Car insurance premiums aren’t something you really love to dive into…but they affect everyone.
And the coverage level you select dictates how much you pay each month. Choose poorly, and you’re overpaying or rolling the dice with your financial security.
The bright side? It’s not difficult to understand.
Learning about coverage levels will help you see exactly what you’re paying for (and where you can save).
Don’t settle for just guessing…
Here’s what you’ll learn:
- What Are Car Insurance Coverage Levels?
- Minimum Coverage vs. Full Coverage
- How Each Coverage Type Impacts Your Premium
- Other Factors That Increase Your Premium
- Ways To Save Money On Car Insurance
Ready?
Let’s go.
Understanding Car Insurance Coverage Levels
Car insurance policies are customizable. Not every driver needs the exact same coverage levels, so insurers design policies to add or subtract coverage types as needed.
Liability coverage is required by state laws, but most of the coverage types after that are optional. Depending on how many coverages you select, your monthly bill will range from the national average of $174 to upwards of $300.
Shopping for car insurance online? Make sure you know exactly what types of coverage are included in a policy before buying it — researching providers like Magnum car insurance is a good starting point. Some insurers may advertise low rates but lack important coverage types that other insurers provide.
Needless to say, all car insurance policies are not created equal.
Got it? Let’s dig a little deeper.
Minimum Coverage vs. Full Coverage Explained
This is where most car owners go wrong.
Minimum coverage, also known as liability-only insurance, provides the least amount of protection.
It’s called “minimum” because it only covers the state-mandated minimum requirements. If you wreck and are found to be at fault, you’re covered for damages or injuries to other vehicles/people – but not your own.
Full coverage is a term that refers to liability plus collision and comprehensive insurance.
Collision covers damage to your own car after an accident. Comprehensive covers everything else that isn’t collision-related (fires, flooding, theft, hail, etc.).
Costs break down like this:
- Average minimum coverage costs $985 per year.
- Average full coverage costs $3,095 per year.
That’s over $2,000 more each year to protect yourself from physical damage to your own car.
You may think skimping on full coverage saves you money. But what happens when you total your car and are at fault? All of that repair cost comes straight out of your pocket.
Each Coverage Type’s Impact on Premium
Breaking this down by coverage type makes things much simpler.
Liability coverage is included in all car insurance policies. That means if you want more than minimum coverage, you’re paying more money.
How much more? That depends on the limits you choose.
Go from $25,000 per person injured to $100,000, and you increase your premium. But you also add a lot of protection should you get in a serious accident and someone decides to sue.
Collision coverage also increases premium because now you’ve opened yourself up to another type of claim.
How much does collision impact your premium? That depends on how much your car is worth and what deductible you choose. A $500 deductible will cost you more than one set at $1,500.
Comprehensive coverage is usually less expensive than collision, but it still increases your overall bill.
Many drivers forget about uninsured/underinsured motorist coverage, but it’s important enough to mention. Some states are beginning to raise their minimum required coverage, which naturally means drivers paying more at renewal.
The point is this…adding coverage types to your policy increases your premium. Understand each coverage type’s true cost and protect yourself accordingly.
Factors That Increase Premium
Coverage level is the single biggest thing you can control when it comes to your car insurance premium. However, some things impact rates that aren’t always within your control.
Here are several factors that go into calculating your premium.
Driving history: Accidents, violations, DUIs, etc. can cause your rate to skyrocket.
Age/experience: Teenagers and drivers under 25 pay dearly for being behind the wheel. It’s considered “high risk” until you gain more experience on the road.
Vehicle: What you drive matters. Sports cars and high-end vehicles cost more to insure than your neighbor’s Toyota Corolla.
Where you live: High traffic areas with high crime rates have higher premiums. Even the ZIP code you live in can cause rate increases.
Credit score: With the exception of California, your credit history affects your rate in nearly every state.
Deductible amounts: Counter-intuitively, your deductible amount can LOWER your monthly premium. The higher your deductible, the less your monthly payment will be.
Want to know what else affects car insurance premiums?
Market conditions.
The cost of car insurance rose 46% from 2022 to 2024. Risky driving habits during COVID caused a surge of accidents that hurt every driver’s wallet at renewal time.
Yep. Factors outside of your control will ding you every now and then.
Save Money On Your Car Insurance Bill
Phew. That was a lot.
Most people just want to know how to get cheaper car insurance.
OK.
As you’ve probably gathered, your coverage level is the single biggest factor in determining how much you pay. That doesn’t mean there aren’t other things you can do.
Compare quotes annually. Insure.com found that car owners who compared prices saved $398 per year on average. Yes, you read that correctly. By spending an hour or two a year comparing quotes, you can save almost $400.
Increase your deductible. Raising your deductible from $500 to $1,000 or more can also save you on your monthly premium. Keep in mind that you’ll be paying more if you file a claim. Only raise your deductible if the monthly savings outweigh your out-of-pocket costs.
Bundle discounts. You can often get a discount by bundling multiple policies together. If you already own homeowners insurance, look into bundling your car policy with it.
Keep a clean driving record. Duh. But accidents and violations can increase your premium by hundreds of dollars.
Drop coverage as your car ages. When your car’s value decreases, you may want to drop certain coverages. If your car’s value dips below your deductible, you don’t really NEED full coverage anymore.
One Final Word…
Now you know how coverage levels impact your car insurance rates.
Here’s your TL;DR:
- Minimum coverage means you’re only covered up to state requirements
- Full coverage includes liability, collision, and comprehensive insurance
- The more coverage types you add, the higher your premium
- Compare prices every year to guarantee low rates
- Increase your deductible to lower your monthly bill
Knowledge is power when it comes to insurance.
Make sure you understand your policy and never pay a dime more than you need to.
