First Time Drivers Guide to Car Insurance

Now that you’ve passed your test and are ready to hit the road, there are a few things you need to know. Car insurance can be confusing, especially if you’re approaching it for the first time and can’t simply be added to a parent’s policy. 

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In this guide, we’ll help to traverse the potential pitfalls of auto insurance coverage, ensuring you get the cover you need at a price you can afford and in a way that won’t confuse or frustrate you.

How are Car Insurance Rates Set?

Car insurance, like all forms of insurance, is based on risk. The insurance company offers you a payout possibility and sets your monthly premiums based on the likelihood of a certain event occurring. 

This is best understood by looking at life insurance: The probability you will die during the term is used to set your premiums and death benefit, and the more likely you are, the higher the former will be and the lower the latter will be.

With car insurance, underwriters use a host of detailed statistics to set your premiums. If someone in your demographic and driving your type of car is more likely to be involved in a costly accident, you will be expected to pay higher premiums.

Insurance quotes will consider all the following to determine your risk:

1. Age and Gender

Males are more likely to speed and be involved in an accident than women, which is why male drivers may be quoted higher rates. 

The difference between the genders is slight, but the same can’t be said for age. The younger you are, the more likely you are to be involved in an accident and the biggest differences are in those under the age of 20.

Not only is there a huge difference between a 16-year-old driver and a 21-year-old, with the former being nearly 4 times as likely to claim, but there is even a big difference between those aged 16 and those aged 18, with the former around twice as likely.

There isn’t really anything you can do to avoid this, except to ride the storm and keep your record clean, before getting a new quote next year.

2. Location

Car insurance quotes change from state to state. The minimum requirements change depending on state law, but the risk factors also change, and this can have a big impact on the cost of your car insurance policy.

Don’t assume your quotes will remain the same as you move to a different state or that you’ll get the same quote as someone of a similar age in a different state.

New Hampshire, Maine, Ohio, Idaho, Virginia, and North Carolina have some of the cheapest average car insurance rates in the country, while Michigan, Rhode Island, Florida, and Louisiana have some of the most expensive.

3. Type of Car

Whether you have a new car or an old car; a sports car or an SUV, can massively impact your car insurance premiums. 

Newer cars are more likely to be fitted with high-tech safety features and anti-theft features, which means they are less likely to be involved in a costly accident or to be stolen.

Older cars may not have these features, but it depends on age. Sometimes, the age of a car can work against you, as it may contain specialist parts that are expensive to replace.

When shopping for a car that will keep you safe and keep those premiums down, look for a new car with a high safety rating and stay away from sports cars and old classic cars.

4. Credit Score

We have discussed the importance of your credit score many times, noting how it is considered every time you apply for a new loan or line or credit, and how it is also factored into the equation when applying for certain jobs and security clearances. 

What you might not know, however, is that your credit score is also considered when applying for car insurance and other types of insurance. An excellent credit score can result in lower premiums, as statistics suggest that policyholders with good credit scores are less likely to make a claim than those with bad credit.

It seems like a strange statistic, but there is some logic behind it. Contrary to what you might think, it doesn’t necessarily mean that policyholders with good credit scores are less likely to be involved in an accident. There may be some truth to that, but only slightly.

Likely, this statistic results from the fact that individuals with good credit are less likely to make a claim following a small accident, as they are more aware of the damage it could do to their finances.

In any case, your credit score plays a big role, and by increasing this before you apply, you could save some cents on your monthly premiums.

5. Driving Record

If you’re new to auto insurance policies, you won’t have much of a driving record but can start building one. This record takes into account all of your activity on the road, and if you have a record of distracted driving, speeding tickets, drunk driving, and other such charges, your insurance premiums will increase.

Conversely, if you have a clean driving record and can maintain that record, you should see a reduction in your premiums as you will be labeled a good driver and a safe driver in the future.

6. Discounts

Car insurance discounts are not mandatory, but if you want the best car insurance rates, they should be considered. We discussed one of the biggest discounts above, noting that you will be offered lowered premiums if you have a good driving record, but you can also get discounted rates if you:

  • Are a student and have good grades.
  • Live on college campus.
  • Are a member of an automobile organization.
  • Are in the military or you’re a veteran.
  • Have completed safety driving and defensive driving courses.
  • Have a multi-car policy (more than one car on the same policy)
  • Own multiple insurance policies with the same company (known as “bundling”)

What are the Minimum Requirements?

Most states require you to have some degree of financial responsibility, which may or may not come in the form of a minimum amount of coverage. When car insurance is required, you will be asked to have a minimum of the following types of cover:

  1. Property Damage: Covers you against property damage during a car accident (per accident). The minimum typically begins at $5,000, but some states require $25,000 or more.
  2. Bodily Injury: Covers you for physical harm, including resulting medical payments (per person and per accident). Typically, this is around $25,000.
  3. Uninsured Motorist Coverage: Required in a handful of states and is often around $50,000.

Where insurance is not possible, it might be possible to prove financial responsibility if you have surety bonds or a large amount of money deposited in the state. However, getting that minimum amount of coverage is definitely the easier and cheaper option.

You can discuss the minimum requirements and other issues with an insurance agent.

Additional Coverage

Along with the mandatory stuff, there are additional types of coverage you can add to your policy, creating a comprehensive policy that covers you for most eventualities. These include:

Collision Coverage

The mandatory insurance options discussed above cover you for damage done to other peoples’ property, while collision coverage covers your property. 

There are generally two types of collision insurance. The first will cover your vehicle in the event of a crash. Comprehensive coverage, on the other hand, will cover you for all costly eventualities leading to property damage, including theft, vandalism, natural disasters, and more.

The right coverage for you will depend on the extent of cover you need, which in turn will depend on your vehicle and budget. Generally, comprehensive coverage is only worth it if you can afford it and have an expensive or new car. If not, you’ll probably pay more in insurance premiums than you’ll ever get back in the event of an accident. 

Uninsured and Underinsured Motorist Coverage

In some states, this is not optional, but in most, it is. Uninsured cover will protect you when you’re involved in an accident with a driver who doesn’t have any insurance, while underinsured coverage will protect you if they don’t have enough insurance. This applies to both property damage liability insurance and personal liability insurance.

Personal Injury Protection

Also known simply as “PIP”, personal injury protection covers your medical bills in the event of an accident. PIP provides cover whether you were at fault for the accident or not. 

Deductibles

The deductible is the amount of money that you pay before the car insurance company takes over. If, for example, you have an accident that results in $2,000 worth of repairs and you have a $1,000 deductible, you will split the cost with your insurer.

If the deductible is $1,000 and the cost of the repairs is $800, the insurance company won’t cover any of the costs and you’ll need to pay for all of them out of your own pocket.

You can adjust the deductibles when applying for car insurance. The higher they are, the less your premiums are but the greater your liability will be if you have an accident.

Car Insurance Premiums

A premium is a monthly payment charged by car insurance companies in exchange for the policy. The rate you pay will depend on a number of factors, many of which we have discussed already:

  • Amount of insurance required
  • Type of car (including make, model, anti-theft devices, safety features, and more)
  • Driving record (including tickets, accidents, and violations)
  • Driving history (new drivers pay more than experienced ones)
  • Location
  • Credit history
  • Demographic
  • Discounts

Bottom Line: Applying for Insurance

To get lower rates, compare as many auto insurance companies as you can, get the minimum coverage required by your state (and your needs), pay attention to the type of car you buy, and look into insurance discounts where possible.

You should also make sure you have some essential information on hand, including your driver’s license, social security number, vehicle identification number, and your estimated mileage.