not carry enough insurance. This component will cover your expenses in the event an uninsured driver is at fault in the accident or a hit-and-run driver hits your car.
- Personal umbrella insurance: If you have a catastrophic loss, having an umbrella policy will blanket you with extended liability protection.
- Non-owner auto insurance: Non-owner auto insurance is a type of liability insurance for business owners. It protects the company from lawsuits involving personal vehicles that are used for business.
- Food delivery auto insurance: If you’re a delivery driver, your personal car insurance policy does not cover you while you’re working. Most employers don’t offer food delivery auto insurance either, so you’ll be responsible for finding your own delivery insurance.
- Usage-based (pay-as-you-go) insurance: Usage-based auto insurance programs calculate your rates based on the actual use of your car.
- Roadside assistance coverage: Most auto insurance companies offer roadside assistance as an add-on which covers things like towing, keys locked in your car, etc.
- Guaranteed auto protection (GAP) insurance: GAP insurance pays for your car loan if your car is totaled and you owe more than the car’s value.
- Custom parts and equipment coverage: Customized Parts and Equipment Coverage will provide protection for your modified parts that were not installed by the original manufacturer.
- Rideshare insurance: Many ridesharing companies have their own rules and regulations regarding auto insurance. If you are a rideshare driver or are thinking about it, notify your insurance company.
Below you will find data based on which auto insurance company has better rates based on coverage level:
|Insurance Company||Low Coverage Average Monthly Auto Insurance Rates||Medium Coverage Average Monthly Auto Insurance Rates||High Coverage Average Monthly Auto Insurance Rates|
No-Fault Auto Insurance Laws
Lawsuit awards have increased drastically, and the cost of those awards leads to increases in the car insurance rates for every person that holds an automobile insurance policy.
As insurance rates increase, state governments become concerned with the cost of insuring a vehicle. To restrain the size of amounts awarded through lawsuits, some states have adopted a modified no-fault system.
Under a no-fault auto insurance system, the following applies:
- Pain and suffering are covered under the existing liability limits of the insurance policy without intervention by the courts.
- Fault is removed as a part of liability decisions, which means that each insurance company pays for the damage caused by the accident without waiting for a legal decision. Court costs are eliminated since legal actions are avoided.
- Payments are made in a timely manner since each insurance company is expected to pay legitimate claims.
- Lawsuits are not permitted until certain levels of loss are sustained. Each party is immune from lawsuits until the dollar amounts exceed these thresholds.
|Kentucky||X (1)||X||X (2)||X (2)|
|New Jersey||X (1)||X||X (2)||X (2), (3)|
|New York||X (1)||X||X|
|North Dakota||X (1)||X||X|
|Pennsylvania||X (1)||X||X (2)||X (2)|
|Puerto Rico||X (1)||X||X|
|D.C.||(1)||X||X (4)||X (4)|
Source: III.org and American Property Casualty Insurers Association
- Personal injury protection.
- Choice no-fault state. Policyholder can choose a policy based on the no-fault system or traditional tort liability.
- Verbal threshold for the Basic Liability Policy, the Special Policy and the Standard Policy where the policyholder chooses no-fault. The Basic and Special Policies contain lower amounts of coverage.
- The District of Columbia is neither a true no-fault nor add-on state. Drivers are offered the option of no-fault or fault-based coverage, but in the event of a crash a driver who originally chose no-fault benefits has 60 days to decide whether to receive those benefits or file a claim against the other party.
Lower Auto Insurance Premium Rates
Aside from the existing features on the automobile at the time of manufacture, there are ways to lower the annual insurance premium by considering each of the following options and auto insurance discounts:
- Multi-car discounts: When more than one car must be insured, the agent can recommend the best way to list each vehicle on a policy. Specifics on how each vehicle is used will affect the vehicles’ rates.
- Multiple policy discounts: Home, car, and life insurance policies carried by the same insurance company could get a bundling discount on each policy.
- Limited drivers: Limit the teenager’s driving to a less-expensive car to avoid high premiums. The experienced insurance agent may make additional recommendations.
- Liability-only coverage: Older cars that are not worth replacing can be driven under a liability-only policy. The cost to repair some cars would be higher than the value of the car so liability-only coverage may be prudent.
- Low-mileage discount: Cars that are rarely driven are less expensive to insure because the risk of loss is lower. Usage information must be provided to the agent to leverage this discount.
- Increase deductible: If a higher deductible is affordable within the household budget, raise the deductible paid on each claim. Consider the deductible on the home insurance policy in addition to the automobile deductibles since multiple losses could occur.
- Maintain good credit: Insurance companies run credit reports when calculating the annual insurance premium, and people with healthy credit scores are rewarded by insurance companies.
- Clean driving record: All moving violations will increase the annual insurance premium. Speeding and other dangerous driving habits raise the risk of loss for the insurance company.
Applying for Auto Insurance
Auto insurance is a necessary aspect of being a responsible driver, but appropriate coverage can be purchased without carrying unnecessary coverage. Agents are required to include all information that is provided by the insurance applicant.
Accurate information must be provided because falsifying any entry on the insurance form can negate the coverage. The importance of including every driver that will operate a vehicle on the policy cannot be overstated.
When the insurance company discovers the inaccuracy, the policy will be canceled and any claims will be denied.
Insurance companies can challenge car insurance claims that are filed to cover a driver that was intentionally omitted from the policy, which happens frequently with teenage drivers.
Insurance companies have worked diligently to influence laws that reduce the risk and loss of income they incur by inaccurate information on policy applications.
Denial of claims will be supported by the courts if proof of intent can be provided. Always provide accurate information to prevent claim denial after an incident occurs.
Finding the Best Auto Insurance Rates
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