Getting auto insurance can be complicated and overwhelming, especially when there are myths floating around about how your policy works and what’s covered. Here are some important auto insurance facts you should know so you can feel confident in your policy.
Fact #1: Your credit score affects your rates more than you think
Insurers use your credit score to predict how likely you are to make claims and how well you’ll pay your premiums. The lower it is, the higher your rates will be. For example, if your credit score decreases from good to poor, your premium can increase by over $1,200 a year.
Unfortunately, credit scores can be pretty discriminatory and don’t actually have anything to do with how you drive. The same goes for other factors like your job title, Zip Code, or if you own a home. (Psst … we don’t use these unfair practices to determine how much you pay for coverage.)
Fact #2: Insurance rates vary by state
Where you drive is often just as important as how you drive when it comes to determining how much you pay for car insurance. Insurers will charge more to cover drivers in areas with higher rates of vehicle theft, accidents, or natural disasters.
What’s more, each state has different minimum liability coverage amounts, and typically states with higher coverage amounts will have higher average insurance costs. Louisiana, Michigan, Florida, Nevada, and New York are the most expensive states for car insurance. Maine, Vermont, Idaho, New Hampshire, and Ohio are the least expensive states for car insurance.
Fact #3: Your age, gender & how you drive affects how much you pay
Generally, drivers younger than 25 typically pay more for auto insurance than older drivers, and male drivers typically pay higher premiums than female drivers. Why? Insurers see these drivers as riskier to insure, as young drivers and male drivers have higher accident rates.
What other factors affect car insurance pricing? Insurers will look at your driving record to predict how much risk they’ll take on in insuring you. If you have a history of traffic violations, DUIs, or even just a few speeding tickets, you can expect to pay much higher premiums than drivers with clean records. For example, if you’re convicted of a DUI, your annual premium will increase by an average of $1,650.
Fact #4: Discounts can lower your rates
If you have a perfect driving record or have taken a defensive driving course, you may qualify for discounts that can lower your premiums. There are also discounts available for being a student or military veteran.
Some car insurers offer bundling programs that reward drivers who cover multiple vehicles under the same policy or combine their car and home together.
Installing certain safety or anti-theft features to your car, like anti-lock brakes or tracking devices, may get you a discount. Devices like a dash cam may also help settle insurance claims faster.
Yet some discounts can be biased and have nothing to do with your vehicle or how you drive. If you’re interested, you can check out our fair car insurance discounts here.
Fact #5: Collision claims are the most common type of car insurance claim
Drivers are likely to file a collision claim, which involves your car colliding with another vehicle or object. Comprehensive claims or unexpected damage to your vehicle (like if a tree branch falls in your car) are less common.
However, bodily injury claims are the most expensive type of car insurance claim, costing an average of $16,260 per loss, compared to collision claims, which cost an average of $3,278 per loss.
Fact #6: Your insurer typically can’t just drop your policy at any time
Insurers have the right to cancel your policy during the first 60 days. After that, it’s pretty hard to drop you outright, unless something serious happens, like a license suspension, DUI conviction, or fraud incident. You may also get dropped if you don’t pay your premiums on time.
When your policy term expires, your insurer can decide to renew (or not renew) your policy. If you’ve become riskier to insure, like if you got into too many accidents, got a bunch of tickets or other moving violations, or filed too many claims, they may drop you at the end of your term.
Fact #7: Coverage gaps can cost you
If you or your insurer choose not to renew your policy, you still need to find new car insurance coverage.
Not only is it illegal to drive without car insurance, but you may also face higher rates if your insurer sees a coverage gap (most insurers see this as a sign of a high-risk driver). This can make it harder to get affordable coverage in the future. Case in point: A lapse in coverage will cost you an additional $178 annually.
Fact #8: No-fault insurance doesn’t mean it’s not your fault
Despite the name, it matters who caused the accident with no-fault insurance. After an accident, each driver is responsible for their own damages and cannot sue the other driver—even if one party was at fault.
If you’re found to be at fault, you’ll have to pay for any damages, and you may face higher premiums in the future.
Fact #9: Personal items stolen from your car aren’t covered by car insurance
Your renters or homeowners insurance automatically covers items like your laptop and cell phone—even when they're in your car. This coverage is important when you’re on the road, so don't hesitate to take advantage of this perk.
If anything is stolen from your car, you’ll need to file a claim with your home or renters insurance company.
Fact #10: State minimum coverage isn't enough, and opting for "cheap car insurance" may come with hidden costs
While you're legally required to have at least your state's minimum insurance coverage, it's often not enough to fully financially cover you if something were to happen. Also, low-priced policies may seem attractive, but they often involve higher fees, extra charges, and less coverage than needed, which can be costly in the event of a claim or total loss of your car. These additional fees may include initiation fees, transaction fees, and charges for speaking with an agent.
When shopping for coverage, it's important to understand your individual financial needs and the types of coverage available. Don't be afraid to ask your insurance agent questions about coverage so you know exactly what you're getting. It's crucial to carefully review the coverage and potential hidden costs when shopping for car insurance to ensure you're adequately protected at a reasonable price.
Fact #11: You’re not covered if you use your car for business
If you use your car for work, you need to purchase a separate business auto insurance policy. This includes if you make deliveries or provide rideshare services.
Not disclosing that your car will be used for business when getting car insurance is a form of insurance fraud. Your policy may get canceled, or, more seriously, you may face a large fine or jail time.
Fact #12: If someone borrows your car and gets in an accident, you’re on the hook
A common rule of thumb is that your coverage follows the car, not the person. That means your policy covers damage done to your car, no matter who is steering the wheel.
If a friend or family member borrows your car and gets in an accident, you’ll be responsible for filing a claim and may be on the hook for any bills. If someone will be regularly driving your car, it’s recommended that you add them to your policy as a covered driver.
Fact #13: Not everyone is eligible for e-delivery discounts or telematics programs
Some individuals, such as the unbanked or those without credit cards, may not be able to take advantage of e-delivery discounts or participate in telematics programs offered by insurance companies. The unbanked may face difficulties setting up electronic payments or accessing online policy documents, making it impossible for them to benefit from these discounts. Similarly, those without credit cards might not be able to participate in telematics programs, which often require a valid card on file. This limited access to e-delivery discounts and telematics programs can restrict their options for savings and obtaining personalized rates based on their driving habits.
Your auto insurance policy should work for you, not against you. Understanding these facts before you purchase car insurance can give you peace of mind in knowing you have the right policy for you.