Auto insurance rates vary by person. It might cost more or less than someone you know, even if you have a clean driving record. Insurers determine your rates using a wide range of factors. These are usually details about you that relate, even if somewhat loosely, to driving and car insurance. Knowing about these rate factors can help you figure out how to pay less money for coverage.
The major auto insurance rate factors include:
However, these aren’t the only factors that can cause your rates to be high or low. The type and amount of coverage you buy will impact your rates in a big way. This might seem like an obvious rate factor. But it’s important to keep in mind. Otherwise, you could end up paying more than you can handle.
Each state requires a minimum amount of coverage. But this doesn’t stop you from adding more. It’s up to you to select your deductibles and limits as long as they fit your state’s bare minimum requirements.
In this article, we’ll explain how the types of coverage you add to your policy can impact your rates. You’ll also learn about how the amount of insurance that you buy can cause you to pay more than you want. This includes taking a look at the pros and cons of carrying more insurance on your policy.
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Full Coverage Costs Extra
Most drivers prefer auto insurance policies with full coverage, including at least liability, collision, and comprehensive. Bear in mind, no state requires collision and comprehensive. So, anything above and beyond state minimum requirements is up to you to add. But if you’re financing your car, your lender will almost certainly require full coverage.
Full coverage isn’t a type of insurance or a product you buy. It’s a combination of the three major coverage types:
Collision coverage protects you against accidents with cars or other objects. This includes things like your house, potholes, or even black ice.
Your collision coverage also covers rollover accidents that don’t involve any other vehicles. It’s not a requirement, but if you get into an accident and are at fault, you’d have to pay out of pocket for the damages. According to a 2019 study of NAIC data by the Insurance Information Institute (III), 75% of auto policies include collision coverage.
Comprehensive coverage covers your car from damage-causing events or “acts of God.” This includes:
- Natural disasters e.g., hurricanes, tornadoes, and hailstorms
- Collisions with an animal, such as a deer
Comprehensive coverage isn’t something your state will make you buy. But if you live in an area at risk of harsh weather or crime, you should at least consider it. But keep in mind that doing so will raise your rates. According to the same III study, as many as 79% of drivers added comprehensive coverage to their policies.
Adding full coverage to your policy is usually a personal choice. Just remember that your rates might rise a lot if you do it. The general idea is to purchase as much coverage as possible. It’s smart to weigh your options and decide if these are within your budget.
Other Types of Insurance Worth Considering
Collision and comprehensive aren’t the only coverage types that you can add to your policy. Insurers offer plenty of other options that you might want or need to add. All of these options can be useful, but they’ll also cost you extra money in the long run. Here are the other coverage types available to you:
- Personal injury protection (PIP). PIP covers personal injury expenses after an accident. Some states require you to have it. Be sure to consult your state’s laws to see if you need it.
- Medical payments coverage (MedPay). MedPay is similar to PIP. It helps you and your passengers avoid having to pay expensive medical costs after an accident. Some states may also require you to have it.
- Uninsured and underinsured motorist coverage (UM and UIM). This protects you if you get into an accident with a driver who has little or no insurance. Some states will require you to have this on your policy.
- Gap insurance. Gap coverage protects you from owing money on your loan if an accident totals your car. It’ll cover the difference between the loan and your car’s cash value.
- Rental reimbursement. This will pay for a rental car if an accident makes your vehicle undrivable.
- Rideshare coverage. This type of coverage will protect you if you drive for a rideshare service, such as Uber or Lyft.
- Roadside assistance/towing. Roadside assistance will cover the costs to help you if you’re stuck on the side of the road. This includes towing costs.
- Umbrella insurance. An umbrella policies protects you if an accident’s damages go over your coverage limits. This protects you from paying out of pocket in accidents with expensive cars or property.
Many of the above coverage types are add-ons to your policy. All add-ons will cost you extra money if you choose them. It’ll be up to you to decide whether they’re worth it or not. You can price-check these coverages by getting quotes from several insurers and comparing rates.
Your Limits Are Key
The amount of insurance that you add to your policy is important. Every state that requires insurance sets a minimum limit for you to have. A limit is the max amount of coverage your insurer will provide to you. Each type of coverage has its own limit.
You have the option of just sticking with the minimum amount or adding as much more as you want. Setting your limits low can result in a degree of financial risk. You’re potentially setting yourself up for disaster later on. In many cases, a state’s minimum amount of insurance won’t be enough to protect you from paying for expenses with your own money.
Setting your limits too high can also cost you a ton. You should only set them as high as you can afford. It would be a wise choice to speak with your agent about how high you should set your limits.
Deductibles Impact Rates
A deductible is the amount of money that you must pay your insurer when you file a claim. How high or low you set your deductible affects how much you pay for your car insurance. Setting your deductible higher means that your rates will be lower. For example, raising your deductible from $500 to $1,000 will result in lower premiums. If you lower your deductible, you’ll be paying higher rates.
You’ll be responsible for paying the deductible when you file a claim. Only set it to an amount that you’ll be able to pay if you have to file.
Should You Buy More or Less Coverage?
Everyone wants to keep their insurance costs as low as they can. However, there are reasons why you may want to buy more coverage. The idea of adding extra can give you a feeling of security because it protects against disaster. Though, it can get expensive.
The general rule is to buy as much insurance as you can afford. You should, however, note that how much coverage you buy will cost you extra. State requirements are often not enough to cover the expensive damages in an accident.
You should aim to buy coverage types that fit your needs. For instance, you shouldn’t buy gap insurance unless you own an expensive or new car. On the other hand, you may need comprehensive coverage if you live in an area that has weather or crime concerns. Ultimately, it’s up to you decide which types you need and how much of each.
It’s also important to figure out what your limits and deductibles will be set at. Try to set your limits as high as you can to protect against financial disaster. Deductibles can also save you money if you set them higher. But make sure you’re able to pay for it.
The amount of insurance you buy should match what you can afford to carry. As long as you don’t take on too much at once, you should find the right balance between your rates and how much coverage you need.
Frequently Asked Questions
Q: How much car insurance should I buy?
A: This can vary depending on the person. Most states require you to buy a certain amount. But the general idea is to buy as much insurance as you can afford. This ensures that you have the right amount to protect your finances if you get into an accident. Also, be sure to select different coverage types that fit your needs.
Q: What should I set my deductible at?
A: The number you set your deductible at will have an impact on your auto insurance rates. Setting your it higher will lower your rates. Lower deductibles will mean higher rates, but the cost will be more manageable if you get into an accident. You should set your fee at an amount that you’ll be able to pay when you need to file a claim. Don’t set it at an amount that you can’t pay later on.