Auto Insurance – Do You Really Need It? And How Can You Get The Cheapest Rate?

So you’ve just signed on the dotted line for your new car. You can’t wait to take it for a spin when you suddenly hear Dad’s nagging voice in the back of your head, saying: remember to get your auto insurance or pay a hefty penalty

Who needs auto insurance anyway, you think to yourself. Well actually if you’re living in the US or Canada, auto insurance is absolutely mandatory. It’s written in the law! You’ll usually get about 7 to 30 days to inform your insurance company about your shiny new ride. 

In this article, we’ll tell you everything you need to know about auto insurance – what it is, how much to pay, how to lower your premiums and more. Interested to learn more? Keep reading!

What Is Auto Insurance – Do You Really Need It? 

Firstly, the what. When people talk about auto insurance, they’re usually referring to liability coverage. 

Its purpose is to cover your financial liability when you’re involved in a collision. For example, if you’re hooning down the street and are involved in an accident that results in physical damage to property, you’ll be expected to pay for the damage. 

This can be very costly. Almost ruinous! 

Because most US states (48 out of 50, in fact)  are worried that you might not even have the money to pay such a large sum at once, they make it compulsory for you to have auto insurance. 

Claims for collision and property damage was almost $4,000 in 2018. Claims for bodily injury (hitting a person) was more than $15,000 in 2018! 

Can you imagine if you didn’t have insurance to cover the cost? 

Yes, that’s why it’s required by the law. Only very few states, like Virginia and New Hampshire do not require you to have car insurance

Are There Other Types Of Auto Insurance Coverage?

Hitting someone/something is hardly the only time that you could incur financial loss with your car. 

Like, what if your car gets vandalized or stolen? 

Or, what if you get hit by someone else, and they don’t have enough coverage? 

That’s where other forms of option insurance comes in. Here are two common ones:

Comprehensive Coverage

As its name suggests, this type of coverage encompasses a wider range of negative events like fire, theft, natural disasters, etc. 

It usually covers the repairs of your vehicle. It also involves some sort of deductible (explained later). Often it is optional but may be required by the company giving you the car loan. 

Underinsured Coverage

As its name suggests, this type of coverage kicks in when you’re hit by a driver that doesn’t have enough insurance (aka underinsured) to cover the damages to your property. 

You’ll be the one purchasing this extra coverage, which sucks because hey, you’re not the one that’s underinsured right? 

But it’ll let you rest easy at night knowing that you won’t be facing unexpected expenses due to someone else’s negligence!

Here’s a list of the different types of auto insurance coverage. 

So How Much Should You Pay On Average? 

When people refer to how much auto insurance costs, they’re usually referring to the premiums (what you pay every month to the insurance company).

So how much is too much to pay? 

It’s a hard question to answer because premiums vary by state. It varies so much because different states require you to have higher or lower limits depending on where your car is registered. 

Let’s take cities for example. Premiums can be as high as about $5,500 in Detroit, and as low as about $900 in Boise! Forbes has a full list of premiums by state. Have a read of it to get a rough idea of how much you should be paying! 

Still, there are other factors that affect how much you’ll pay in premiums. Let’s talk about a few ways to lower them!

Want To Lower Your Premiums? Learn About Deductibles. 

Deductibles refers to how much you have to pay out of pocket if you make an insurance claim.

So let’s say your deductible is $300 and you incur $3000 in damages. You’ll have to come up with $300, and your insurance company will pay the remaining $2,700. 

Now here’s where you can save on your premiums: 

If you’re willing to take on a higher deductible, then you can pay a lower premium! 

This makes sense if you think about it – there’s a lower risk for the insurance company because they’ll pay out less if you meet in an accident (touch wood!). Thus, they’re willing to accept a lower premium. 

Now does that mean you should push your deductibles as high as you can? Well, that all depends on your risk appetite. 

Can you stomach paying more if you meet in an accident? Or perhaps you have more confidence in your driving and you just want to meet the state’s requirements! 

To give you some guidance as to the likelihood of you ever making a claim, consider this report that says drivers file insurance claims once every 18 years on average! 

An Unexpected Hack To Lower Your Premiums – Be Older!

One way to pay a lower premium – wait till you’re older. 

Yes, surprising as it may be you actually pay higher premiums as a younger driver! 

Business insider found that drivers as young as 16 pay $1,700 to $3,000 more than 21-year-old drivers per year! Talk about ageism! 

But it works in your favor the older you get. Thankfully premiums seem to decrease every year up till age 55. After that premiums start to go up again. You can have a look at the nifty chart showing these trends here.

The Easiest Way To Lower Your Premiums – Use A Broker!

Different insurers provide insurance at different rates. They also provide different levels of coverage. You know that you need to compare policies from different companies, but you might not want to do all the research yourself. What do you do?

Our advice would be to get yourself a broker. These are middlemen that match you with various insurance providers. 

Brokers are experts in the area of auto insurance, so use this to your advantage! You should ask them if the rates are fair and pose questions about how the coverage compares across providers. 

Because regulations and premiums are specific to your area, you can use a broker that specializes in your area. For example, a broker like Duliban insurance serves Ontario residents. 

A broker, being familiar with the industry and your area, can lay-out various quotes from multiple insurance companies in front of you. With this, you’ll have a quick lay of the land and make the right decision easily. 

My Application’s Been Rejected By My Insurer! Now What?

If you’ve made a couple of applications and have been rejected, don’t fret. You still have options. But for your understanding, here are some reasons why you may have been rejected:

  • You have a worse than average driving record
  • You’ve been convicted of a DUI
  • You have a specialty or modified car

Now, does that mean you can’t get insurance? No, in fact, states make certain that you’ll get your auto insurance and they have systems in place to do just that – introducing the shared market

The shared market is where the state assigns higher risk drivers to insurance companies proportionally. Sure, you don’t get to choose, but hey, at least you’re covered right?

These days, smaller insurance companies catering to higher risk drivers have popped up. This is called non-standard auto insurance and is usually more expensive. 

While it’s not ideal to be paying a higher premium because of something that happened in your past, at least you’re getting some sort of coverage. This beats having nothing, and it puts you in compliance with the almighty law!

Final Thoughts

Well, there you have it. A quick rundown about everything you need to know about auto insurance. 

If you’re already holding other forms of insurance with an insurance provider, then we’d recommend getting on the phone with your insurance company right away. Most companies who offer other types of insurance (e.g. health, home insurance) will also offer auto insurance.

If you’re not working with an insurer just yet, don’t worry. Getting a broker to suss out the best rate for you will be the most hassle-free way to move forward with the process. 

Whatever you do, just don’t wait too long. State law only gives you a small window of time to get your auto insurance. So hop to it!

Is there anything else you’d like to tell us about getting auto insurance? Share that in the comments below!