Hit the Road: A Guide to Car Insurance

Car insurance provides peace of mind and plays an important role in your financial safety net, should you ever need to use it. With the average price of new and used cars increasing in the United States over time, auto insurance becomes a better value and more important than ever to have a strong policy. 

In 2024, the average annual cost of car insurance in the United States is $1,553. There’s a wide range for what drivers (and motorcycle riders) pay that impacts this number: there is a big difference between the minimum coverage legally needed to operate your vehicle and full coverage for your vehicle, bodily injury, uninsured drivers, or other vehicles involved in a collision. Plus, your age and driving record impact how much you’ll pay.   

If you’re exploring getting auto insurance for the first time (congrats!) or re-evaluating your policy to bolster it or save money, keep reading as we dig into the various aspects of vehicle insurance you should consider. 

Basic Car Insurance Components 

At its core, car insurance typically includes three key components: liability coverage, collision coverage, and comprehensive coverage. Liability is the minimum coverage while collision and comprehensive coverage are not required by state law. 

Here are more details on these components:  

Liability Coverage

Liability coverage typically only offers compensation for any bodily injury or property damage you cause to someone else. It represents the lowest tier of coverage, and some states only require this coverage. Others require personal injury protection (PIP) to cover medical costs that you or passengers in your vehicle might have in the event of an accident. Some states require that drivers hold uninsured/underinsured motorist coverage (more details on this later). 

Virginia and New Hampshire are the only states that do not require auto insurance. However, for drivers who opt-out, Virginia requires a $500 uninsured motor vehicle fee that goes to a fund to reduce the cost of uninsured motorist insurance premiums for other drivers.

Collision Coverage

Liability coverage covers damage you cause to other vehicles, but for your own, that’s where collision coverage comes in. This type of insurance helps to pay for the cost of repairing or replacing your vehicle if it’s damaged in a collision with another vehicle or object, such as a tree or a guardrail. It typically covers the costs regardless of who is at fault in the accident. It’s important to note that collision coverage usually comes with a deductible, which is the amount you’ll need to pay out of pocket before your insurance kicks in to cover the rest of the repair or replacement expenses.

Comprehensive Coverage

What about other, non-accident causes of damage to your vehicle? That’s where comprehensive coverage comes in. According to U.S. News and World Report, comprehensive coverage includes events that damage your vehicle – such as natural disasters or severe weather events, vandalism, theft, animals, or road debris. 

Typically, collision and comprehensive coverage are bundled together from your insurer. Collision and comprehensive coverage are not legally required. However, if you lease your car or have an auto loan, the financing terms may require collision/comprehensive coverage.  

Insurance is designed to protect your property or investments, but there are times when it’s not necessarily cost-effective. The Insurance Information Institute says that if your car’s value is less than 10 times the insurance premium (the amount you pay typically every 6 months to your insurer) you may not find comprehensive insurance worth it. Why not? If something happened to your car, you would have to pay the deductible to get any financial assistance, and because the car’s value is so low, it may end up being considered totaled. Some would rather take the extra money on the insurance premium and save that toward car expenses. However, if you don’t have the cash stashed to replace the car in case of an issue, getting a more robust insurance policy can be a way to build your financial safety net.   

Additional Types of Car Insurance

In addition to the three key components we just covered, there are other supplemental types of auto insurance that are helpful to know about (and potentially purchase):

Medical Payments Coverage 

When someone has an auto accident, one of the primary cost concerns is medical expenses. Medical payments coverage, also known as MedPay, is a subset of car insurance that helps pay for medical expenses resulting from a car accident, regardless of who is at fault. It typically covers expenses such as medical bills and even funeral costs, up to the policy’s limit. 

Medical payments coverage can cover medical expenses for you, your passengers, and any family members driving the insured vehicle at the time of the accident. It can help fill gaps left by health insurance policies or go toward covering out-of-pocket medical costs such as deductibles or copays. 

One significant aspect of MedPay is that it often provides coverage for medical expenses incurred as a pedestrian, while on public transportation, or while riding in someone else’s vehicle, depending on the terms of the policy. Review your insurance policy to understand the specific coverage limits and exclusions associated with medical payments coverage. 

Maine, Pennsylavania, and New Hampshire are the only states that require MedPay coverage, but you can opt-in for it in most states. 

Gap Insurance

Fun fact: GAP insurance is actually an acronym! Also known as guaranteed asset protection insurance, this is an optional type of insurance coverage that helps protect you if your car is totaled or stolen while you still owe more on your auto loan or lease than the car is worth. 

Here’s how it works: When you buy (or lease) a new car, its value typically depreciates rapidly during the first few years of ownership. If your car is stolen or totaled in an accident, your regular auto insurance will typically only cover the current market value of the car, which may be less than what you still owe on your auto loan or lease. This leaves you responsible for paying the difference, or the “gap,” out of pocket. Gap insurance covers this difference between what you owe on your car and what your insurance company pays out in the event of a total loss. 

You can typically buy gap insurance from your auto dealer or your insurance company, so shop around for the better deal before you buy or lease a new car. 

Who needs gap insurance most? It’s typically most beneficial for people who make a small down payment, finance the car for a long loan term, or lease a vehicle, as these situations can result in owing more on the car than it’s worth for a longer period of time. It can provide valuable financial protection and help you avoid being stuck with a large loan balance on a car you no longer have. 

Uninsured/Underinsured Motorist Coverage 

As the name implies, this type of insurance provides financial protection to you if you’re involved in an accident with a driver who either totally lacks insurance (uninsured) or doesn’t have sufficient insurance to cover the full cost of your injuries and damages (underinsured). With 48 states requiring car insurance, one might think this is not necessary, since the other driver should have insurance – right? You may be surprised to learn that about 13% of people on the road do not have car insurance, and that percentage is over 20% in states including Tennessee, Washington, New Mexico, Mississippi, and Michigan. UI/UM coverage is helpful to have so you don’t get saddled with a big bill due to someone else’s lack of coverage. 
 

22 states require uninsured motorist bodily injury coverage while 9 of those states also require uninsured motorist property damage coverage. The District of Columbia requires both. 

Factors that Influence Car Insurance Pricing 

What you’ll pay for your car insurance premium varies based on multiple factors, with your driving record having a substantial impact. It pays to drive safely: a clean record typically results in lower premiums.  
 
Age also factors into the equation, as younger drivers typically pay higher premiums due to perceived higher risk. However, maintaining a good driving record can mitigate these costs over time. Additionally, location plays a crucial role, with urban areas often associated with higher premiums due to increased traffic and potential risks. 
 
Of course, the cost and value of the asset you’re insuring matters too! Factors such as the make, model, age, and safety features of your vehicle impact the amount you’ll pay. Forbes lists these as the top five most affordable and most expensive cars to insure in 2024: 

Most affordable: 

Most expensive:

Conclusion

Insurance helps provide peace of mind, and car insurance secures that you’ll be able to repair or replace your mode of transportation if an accident occurs. Understanding your state’s minimum car insurance requirements is important for drivers to make informed decisions about the type and amount of coverage to have on a policy. Whether you’re shopping around for a better rate or re-evaluating your automobile insurance needs, we commend you for getting informed! 

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