Obtaining your first car is an incredibly exciting moment in life, one that you’ll remember forever. However, before you can start enjoying your new-found freedom, there are a few things that you need to take care of. Lining up insurance, doing a basic safety check, making sure your vehicle maintenance is up to date, etc.
Arguably, the most important of these tasks is purchasing a car insurance policy. Because car insurance is compulsory (a.k.a. required by law), you open yourself up to legal consequences if you fail to purchase coverage. More importantly, if you’re driving without car insurance, you’re risking financial ruin.
Here’s what you need to know about buying your first car insurance policy:
Why do you need a car insurance policy?
By law, all passenger vehicles driven in the US on public roads must be insured. If you drive without an insurance policy, you’re risking:
- traffic tickets
- escalating fines for repeat offenses
- suspension of your license
What’s more, in addition to legal consequences, driving without car insurance can expose you to tremendous financial obligations. If you were to cause an accident, you could be held responsible for the injured party’s medical bills, legal bills, and of course property damage.
If you have car insurance (and if the coverage amount is adequate), your insurance company is responsible for these costs.
Purchasing Your First Policy – Where to Start
The car insurance market is huge, which means you have thousands of companies vying for your business. For a first time buyer this can be incredibly confusing, as many insurance companies have their own jargon for policy features, differing coverage amounts, etc.
Here’s a cheat sheet that will tell you what the basic components of an auto insurance policy are and what you need to know about each:
- Comprehensive Coverage pays for damage that isn’t a result of a collision. This could be an act of God (such as a hail storm or a flood), but it could also be damage caused by the theft of your vehicle. If you have a loan on your car, you will need comprehensive coverage.
- Collision Coverage pays for damage that your car suffers in an actual collision. If you have a loan on your car, you will need collision coverage as well.
- Liability Coverage pays for damages that you cause to other people and their property. If you lose control of your car and crash into someone’s house (for example), liability coverage is the component of your policy that pays for the damage you cause to the other peron’s home. If the other person suffers bodily injury, your liability coverage pays for that too. Liability coverage is required in all states.
- Uninsured Motorist Coverage may or may not be required in your state, but regardless of the law you probably want it anyways. If you were to be the victim in an accident involving an uninsured motorist, this is the part of your policy that protects you. Essentially, your insurance company agrees to pay you if the person who caused the accident can’t.
- Medical Payments Coverage pays for medical expenses you and your passengers may have as a result of an accident. Some states require this coverage and some do not. However, much like uninsured motorist coverage, it’s a good thing to add to your policy.
Because the Internet is the fastest way to find the best car insurance rates, most people use an online quote comparison service like Cheapest Auto Insurance In California to shop for the best price, though most any insurance comparison service on the net will do a good job of simplifying and expediting the comparison process.
How To Save Money on Premiums
Once your quotes start rolling in, as a new driver you may find that your insurance premiums are fairly high. This is unavoidable, as the insurance companies know that you have very little experience behind the wheel and make you pay a premium because you’re a bit of a risk as a new policy holder.
However, there are various ways to reduce the amount of your premiums:
- Take advantage of any discounts being offered. If you are under the age of 24 then you may be entitled to ‘good student discount’. This will provide you with a reduction in your car insurance premiums if you can boast a grade point average of 3.0 or above. You may also be eligible for a discount if you complete a driver’s education (or defensive driving) class of some kind. You also want to make sure that your insurance agent is aware of all the safety equipment on your vehicle. Some companies will give you a discount if your car has side curtain airbags, an anti-theft device, etc.
- Increase your deductible. It’s standard practice for insurance companies to quote you a policy with a small deductible ($100 is a commonly quoted amount). However, if you can afford to pay a $500 or $1,000 deductible in the event of an accident, you can dramatically reduce your premiums.
- Shop around. Prices between insurance companies will be very different. What’s important is that you compare the best deals from a variety of providers and a variety of online car insurance comparison services.
Common Insurance Coverage Policy Add-ons
In addition to the core policy coverages described above, there are some frequently offered “extras” that your insurance company will try to sell you. While all of these add-ons have value, none of them are essential.
GAP insurance. If you purchase your car brand new, the value of your car falls dramatically the minute you leave the dealership. If your new car were to be involved in an accident and declared a total loss, during the first few years of ownership, you might end up in a situation where you owe more on your car than your insurance company is willing to pay.
If this happens, the bank expects you to put up the difference between what you owe and what the insurance company pays in cash. GAP insurance pays the difference between ‘market value’ (what your insurance would normally pay) and the amount you still owe on your loan. HOWEVER, be sure that your loan agreement doesn’t already include GAP coverage before you pay for this extra.
Rental car reimbursement. If you have to file an insurance claim, rental car coverage provides you with a free rental car while repairs are being made. While this coverage can be very valuable, it’s important to remember that it’s far from essential.
- If you lose the use of your car for a few days, you might be able to borrow a friend’s car and/or get someone to drive you to work as needed.
- Most collision repair shops have inexpensive rentals available if your insurance company doesn’t provide one for you. Considering you can rent a car for $25-$30 a day, and considering the chance that you’ll need a rental car are pretty low, it might not be worth paying for this extra.
The problem with rental car reimbursement is that it adds up to a lot of money over time. Paying for this coverage year after year is almost always a losing proposition.
Roadside assistance. If your vehicle breaks down, runs out of gas, has a flat tire, or some other type of emergency, roadside assistance coverage can be a real life saver. Your insurance company will pay to have a tow truck sent to you to get you back on the road and/or towed to the nearest service facility, and considering that a towing company is likely to try and rake you over the coals if you pay out of pocket, it’s a good thing to have lined up before you need it.
However, before you pay your insurance company for roadside assistance, check to see if your vehicle manufacturer provides the same coverage…most new cars come with a few years of free coverage.
Additionally, compare the cost of adding roadside to your policy to the cost of joining AAA or another auto club (which offers the same benefit).
That’s it – good luck!