Owning a car can create a sense of freedom and possibility, but it also comes with financial responsibilities. Before you hit the open road, there’s one vehicle cost you need to have buckled up: car insurance. You probably know you need this coverage, but how much is really required?
Factors to consider when buying car insurance
Insurance providers consider a lot of information when pricing your coverage. Factors that may affect your insurance costs include:
Car insurance requirements by state
You can research your state’s minimum insurance requirement (or reference a nationwide chart). Many states require at least $50,000 of bodily injury coverage per accident and $25,000 in property damage liability.
Vehicle value and age
The type of car you drive, as well as its age, will affect the cost of your insurance. For example, older cars tend to be more affordable to insure due to their lower overall value.
Driving habits and risks
Previous traffic violations or accident involvement can affect your insurance premiums. Where you park your car — in a garage or on the street or other unprotected areas — may increase your costs as well.
Daily commute and mileage
If you have a long commute to work or are putting a lot of miles on your car in other ways, make sure that your insurance policy accurately represents your vehicle usage. If you don’t drive often, you may want to consider pay-per-mile car insurance instead.
Types of car insurance
Different car insurance policy types cover different situations, potentially paying for injuries or damage to vehicles. Types of car insurance coverage that may be required in your state include:
Liability insurance
This covers car accident damage you may do to someone else and their property. Liability-only coverage is generally less expensive than other, more comprehensive types of car insurance.
Personal injury protection (PIP)
PIP helps pay for medical expenses for you and your passengers, no matter who is at fault in an accident. This type of coverage may also pay for expenses such as lost wages, funeral expenses and replacement for services lost due to injury, like cleaning or childcare.
Medical expenses (MedPay)
MedPay helps cover medical bills and related expenses for you and your passengers, regardless of who caused the accident.
Uninsured/underinsured motorist coverage
UM and UIM coverage helps pay for your medical expenses when someone else without liability insurance (or doesn’t have enough) causes an accident. In some states, it can also pay for damage to your vehicle.
Collision coverage
Collision coverage helps with vehicle repairs after an accident. It’s not required by most states, so consider the value and age of your car when deciding if you need it.
Comprehensive coverage
Vehicle damage isn’t always the result of an accident, and comprehensive insurance may cover events like theft or weather damage. It’s often sold along with collision coverage, and your lender or leasing provider will likely require it.
Note: You can ask your insurance provider about add-ons to cover specific situations, like emergency roadside assistance. If your car breaks down, it can help pay for services like tow trucks, locksmiths, jump starts, fuel delivery and basic roadside repairs.
Which deductible should you choose?
A deductible is the amount you could pay out-of-pocket for a claim before your car insurance begins to pay and can range from a few hundred dollars to $2,500. Liability-only coverage often has no deductible, but for comprehensive and collision insurance, you will need to choose a deductible level.
The lower your deductible, the higher your premium will be. Consider your overall budget and spending preferences, like whether you want to save on premiums and possibly pay more if you file a claim. With an Ally Bank Spending Account, you can conveniently earmark your premiums with a car insurance spending bucket, whether you pay them monthly, biannually or annually.
What happens if you don’t have car insurance?
If you are in a state that requires insurance coverage and you are pulled over while driving without insurance, you could:
Be fined
Have your car impounded
Have your license suspended
In some rare instances, you could even face jail time if you cause an accident without insurance, and you could be responsible for all of the associated costs. The other driver could also sue you for damages. Considering the risks of driving uninsured, it’s best to maintain active insurance coverage.
Stay insured and informed
Finding the right type and amount of car insurance coverage for you means balancing costs, state requirements and more. But by taking the time now, you can drive confidently knowing you’re prepared for the road ahead.
