In case you had any doubt: it is illegal to drive a car without car insurance. According to the Insurance Information Institute, each of the 50 U.S. states have different laws concerning driving with no insurance. It is, however, illegal in all states, including Washington D. C., to operate a vehicle which is uninsured for liability insurance. You don't have to have collision or comprehensive on a car, but you must have liability insurance.
The Insurance Information Institute estimates the average car insurance rate in the United States is $789 per year. With so much on the line, choosing the right policy is crucial. But, car insurers take so many factors into consideration when pricing what is known as a "six-prong" policy, the price tag will vary not just from state to state but also from company to company. Those "prongs" are coverage for bodily injury liability; medical payments or personal injury protection; property damage liability; collision; comprehensive; and uninsured motorist.
Here are a few tips on how to shop for car insurance.
Determine the policy you need. While there are only a handful of nationally-recognized car insurance companies, A.M. Best, an industry credit rating firm, says there are about 450 insurers in the car business. The best place to start, experts say, is by getting an idea of what kind of policy you need and the kinds of companies you're willing to get it from.
- Break it down. Car insurance is generally made up of six types of coverage, each priced out separately to come up with your bill. But some of the coverage may not be necessary on, say, older car models, experts say. The Insurance Information Institute breaks down what you need to know about each type of coverage.
- Create a list of insurers. Before pricing out your policy, you might be surprised to learn that not every insurance company is licensed to operate in each state. Experts say to find out which ones are licensed, that way the state insurance department can assist if there are any problems. Find out the contact information of your state insurance department here.
- Price it out. Car insurance rates can be based on so many factors, from your car's engine size to your credit history, experts recommend getting price quotes from at least three insurers. And make sure you're comparing apples to apples, like level of protection for each coverage. The Insurance Information Institute has an online tool to help you find auto insurance companies in your state and start getting those quotes.
Compare companies. Now that you may have narrowed down the list, experts say price should be factor when selecting a company, not a determinant. Consider buying your car insurance from the same company as your homeowner's or renter's insurance. Many company offer discounts.
- Prices. Compare your quotes to prices charged by major insurers by contacting your local state insurance department.
- Financial strength. Who cares if a policy is cheap if the company won't be around to pay for claims, experts say. Independent rating agencies, like A.M. Best and Standard and Poor's, can help determine the insurer's financial strength. For example, A.M. Best rates insurance companies from A++ to F, in which anything above a B+ is considered 'secure,' and below is considered 'vulnerable.' Getting rating info is free -- but you have to sign in -- at A. M. Best. Insure.com provides Standard and Poor's ratings without needing to logon.
- Claims and complaints. There are different levels of claim services, says the American Insurance Association. You'll want to look for one that will handle your claims fairly, efficiently and quickly, experts say. You can determine this from your initial interactions with agents and from talking with current and former customers. Your state insurance department can tell you about any consumer complaints.
Toggle your premium. Once you have settled on the terms of your car insurance policy, there are still opportunities to reduce costs.
- Increase the deductible. By raising your deductible, experts say it could reduce the premium and save you 15 to 30 percent -- or more. The caveat? Just make sure you can afford your deductible if you're in an accident.
- Reduce coverage on old cars. It may not be worth your money to pay for collision and/or comprehensive coverage on cars worth less than 10 times the amount you pay for the coverage.
What not to do when shopping for car insurance:
- Don't skimp on coverage. It may be tempting to purchase only the minimum amount of liability required by law, but experts warn against this as accidents can cost way more than you could ever expect. Experts recommend a minimum of $100,000 of bodily injury protection per person and $300,000 per accident. You should also consider raising your liability coverage to protect your savings and assets from an accident in which you're at fault. You'll also need to purchase both collision and comprehensive coverage if you want to protect your vehicle from damages like falling tree limbs, hail, flood, fire, as well as from theft and vandalism.
- Don't wait for discounts. If you don't drive your car that often, some insurers offer usage-based insurance -- a sort of mileage discount that may save you up to 30 percent. But insurers can't know this unless you speak up. Even signing up for an automatic payment plan may provide a discount of up to 5 percent. Other discounts may apply if you belong to certain associations, install an anti-theft device in your car, or complete a defensive driving course. Ask! Ask! Ask!
- Don't buy the car, then shop for coverage. Experts recommend comparing insurance costs before buying a car, since the premium is based in part on the car's sticker price, repair costs, overall safety record and likelihood of theft. Even among similar cars in the same price range, premiums can vary widely.
For more to read: It's sometimes about learning the lingo, and the American Insurance Association provides an insurance glossary. Allstate's interactive feature helps determine the type of coverage you might need. Progressive's Name Your Price interactive tool allows users to visually and easily connect the dots between changes in policy price and the coverage they get. You can sort through insurance company ratings at A. M. Best and Standard and Poor's.