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Whether you're in a serious car accident or a minor collision, car insurance is designed to reduce your personal liability and ease any financial repercussions. Generally speaking, the more comprehensive your coverage, the better protected you are. But there's technically no one "full coverage" car insurance policy. Instead, drivers can create it themselves by piecing together different coverage to get the best protection.
The minimum amount of car insurance you need will depend largely on your state's laws. From there, you can tack on additional coverage as you see fit. Here's a closer look at how full coverage car insurance works.
How Full Coverage Car Insurance Works
The majority of states require some level of auto insurance. Full coverage goes beyond the minimums required to create a robust policy that offers thorough protection.
Insurance coverage is typically broken down into the following primary categories, which you can use to build a full coverage policy:
- Liability insurance: If you're at fault in an accident, liability insurance will cover the cost of injuries to others. It also extends to property damage. Most states require a minimum amount of liability coverage.
- Collision insurance: Pays to replace or repair your car after a collision you caused.
- Comprehensive insurance: Covers you if your car sustains damage that isn't caused by an accident (think weather events, vandalism or theft).
- Uninsured/underinsured motorist insurance: Protects you if you or your passengers are injured in an accident caused by an uninsured or underinsured driver. Damages to your car are also covered.
- Personal injury protection (PIP) insurance: Covers medical expenses for you and your passengers following an accident, regardless of who's at fault. In some cases, it might also cover additional costs like lost wages. You'll be required to purchase PIP if you live in a no-fault state.
You can head to your state's department of motor vehicles website to clarify your minimum insurance requirements. In Florida, for example, you must purchase a certain level of property damage liability coverage and personal injury protection. Meanwhile, Kansas drivers are also required to buy uninsured/underinsured motorist coverage, as well as bodily injury liability insurance.
Building full coverage auto insurance involves adding extra coverage that goes beyond what's required. In addition to the types of coverage listed above, you can also add car insurance extras that cover things like:
- Roadside assistance
- Lost wages
- Windshield repair
- Rental car reimbursement
How to Pick the Best Car Insurance Policy
Begin with whatever is required in your state. It's also worth noting that drivers who finance or lease a car will likely be required to purchase a certain amount of comprehensive and collision coverage. From there, you might consider the following factors when determining how much extra auto insurance you need:
- Your risk tolerance: Additional coverage can come in handy if the unexpected happens and you need to file a claim. Going with a plan that covers lost wages, for example, could be a game changer if an accident leaves you unable to work. Similarly, folks who do a lot of driving might like the idea of having roadside assistance coverage. Think in terms of the level of risk you're comfortable taking on.
- Your car: Collision and comprehensive coverage might be important to you if you have a newer car that would be costly to repair (and will likely be required if you took out a car loan to buy it). If not, paying for additional coverage on an older car may not make sense.
- Your budget: Adding extra coverage comes at a cost. While you may be better protected, you still want to make sure your premium (what you pay to keep your policy active) fits into your monthly budget. You'll also need to consider your deductible. After you file a claim and it's approved, the deductible is the amount you'll have to pay out of pocket before your insurer covers their share. How much can you afford to pay before your policy kicks in? A higher deductible may result in a lower insurance premium.
5 Ways to Save Money on Car Insurance
The average annual cost to fully insure a medium-sized sedan is roughly $1,245, according to a 2020 AAA study. The amount you'll ultimately pay depends on your car, level of coverage and state. With that said, here are some additional ways to save money on car insurance:
1. Safeguard Your Driving Record
The more moving violations, traffic citations and accidents you have, the riskier you'll appear to insurers—which could leave you stuck paying higher premiums. Taking a defensive driving course could bring down your costs. Some insurers also offer savings for maintaining a clean driving record.
2. Shop Around
Do your homework to see how your current insurer measures up to its competitors. You may be able to save money by switching to a new auto insurance provider that boasts better rates. Just be sure to read up on customer reviews and expert ratings before making a jump. It may also be wise to partner with an insurance broker or agent who can help answer your questions and find the best insurer for your needs.
3. Increase Your Deductible
As mentioned earlier, your deductible is what you'll pay out of pocket when you file a claim. Your insurer will only cover their share after that's satisfied. Increasing your deductible is one way to potentially lower your premiums. If you take this route, just be sure to have your deductible amount on hand in your emergency fund in case you need it.
4. Look for Discounts
Many insurance companies offer discounts. It isn't uncommon for military service members, veterans, students and retirees to snag savings. The same is often true for folks who bundle their auto coverage with their homeowners insurance. Check with your insurer to see what discounts might be on the table.
5. Improve Your Credit Score
When calculating insurance rates, insurers in many states consider your credit-based insurance score, which is different from credit scores that are used for lending decisions. It's largely based on your credit report and helps insurers predict the likelihood of you filing a future claim. In this way, improving your credit score might help you save on car insurance.
The Bottom Line
If you want the assurance full coverage auto insurance offers, review your coverage options and talk to your insurance company or broker about how to achieve it. Taking measures, such as improving your credit score, to reduce costs can make full coverage more affordable.
Strengthening your credit goes beyond getting better insurance rates—it's also a fundamental part of financial wellness. Experian Boost®ø offers a quick way to potentially increase your score by giving you credit for paying your cellphone, utility and other bills on time. You can check your credit score for free through Experian.