Everything you need to know about car insurance


Written by:


Most people know that after an accident, they’ll likely need to use the car insurance they’ve been diligently paying for. Car insurance can protect you from financial liability that has the potential to be devastating.


Being protected by a car insurance policy that is appropriate for your needs — and your budget — is vital.


SPONSORED: Find a Qualified Financial Advisor

1. Finding a qualified financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes.

2. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you're ready to be matched with local advisors that can help you achieve your financial goals get started now.





What Is Car Insurance?

A car insurance policy is an agreement between you and your insurance company. At regular intervals — typically once a month, every six months or annually — you pay the cost of the policy. In return, the car insurance pays for damages that occur when an accident happens, whether that damage is to your car or someone else’s car. What and how much the insurance will pay depends on the type of car insurance coverage you purchase.

How Does a Car Insurance Deductible Work?

If the time comes to put in a claim, you’ll most likely have to pay a deductible first. The deductible for car insurance works in a similar way to that for medical insurance. It’s the amount of money you will pay out of pocket on a claim before your policy picks up the rest — up to the limit you agreed to.


If you sign up for a high deductible, then your policy payments will be lower. A policy with a $1,000 deductible will not cost as much every month as a policy with a lower deductible. But if you find you need to put in a big claim to have your car fixed, you’ll have to come up with that $1,000 up front. If that is too big a hit for your bank account, then you may want to consider a lower deductible.


Most deductibles range from $100 to $2,000.


Related: 5 steps to switching your car insurance

Types Of Car Insurance Coverage Options

Car insurance coverage varies by type of coverage, amount of coverage, and amount of deductible. Some drivers may want to purchase specialty coverage that will be priced separately, for example, coverage for antique automobiles or vehicles driven for commercial purposes or ride-share insurance.


Insurance companies will pay up to the limits of the policy, after any deductible.

Liability Coverage

A basic car insurance policy is liability coverage that will pay if there are bodily injuries to people in the other car or vehicular damage to the other car and you are at fault.

Uninsured or Underinsured Motorist Coverage

Sometimes included in a liability policy package, but also available as a separate part of a policy, is uninsured or underinsured motorist coverage. If someone without their own liability insurance coverage hits your car, this type of insurance pays for your bodily injuries and physical damage to your car.

Emergency Road Service Coverage

If your car breaks down, your battery dies, you lock your keys in your car or other types of emergencies that might leave you stranded, emergency road service coverage can be helpful to have. This type of coverage, sometimes called Roadside Assistance coverage, may pay for a tow truck, a locksmith or even bringing gas to you so you can make it to the next gas station. This is generally very affordable coverage to add to a policy.

Comprehensive and Collision Coverage

Comprehensive insurance covers repairs to a car that is damaged — outside of an accident — or stolen. Damage could be things like vandalism, a broken windshield, a fallen tree on your car or other occurrences out of your control.


Collision coverage will pay to repair or replace your car if it’s damaged in an accident with another car or even an object such as a fence or tree.


These two coverages are sometimes listed together as “comp and collision” on a policy, but they are available as separate purchases in most cases. Both may be required by a lender if you’re leasing a car or still paying on an auto loan. They’re the most common types of car insurance to include in a deductible.

Personal Injury Insurance

Personal injury insurance, or medical payments coverage, will pay for your and your passengers’ medical expenses after an accident, no matter which driver was at fault.

Gap Insurance

If you are still making auto loan payments or you’re leasing a car, gap insurance might be something to consider. This type of coverage will pay the difference between the amount the car insurance company pays and what you still owe on the purchase or lease in the case of a total loss after an accident.


Understanding car insurance terms will help you make a smart decision about what types and amounts of coverage to purchase.

Do You Need Car Insurance?

In most states, you must have at least some form of liability coverage. In fact, to legally register and drive your car, you’ll have to establish and maintain a minimum level of coverage.


New Hampshire and Virginia are two exceptions:

  • New Hampshire drivers are not required to carry any automobile insurance unless they have been convicted of driving while intoxicated, have had their driver’s license revoked or were at fault in a car accident and were uninsured, among other stipulations.
  • Virginia drivers who choose not to carry liability insurance must pay an uninsured motor vehicle fee when they register and license their vehicle.

In all U.S. states, driving without at least minimum liability coverage may result in being fined and even losing your driver’s license.

How Much Car Insurance Do You Need?

After you’ve purchased liability coverage, other coverage may be optional. Older cars whose value is lower than the coverage costs, including any deductible, might just need liability coverage, instead of comprehensive and collision coverage.


Some things to consider when purchasing insurance are the value of your car, your driving history, how far and how often you drive the car, and how much you could afford to pay out of pocket if you are in an accident.

How Much Does Car Insurance Cost?

According to Bankrate.com, the average full-coverage car insurance policy costs $1,674 per year, or about $139 a month. However, these averages vary widely by state. Michigan, Louisiana, Florida and California reportedly have the most expensive car insurance policies.


Other factors that go into car insurance policy prices are what kind of driving record you have, your age and gender, and the type of car you’re insuring, among others. If you get a speeding ticket or you’re at fault in an accident, your insurance policy is most likely going to go up in cost.


Car insurance is highly competitive, so comparison shopping can be a wise move.

How to File a Car Insurance Claim

It’s recommended that claim filing should happen as soon as possible after an accident. Call your insurance company and be ready to inform your insurer which vehicle was involved, who was driving, the exact location and time of the accident, the description of the damage and the name and insurance of the other driver.


If the incident you report is covered, your insurer will pay, up to the policy limits, for the cost of the damage you caused, or the damage to your car, minus the deductible if you have one. Your insurer may pay you directly. Or payment may be made to the other driver or to the repair shop working on your car.


Some insurers request a copy of the police report filed on an accident. If you didn’t call the police at the scene, you can still go to the local police precinct to file a report.


Recommended: Car insurance guide for new drivers and 3 ways to save

The Takeaway

Car insurance pays a claim when there are injuries to people and damages to a vehicle when an accident has occurred. Types of coverage vary from minimal liability coverage to more broad-spectrum comprehensive and collision coverage, in addition to some coverage for special situations.


Learn More:


This article
originally appeared on 
SoFi.comand was
syndicated by


Insurance not available in all states.

Gabi is a registered service mark of Gabi Personal Insurance Agency, Inc.

SoFi is compensated by Gabi for each customer who completes an application through the SoFi-Gabi partnership.

Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.


More from MediaFeed:

How to shop for a car loan


Auto loan financing can make purchasing a new or used vehicle affordable. But to find the best financing options, it’s important to know how to shop for a car loan. Car loan shopping requires some preparation and an investment of time. But fortunately, it’s relatively easy to shop for car loans and even apply for auto loan financing online.


Here are some tips that can make finding a loan to buy your car easier.


Related: Smarter ways to get a car loan




Before you get started shopping for auto loans, it’s important to know how much you can afford to pay for a vehicle. There are several things to factor into the equation, including:

  • Your target purchase price
  • How much you plan to offer as a down payment
  • Additional costs that may be due at signing, such as taxes, title fees, and dealer fees
  • Ongoing car insurance costs
  • Annual vehicle registration fees
  • Ongoing maintenance and repairs

If you have a vehicle you plan to trade in, you’ll also want to consider how that might affect the amount you’ll finance. The more trade-in value you can get for your current vehicle and the larger your down payment, the less you may have to finance.




If you apply for vehicle financing, potential lenders will check your credit report and scores as part of the approval process. Your credit scores can also influence the interest rate and annual percentage rate (APR) you’ll pay on an auto loan. That’s why that before you start shopping for a car loan, it’s important to understand how you might look to a potential lender based on your credit history.


Reviewing your credit reports and credit scores can provide you with some perspective on what kind of loan terms you’re likely to qualify for. You can get a free copy of your credit reports from each of the three credit bureaus (Equifax, Experian and TransUnion) through AnnualCreditReport.com. As you review your credit reports, look for the following:

  • Positive items, such as a solid payment history, that are helping your score
  • Negative items, such as payment delinquencies or maxed-out credit cards, that might be hurting your score
  • Errors or inaccuracies

If you spot any error or inaccuracy on your credit reports, you can dispute that information with the credit bureau that’s providing it. All three major credit bureaus allow you to file disputes online. Federal law requires them to investigate disputes and correct errors if they exist.




If your credit history is insufficient or you have a poor credit score because of past financial mistakes, getting a car loan could prove more difficult. In those scenarios, you might consider asking a cosigner to help you get approved for a loan. A cosigner can be a parent, a sibling, a friend or another creditworthy person who agrees to apply for auto financing with you. If you’re approved, you and your cosigner are treated equally in terms of responsibility for repaying the loan.


Asking someone to cosign has both pros and cons. On the pro side, a cosigner with an excellent credit score could help you get approved for vehicle financing at the best interest rates. The con, however, is that if you fail to repay the loan, you could ruin your credit and your cosigner’s, as well as your relationship. So it’s important to discuss the benefits and potential downsides with your prospective cosigner before asking for a commitment.




Once you’ve checked your credit and have an idea of what loan terms you’re likely to qualify for, the next step is to compare loans from different lenders.


You have several options for where to shop for auto loan financing:

  • Brick-and-mortar banks or credit unions
  • Online banks and credit unions
  • Online lenders that provide auto financing
  • Dealership financing

Your current bank may be the first place you shop for car loans. If you’ve been a good customer for years or you have multiple accounts, your bank might be willing to offer an interest rate discount or other special incentives for getting a car loan. But don’t limit your search for a car loan to just your bank.


Take some time to compare interest rates and loan terms from online banks and credit unions, as well as online lenders that offer vehicle loans. If you’re buying a vehicle from a dealer, you can also ask about the dealer’s in-house financing terms.


As you shop for a car loan, take note of the differences in what’s offered by different financing options. Specifically, pay attention to:

  • Interest rates
  • Annual percentage rates (APRs)
  • Loan repayment terms
  • Loan fees, including origination fees and/or prepayment penalties
  • Costs due at closing

Doing the math with an auto loan calculator can give you an idea of how much individual loans might cost you. It’s also helpful to check the reputation of any lender you’re considering as you shop for car loans.


Reading online reviews, checking the Consumer Financial Protection Bureau’s Complaint Database and looking at Better Business Bureau ratings can give you an idea of how trustworthy and consumer-friendly an auto lender may be.




Getting prequalified or preapproved for a car loan could be helpful when you’re narrowing down your financing options. Loan prequalification means that a potential lender has taken a look at your finances and is willing to lend you up to a certain amount of money.


Loan preapproval usually involves the added step of a hard credit check.  If you’re interested in prequalification or preapproval, be prepared to share some basic information with your potential lender, including:

  • Your income
  • Your Social Security number (if a credit check is required)
  • Details about the vehicle you want to buy, including purchase price, age, make and model
  • Proof of auto insurance or the ability to be insured

You may also be asked about what kind of loan terms you prefer and how much money you plan to put down. Having a prequalification or preapproval in hand when you’re car loan shopping can give you a better idea of how much you can afford to spend and how much financing you’re likely eligible for.


Bringing a prequalification or preapproval letter to a dealer can also show  that you’re serious about buying, which may make the dealer more willing to negotiate the purchase terms.


panida wijitpanya / iStock


As you shop for a car loan and choose your financing option, don’t neglect reading the fine print. It’s important to know exactly what your obligations are as a borrower and what your total borrowing costs add up to. When reviewing your auto loan documentation, be on the lookout for things like hidden fees or add-ons that you didn’t request.


If you spot anything in the loan contract that you don’t understand, don’t hesitate to ask the lender or financing company to explain it.


Also make sure you review the loan amortization schedule so you understand how much your loan will cost and how your payments will be applied over time. Your lender should provide this amortization schedule, which shows you how long it will take to pay off the loan and how much of each payment will be applied to interest, fees and the principal balance.




Shopping around for the right car loan can take time. But it’s worth it to find the best option for your needs and budget. It’s also important if you want to get the best interest rates and loan terms available, based on your credit history.


When shopping for a car loan, you may want to consider whether a personal loan could be an appropriate choice for financing your vehicle. If you have a good credit score, it’s possible that you could qualify for an unsecured personal loan with a low fixed or variable APR. Whatever you choose, be sure to make your payments promptly in order to boost your credit rating and improve your chances of getting good loan rates on your next car.


Learn more:

This article originally appeared on LanternCredit.comand was syndicated by MediaFeed.org.


Lantern by SoFi:

This Lantern website is owned by SoFi Lending Corp., a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license number 6054612; NMLS number 1121636. (www.nmlsconsumeraccess.org)


All rates, fees, and terms are presented without guarantee and are subject to change pursuant to each provider’s discretion. There is no guarantee you will be approved or qualify for the advertised rates, fees, or terms presented. The actual terms you may receive depends on the things like benefits requested, your credit score, usage, history and other factors.


*Check your rate: To check the rates and terms you qualify for, Lantern conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender(s) you choose will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.


All loan terms, including interest rate, and Annual Percentage Rate (APR), and monthly payments shown on this website are from lenders and are estimates based upon the limited information you provided and are for information purposes only. Estimated APR includes all applicable fees as required under the Truth in Lending Act. The actual loan terms you receive, including APR, will depend on the lender you select, their underwriting criteria, and your personal financial factors. The loan terms and rates presented are provided by the lenders and not by SoFi Lending Corp. or Lantern. Please review each lender’s Terms and Conditions for additional details.


Personal Loan:

SoFi Lending Corp. (“SoFi”) operates this Personal Loan product in cooperation with Even Financial Corp. (“Even”). If you submit a loan inquiry, SoFi will deliver your information to Even, and Even will deliver to its network of lenders/partners to review to determine if you are eligible for pre-qualified or pre-approved offers. 


The lenders/partners receiving your information will also obtain your credit information from a credit reporting agency. If you meet one or more lender’s and/or partner’s conditions for eligibility, pre-qualified and pre-approved offers from one or more lenders/partners will be presented to you here on the Lantern website.


 More information about Even, the process, and its lenders/partners is described on the loan inquiry form you will reach by visiting our Personal Loans page as well as our Student Loan Refinance page. Click to learn more about Even’s Licenses and DisclosuresTerms of Service, and Privacy Policy.


Student Loan Refinance:

SoFi Lending Corp. (“SoFi”) operates this Student Loan Refinance product in cooperation with Even Financial Corp. (“Even”). If you submit a loan inquiry, SoFi will deliver your information to Even, and Even will deliver to its network of lenders/partners to review to determine if you are eligible for pre-qualified or pre-approved offers. The lender’s receiving your information will also obtain your credit information from a credit reporting agency. If you meet one or more lender’s and/or partner’s conditions for eligibility, pre-qualified and pre-approved offers from one or more lenders/partners will be presented to you here on the Lantern website. 


More information about Even, the process, and its lenders/partners is described on the loan inquiry form you will reach by visiting our Personal Loans page as well as our Student Loan Refinance page. Click to learn more about Even’s Licenses and DisclosuresTerms of Service, and Privacy Policy.


Student loan refinance loans offered through Lantern are private loans and do not have the debt forgiveness or repayment options that the federal loan program offers, or that may become available, including Income Based Repayment or Income Contingent 

Repayment or Pay as you Earn (PAYE).


Notice: Recent legislative changes have suspended all federal student loan payments and waived interest charges on federally held loans until 09/30/21. Please carefully consider these changes before refinancing federally held loans, as in doing so you will no longer qualify for these changes or other future benefits applicable to federally held loans.


Auto Loan Refinance:

Automobile refinancing loan information presented on this Lantern website is from MotoRefi. Auto loan refinance information presented on this Lantern site is indicative and subject to you fulfilling the lender’s requirements, including: you must meet the lender’s credit standards, the loan amount must be at least $10,000, and the vehicle is no more than 10 years old with odometer reading of no more than 125,000 miles. Loan rates and terms as presented on this Lantern site are subject to change when you reach the lender and may depend on your creditworthiness. Additional terms and conditions may apply and all terms may vary by your state of residence.


Secured Lending Disclosure:

Terms, conditions, state restrictions, and minimum loan amounts apply. Before you apply for a secured loan, we encourage you to carefully consider whether this loan type is the right choice for you. If you can’t make your payments on a secured personal loan, you could end up losing the assets you provided for collateral. Not all applicants will qualify for larger loan amounts or most favorable loan terms. Loan approval and actual loan terms depend on the ability to meet underwriting requirements (including, but not limited to, a responsible credit history, sufficient income after monthly expenses, and availability of collateral) that will vary by lender.


Life Insurance:


Information about insurance is provided on Lantern by SoFi Life Insurance Agency, LLC. 


Lantern by SoFi September $10 Check Your Rate Promotion (“Promotion”):


The Promotion is offered by Lantern by SoFi Lending Corp. (“SoFi”). SoFi reserves the right to change or terminate this Promotion at any time with or without notice to you. No purchase necessary to participate. Additional terms and conditions may apply.


Promotion is void where prohibited by state law. Auto loan refinance not available in some states, including ME, MD, NE, ND, NV, NY, PA, VT, and WI.


Eligible Participants: The Promotion is open to anyone who resides within the United States** and is of the age of majority in the state in which they reside. To receive a $10 bonus in the form of a gift card through the Promotion you must agree to a soft credit pull on lanterncredit.com to check your rate for the following Lantern by SoFi Lending Corp. (“Lantern” or “Lantern Marketplace”) product: Auto Loan Refinance. Checking your rate will not affect your credit score. If you later decide to submit an application and agree to a hard credit pull your credit score may be impacted. 


Participants will receive the $10 bonus gift card regardless of whether or not they are pre-qualified for a product through the Lantern Marketplace. Those who have already received a bonus for checking their rate on lanterncredit.com for a personal loan or auto loan refinance in the 2021 calendar year are not eligible for this promotion. SoFi employees are not eligible to participate in this Promotion. Notwithstanding the above, SoFi reserves the right to exclude any consumer from participating in the Promotion for any reason, including suspected fraud, misuse, or if suspicious activities are observed.


Promotion Period: The Promotion is available beginning on 12:00 AM Eastern Time on September 1st, 2021 and ending 11:59 PM Eastern Time on September 14, 2021. Participants are limited to one (1) bonus between the Personal Loan or the Auto Loan Refinance product per calendar year and two (2) per household.


Payout: All payouts are fulfilled by SoFi’s vendor Customer Motivators. Eligible participants will receive an email from Customer Motivators with a unique code and a link to a web page to redeem for a $10 bonus gift card.


Tax Consequences: Bonus amounts of $600 or greater in a single calendar year may be reported to the Internal Revenue Service (IRS) as miscellaneous income to the recipient on Form 1099-MISC in the year received as required by applicable law. Recipient is responsible for any applicable federal, state or local taxes associated with receiving the bonus offer; consult your tax advisor to determine applicable tax consequences.




Featured Image Credit: Mlenny.