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How To Choose An Auto Insurance: Step-By-Step Guide

Kent McDIll
February 11, 2024
How To Choose An Auto Insurance: Step-By-Step Guide

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Are you aware of the process of choosing auto insurance? If not, we are here for you!

In the United States, a legally licensed driver needs to show proof that he or she can pay for any damages or liability in the event of a vehicle accident.

In most states, drivers are required to have automobile insurance to serve as their proof.

Most drivers have no choice in this matter.

There are two states in the union – New Hampshire and Virginia – which do not require auto insurance, and there are others that allow drivers to post a bond for their liability and damage costs related to auto accidents.

But, in all 50 states, drivers must be able to pay for those damages, and most states require auto insurance as proof that a driver can do just that.

However, drivers have a myriad of choices in the amount and type of insurance coverage they purchase and the company from which they purchase it.

The process can be daunting. Here is some information that can help you to choose an auto insurance coverage.

Legal Requirements

A driver must be able to demonstrate the ability to pay for damages or liability in the event of a vehicle accident.

In most U.S. states, automobile insurance is mandatory to serve as proof of this ability. There are exceptions:-

1. New Hampshire

Drivers are responsible for damages in a car accident up to $50,000 for liability and $25,000 for property damage.

Failure to pay results in having licenses and registrations suspended.

2. Virginia

Drivers must pay the state $500 annually instead of buying car insurance, but that does not remove them from paying liability or property damage from a car accident.

There are also states which allow drivers to submit a bond proving their ability to cover liability and damage costs if necessary, thus avoiding paying for automobile insurance.

The bond amount is set by the state. Some states even allow a cash deposit as proof of financial responsibility.

In the states that allow bonds to cover driver liability, the bond covers the expenses up to its limit when necessary, and the driver must then pay the bond issuer for the amount it puts out, as well as costs beyond the level of the bond.

In 2022, 31 states allow drivers to provide a bond in place of insurance to cover potential liability and damage costs.

Additionally, the penalties for not having proper automobile insurance differ by state and severity.

They can include fines, points on your license, suspension of your license or registration, court and administrative fees to get your license reinstated, and possible jail time depending on the severity of the damage or liability involved.

Common Auto Insurance Claims

4 Steps To Choose Auto Insurance

Step 1: You Must Determine What Your State Requires

You can do this by visiting the website of your state’s secretary of state office or department of motor vehicle office, depending on your state’s governmental design.

There are basic coverages for most states, although you can expand depending on what you want to spend.

(i) Medical Costs – For the policyholder (and any other injured party if the policyholder is responsible) beyond coverage from the driver’s health insurance policy.

(ii) Uninsured/Underinsured Motorist – When a driver is having an injury; or suffers personal property loss due to the actions of an uninsured or underinsured motorist, this policy covers your costs for medical care and property damage.

Step 2: Examine Your Driving Habits And Conditions

Your driving conditions include the value of your car, the frequency with which you drive and the miles you put on your car over time, and where you live.

Do you live in an area of high accident frequency, or low?

How much time in a week or month are you actually behind the wheel?

Are you a safe driver or a risky one? Is the value of your car worth protecting?

These are considerations when deciding how much coverage to purchase.

Step 3: Set Your Budget

If you are going to base your auto insurance coverage decision entirely on the cost and buy the cheapest coverage you can get, your decision is actually easy.

It’s comparing one number to another.

But a low-cost policy is cheap for a reason, and it’s up to you to determine what you are NOT paying for; and how the low-cost policy lacks in comparison to others.

This could be in terms of customer service (responsive to calls), automobile assistance when needed (coverage for tow trucks, etc.), or length of time in paying out coverages.

The Better Business Bureau or Yelp! It can provide ratings from previous users in case you are concerned about the quality of the lost-cost coverage.

They will also possibly ask you to determine your own deductible for some policy details.

That’s the amount you are willing to pay out of pocket before your coverage begins.

The higher your deductible, the lower the cost of your coverage.

Determining what you are willing to pay out of pocket (either per accident or per policy period); it’s the key element to determining your coverage’s cost.

Furthermore, if cost is not the primary decision-making consideration, then there are a myriad of coverage options to look over.

The Fast And Easy Way To Shop For Auto Insurance

Compare auto insurance quotes in 15 seconds for FREE.

Step 4: Coverage Options

Below are the topics an insurance agent will want to discuss with you.

This information will help you prepare for the questions in order to avoid paying for more than you require.

(i) Liability

Liability coverage provides financial assistance for the costs you must cover for others in an accident in which it is determined you are responsible.

It covers bodily injury or property damage suffered by others and caused by you.

The goal of automobile insurance is to protect you from financial ruin if you are responsible for bodily injury; or property damage in an automobile accident.

Because of that, the recommendation is that you carry as much liability insurance as you need to protect your total assets.

That amount will protect you from losing your home and savings if you are deemed to have caused the accident.

Also, you will have three categories of liability insurance to choose from: the per-person limit for bodily injury, the per-accident limit for bodily injury, and the property damage liability.

Most insurance policies begin with a $50,000/$100,000/$50,000 total (50/100/50 in the industry lexicon), and that would be fine if you do not have a lot of assets to protect in terms of home, car, or savings.

The better off you are, the more liability coverage you want to purchase.

The more liability coverage you purchase, the higher the price of the policy.

(ii) Uninsured/Underinsured

Even in states that require automobile insurance to get a license, or proof that you can cover the costs of property and bodily damage in an accident, there are drivers who are uninsured or underinsured.

If you are in an accident caused by someone in that position, it will limit you in what you can get from them in order to cover your own medical bills and repairs costs.

That will be money out of your pocket unless you are insured against such an incidence.

Once again, the amount of such insurance should be determined by the value of your assets, namely your savings in this case.

(iii) Collision/Comprehensive

Collision coverage is for damage to your vehicle in any accident with another vehicle.

Comprehensive coverage covers damage to your car in non-traffic situations; such as damage from weather, theft or thrown or falling objects.

In these two cases, you are protecting the value of your vehicle.

The newer the car, the more coverage you will require if you want your car returned to its previous state after the collision or other harm.

(iv) Personal Injury Protection

Some states require drivers to have Personal Injury Protection coverage.

This coverage is to protect the policyholder in case of personal expenses surrounding personal injury; lost wages due to injury; or lost abilities as a result of injury (such as child care).

Moreover, if your state requires PIP, consider it in conjunction with your personal health insurance.

If you do not have health insurance or your health insurance is limited, PIP is a good idea.

(v) Beware The Sales Pitch

Auto insurance salespeople are often compensated for the amount of a policyholder’s first payment, so they are going to pitch coverages that are not legally required and might be unnecessary.

That being said, you might find comfort in some of the additional coverage options, which include:-

  • Personal item coverage
  • Rental car reimbursement
  • Roadside assistance
  • Selecting the correct insurer

Smart Financial auto insurance


Choosing an auto insurance policy can be a daunting task, but by following the steps outlined in this guide, you can ensure that you make an informed decision that meets your specific needs.

Start by assessing your coverage requirements, comparing quotes from different insurance providers, and considering factors such as the company’s financial stability, customer service, and coverage options.

Remember to read the policy fine print, ask questions, and clarify any doubts you may have before making a final decision.

Kent McDIll is a veteran freelance writer who has concentrated on personal financial topics the past eight years.

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