Jessica Sautter is a Content Writer for with a Bachelor’s Degree from Eastern Michigan University in Elementary Education with a Major in Reading and a Minor in Mathematics.

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Chris Harrigan has an economic degree from Limestone College and an MBA from Clemson University. He previously managed auto insurance claims for Enterprise Rent-A-Car. Currently, he is using his business and insurance expertise to provide insurance data analysis and visualizations to enhance the user experience.

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Reviewed by Chris Harrigan
Former Auto Insurance Claims Manager

UPDATED: Oct 13, 2020

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Key takeaways...

  • If you are planning to purchase a car, understanding the basics of automobile insurance and knowing how to compare different plans is a must
  • Liability insurance is the type required by law in nearly every state
  • Full coverage insurance is a type of insurance you pay a premium for on top of your existing liability coverage

If you drive a car in the United States, the fact is you need to purchase car insurance. Leaving yourself open to the liability of paying thousands of dollars in damages or being sued if you get into an accident is too great a risk to ignore.

States require this because of the risk of having a driver unable to pay for medical expenses or property damages as the result of a serious car accident.

If you are planning to purchase a car, understanding the basics of automobile insurance and knowing how to compare different plans will help you find the best price for the insurance you need.

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Types of Car Insurance

Liability car insurance covers medical and property expenses to the other driver’s car in the event you cause an auto accident. Liability insurance is the type required by law in nearly every state.

Liability insurance is made up of three components:

  • Medical Expenses per Person
  • Medical Expenses per Accident
  • Property Damages

This is represented by your insurance plan as three numbers – for example, 20/40/10.

In this example, your insurance company would cover $20,000 in medical expenses for each person in the accident, up to $40,000 in medical expenses for the whole accident.

Your insurance company would also cover $10,000 in total property damage, including repairs to the other driver’s car and any property damaged in the accident.

Liability insurance does not cover any repairs to your own car. Keep in mind that the minimum deductible limits for your state can be very low – a serious automobile accident can accrue much more than $20,000 in medical expenses.

Full coverage insurance is a type of insurance you pay a premium for on top of your existing liability coverage.

Full coverage is composed of three types of insurance:

  • Collision Insurance
  • Comprehensive Insurance
  • Medical Insurance

Collision insurance pays for repairs for damages in cases where you are at fault. Comprehensive insurance pays for repairs to your car due to “acts of God,” such as rocks or debris on the road damaging your vehicle.

A third type, medical insurance, covers you and any passengers medical expenses in an accident in which you are at fault. Keep in mind that full coverage is a misnomer – your insurance company will not pay for unlimited damages.

Your insurance coverage for collision, comprehensive, and medical plans is based on two things:

  • Premium
  • Deductible

Your premium is how much you pay to your insurance company each month on top of your liability insurance. Your deductible is how much you agree to pay out of pocket before your insurance company starts paying for repairs.

The higher your premium, the lower your deductible and vice versa.

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Choosing What Car Insurance to Buy

When choosing which insurance to buy, the most important decision is the balance between coverage and cost. Buying the minimum in liability insurance is the cheap car insurance option, but this type of coverage can lead to huge losses in the event of a serious accident later on.

Similarly, buying the most expensive full coverage insurance can cost you much more than you would ever pay out of pocket in most accidents.

Liability insurance only is a good choice in cases where you have a cheaper car that you can either pay the repair costs for or entirely replace in the event of an accident.

However, you may want to pay for increased liability coverage over the minimum amount.

A serious car accident, especially one resulting in lifelong injuries to the other driver, can easily exceed your limit at which point you risk being sued.

Choose full coverage insurance when you have a more expensive car where you want damages covered in case of a serious accident.

Full coverage insurance will also help you in accidents where you are not at fault and the other driver is uninsured.

When a driver is uninsured, you may be forced to hire a lawyer and wait for months before receiving compensation. During this time, your comprehensive coverage will pay for any expenses until you are reimbursed.

Choosing Where to Buy Car Insurance

Plan exactly what type of insurance you need before contacting car insurance companies.

  • First, find out your state’s minimum insurance requirements. Visit your state’s insurance commissioner’s website to find this information.
  • Decide whether you want to pay for additional liability insurance or any types of full coverage insurance.
  • Lastly, decide how much of a premium you are willing to pay each month. Balance this with the deductible you will be paying in case of an accident. A low premium each month will not help you in most accidents if your deductible is $5,000-$10,000.

Choosing an auto insurance company is easier than ever with the growth of the internet. You can often contact insurance companies directly over the internet or by phone in order to compare their car insurance rates.

Unfortunately, many companies will charge very different prices for the same premiums, so it pays to shop around.

Keep in mind that insurance companies will offer you premiums based on your driving record – if you have any recent accidents, your insurance premiums will usually be higher.

Using an insurance broker to purchase insurance through major companies such as State Farm is the old-fashioned way of purchasing car insurance.

Unfortunately, they often charge the highest premiums.

Contacting insurance companies such as Geico directly over the internet or by phone is often the best way of obtaining insurance with low premiums. However, they are more likely to require a better driving record to qualify.

Look into any specialized insurance companies that you are qualified to use. Companies like USAA, designed for use by the United States military members and families, often offer the cheapest rates, if you meet their purchase requirements.

Choosing which car insurance you need can be difficult. Taking an active role in comparing insurance companies will let you find the best deal and save you money on your premiums.

Using this information the next time you need to shop for car insurance will give you the advantage you need to get the insurance plan that is right for you.

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