Whether it's your first time buying car insurance or you feel like an insurance-shopping pro, here's a step-by-step guide to how to buy car insurance.
1. Find out your state's car insurance requirements
Each state sets the minimum car insurance limits you must buy. In addition, if you have a car loan or lease, the lender or leaser likely requires you to buy collision and comprehensive coverage.
Here's a little-known secret: You don't always have to buy car insurance. Most states have "financial responsibility" laws that allow you to post a deposit or bond with the state as an alternative to buying liability insurance. However, the deposit can be rather hefty, ranging anywhere from $15,000 to $160,000, depending on the state. It's usually easier to buy an insurance policy.
2. Consider more coverage
Many people choose to buy more than the state minimum. The state minimum may not be enough to cover all the bills if you cause an accident. You may want to buy full coverage car insurance.
Full coverage car insurance includes:
- Liability car insurance for damage you cause to others, including property damage and injuries.
- Collision insurance for damage to your own car if you crash into something, such as a pole or another car.
- Comprehensive insurance for theft of your car, vandalism, accidents with animals, weather damage such as hail, flood damage, fire and other random problems such as falling trees and rocks.
When you're buying liability insurance, keep in mind you can be sued for medical bills and property damages that exceed what your insurance covers. If you have assets, like a house or savings, it's a good idea to buy more than the state minimum for liability insurance.
3. Get quotes from multiple auto insurance companies
Car insurance quotes can vary by several hundred dollars among insurance companies for the same coverage. That's because they all set prices differently. The time you spend getting a few quotes can pay off.
How do I choose the best insurer?
When choosing the best insurer, price is a big factor for many people. You'll also want to check auto insurance reviews for customer satisfaction ratings and look at the products they sell. For example, accident forgiveness insurance or gap insurance might be important to you, but not all companies offer these.
How do I get the best insurance rates?
Here are a few tips on how to get the best insurance rates.
- Look for discounts. Insurers offer auto insurance discounts to attract and keep customers. Not all insurers offer the same discounts. It's a good idea to see if you qualify for any. While bundling home and auto insurance typically offers good savings, there are other ways to save, including multi-car discounts, good driver discounts, good student discounts and occupational discounts.
- Maintain a good driving record. Auto insurers will typically look at your driving history in the past three to five years, or more. If you caused accidents or have traffic tickets, they could affect your rate.
- Choose a car with cheaper insurance. Insurance companies also factor in what type of vehicle you have. If you're driving a high-performance sports car, for example, you can likely save insurance money by choosing a different car. Here's a list of the cheapest cars to insure.
- Look for ways to save on a teen driver. There's usually no escaping a rate increase when you add a teen driver. But there are ways you can save on car insurance for teens.
4. Review the application before finalizing it
- Make sure you have all the coverage types you need. Liability insurance is likely required in your state to legally drive the car. And if you're buying a new car, you probably don't want to drive it off the lot without having collision and comprehensive coverage.
- Make sure all the drivers are listed. All licensed drivers in your household should be on the policy.
- Make sure the information is accurate. If you've recently moved, make sure the "garaging" address and other information is accurate.
5. Cancel your old policy, but first . . .
Make sure your new policy is set to begin. If there's a gap in your coverage and you get into an accident, you'll be uninsured and liable for paying damage out-of-pocket.
Additionally, if you're driving uninsured, you could face fines or penalties. For example, in California you could receive a citation for driving uninsured and have your car impounded. In New York, you could face a fine up to $1,500 and have your license and vehicle registration revoked for at least a year if you are involved in an accident while driving uninsured.
You'll also likely face higher insurance premiums if there's a coverage gap in your insurance history.
6. Get proof of insurance
After your insurance purchase, expect one or more of these documents:
- Insurance ID card – This will generally have your policy number, policy effective dates, vehicles and the policyholders. You'll want to keep it in your car as proof of insurance in case you're pulled over or in an accident. Your insurer also might offer digital ID cards for smartphones.
- Proof of coverage – A form that lists the vehicles, policy effective dates and drivers. This form can be used to show your lienholder or leasing company that the vehicle is covered.
- SR-22 – This is a form that proves you have auto insurance. It can be required for drivers who have certain problems on their driving records, such as DUIs or tickets for driving without insurance. The insurance company sends the form to the state. In some states it's called an FR-44.
Which auto insurance is the cheapest?
The cheapest companies are different for everyone. Rates can vary significantly from company to company for the same coverage. If you're looking for cheap car insurance, the best strategy is to compare quotes, ask for discounts, keep a clean driving record and maintain good credit.
Should I get insurance before buying a car?
You'll need auto insurance when you buy a car, so that you can legally drive it home. Driving without insurance can result in steep fines, driver's license suspension and even jail time. Contact your insurance agent to let them know you're buying a car, and they'll help you set up the policy and start date.