What first time car buyers need to know about auto insurance

Here's our complete guide to everything you need to know about buying car insurance for the first time. (And we do mean everything...)

What first time car buyers need to know about auto insurance

Here's our complete guide to everything you need to know about buying car insurance for the first time. (And we do mean everything...)

Before you buy a car

We work with new car buyers all the time. They tend to ask us similar questions, so we've gathered them up for you. (Shoot us an email at care@surroundins.com if there's one we forgot. We'll add it to help the next person who comes along!)

Top 6 things to know about auto insurance before you buy your first car:

  1. You don't need your own insurance to test drive a car (but make sure the owner has a policy!)
  2. You can get quotes for insurance on different makes/models of cars before you decide which to buy
  3. You do need your own auto insurance to drive your new car off the lot
  4. You can usually buy insurance and have proof sent to the seller in about 30 minutes
  5. Car insurance is expensive, but there are normally bill plans that help you spread the cost out over the policy
  6. If you're planning to drive for Uber or Lyft, you need a policy that specifically covers ridesharing, which many insurance companies offer

Why don't I need my own car insurance to test drive a car?

If you're buying from a dealer, their car insurance covers test drives. If you're buying from a private seller, you should be covered under their insurance when you test drive. In both cases, ask to make sure you understand what coverage you have and what the limits are, and check out our post on test driving & car insurance for more.

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How can I get auto insurance quotes if I haven't decided which car to buy yet?

Once an insurance company or agent sets up a quote for you with your driving information, address, and coverages, it's easy for them to plug in a few different vehicles to check the cost for you. You'll need to know the year, make, and model of the car, or the VIN (vehicle identification number).

Why do I need my own insurance to drive a new car off the lot?

Once you legally own a car, insurance is absolutely your responsibility. In fact, it's the law in almost every state that you must maintain state minimum levels of car insurance for a registered vehicle. Many dealerships won't give you the keys until you show proof of insurance. Private sellers are unlikely to do that, but it's definitely your problem, not theirs, if you get into an accident on the way home.

Choosing an insurance company to cover your first car

How do I decide which car insurance company to buy from?

Here are the steps you should walk through to choose an insurance company for your first car:

  1. Decide whether you want to get a quote from an independent agent, who will get quotes from multiple companies for you, or go directly to several companies yourself.
  2. If you want to work with an agent, ask friends or family who they use, or just search for "insurance agent" and your town.
  3. If you want to work with an insurance company, any of the companies you see advertising on TV, billboards, or the radio is likely legit. Go to their websites and you'll find a phone number to call or a button to start a quote. You can start a quote and call or chat with them if you have questions.
  4. Decide how much liability insurance you want. You'll need at least the legal state minimum. Don't worry - nobody reputable will sell you less. That's not enough for most people, though. Consider what you could get sued for in an accident. That's your stuff, your bank account, and, unfortunately, your future earnings. It's not that expensive to add higher liability limits.
  5. Decide if you want to cover your car, which means buying comprehensive and collision coverages. If you have a loan or the car is leased, you'll have to. If you own the car outright, it's usually worth it until the car has very little value.
  6. If you do cover your car, decide what deductible you can afford. This is how much you have to pay before the insurance company pays to fix your car. The deductible is usually in the $250-$1000 range. Higher deductibles mean cheaper insurance, but you also need to come up with more cash after a crash.
  7. Make sure you get at least three quotes, and check that the limits, coverages, and deductibles are the same across the three. Also double check that all of your personal information is correct. And make sure you understand the bill plans. For example, how much of a down payment will you need to make? It's normal for car insurance prices to vary widely among different companies. Assuming all three are from reputable companies, feel free to pick the cheapest one.
  8. Once you're ready to buy, update your agent or insurance company with the information on the car you actually bought, and make your first payment! The insurance company will quickly send you an Auto ID card to put in your glove compartment as well as the policy paperwork.

Here's more information on what the coverages on an auto insurance policy cover.

What information do I actually need to get a car insurance quote?

You need four kinds of information to get a car insurance quote

  • Your personal info: Full name, address, birth date, drivers license number and expiration, if you've had any accidents or driving violations and when, and possibly your education and occupation information
  • Other driver's info: If you need to add a spouse or family member in your household, or anyone else who regularly drives your car, you'll need the same information you provided for yourself.
  • Info about your car: Either the year, make, and model, or the VIN, whether the car will be garaged at your home address or elsewhere, how you plan to drive the car (for example, commuting, or for your business), estimated annual mileage, whether there is a loan or lease on the car, and if so, who the lender or lessor is, and if there's any damage to the vehicle now.
  • What coverages you want: The key questions are 1) how much liability insurance? This protects you if you get sued after an accident. You should get enough to protect all of your assets plus your future earnings - more than most people realize! and 2) Do you want to protect the car with comprehensive and collision coverage? If you have a lease or a loan, you'll need to buy these. If not, you'll probably want them unless your car is very old and not worth much.

Then, when you're ready to buy, you'll need a form of payment. Most insurance companies can take a credit or debit card, or withdraw directly from your bank account (EFT).

Do I need to put my spouse, partner, or roommate on my car insurance?

Because people with access to a car in their household do tend to drive it occasionally, insurance companies want every licensed family member and any household member who ever drives the car on the policy.

If family members truly never drive, you still need to list them, but you can ask the insurance company to exclude them from coverage. You won't pay any premium for them, but if they do ever drive and get in a crash, your car insurance will not pay out at all.

If your roommate will never, ever drive your car, you don't need to list them, but if you do let them drive and they aren't on the policy, the insurance company may not pay.

You usually will pay a small increase in premium for other drivers in your home. (The exceptions are drivers who have been in a lot of crashes or gotten multiple tickets and newly licensed drivers.) Since not listing a driver can invalidate your coverage if they crash your car, it's worth it.

If I lend my car to a friend, should I list them on my insurance?

If your friend only borrows your car occasionally, and they aren't your roommate, no need to add them. They're generally covered. However, if they live with you, or they use your car regularly (say, for grocery shopping every weekend), you should add them to the policy. If you don't, your insurance company may deny coverage under your policy if your friend gets in a crash.

How much car insurance costs

How much does car insurance usually cost?

The cost of car insurance really varies depending on where you live, what coverage you buy, what kind of car you have, and your driving record, but you can expect to pay between $50 and $500 a month.

Why does the cost of auto insurance vary so much?

The cost of auto insurance for the same person varies widely among insurance companies because they all use different complicated statistical models to assess your risk of an accident. The cost of car insurance varies for different people because insurance companies use information like your personal characteristics (driving record, address, credit score), characteristics of your car (year, make, model, trim, annual mileage), and how much of each type of coverage you choose to come up with a price.

There are literally hundreds of pieces of data that go into generating that price, so it's unlikely any two friends will get the same quote.

Why is credit score used to calculate my car insurance rate? Is that fair?

In most states (except Massachusetts, Michigan, Hawaii, and California), insurance companies use your credit score to calculate the price you pay. They do this because drivers with higher credit scores, on average, get in fewer accidents than those with low credit scores. (Credit score doesn't cause accidents, of course, this is just a relationship that can be observed.)

Is use of credit score fair? Some people think it is. If credit score is eliminated, people with good credit scores end up paying more for insurance than the amount that would cover their actual risk. And people with poor credit scores pay less than their risk of an accident would suggest.

However, others think the use of credit score is unfair. In the United States, many people end up with low credit after an expensive medical emergency. It doesn't seem fair that they should be penalized for that in the form of higher car insurance rates. Also, credit score correlates with race, education, income, and age to some extent as well. There's an argument that credit score just allows the rich to get richer.

Why don't insurance companies just stop using credit scores in car insurance?

Competition. Data shows that people with low credit scores get in more accidents, and the reverse. If one insurance company in a state stopped including credit in their prices here's what would happen:

  • The company would charge the average rate for all credit scores for a specific driver and car.
  • That rate would be more expensive than what people with higher than average credit scores could get from other insurers, so they wouldn't buy.
  • That rate would be cheaper than what people with lower than average credit scores could get from other insurers, so they would buy.
  • Since people with lower credit scores get in more accidents, and all of their customers now have lower credit scores, the insurance company would end up paying out more in claims than they earned in premium.
  • The insurance company would increase the rates, this time to the average of their existing customers.
  • The same cycle would happen again, and again, until the insurance company goes bankrupt. This dynamic is driven entirely by price competition on credit, since other companies would still be using it
  • So, one company in a market can't easily remove credit scores from their prices on their own. Legislators or regulators, however, have the power to force all insurance companies to remove credit at the same time. That avoids this cycle and lets the insurance companies focus on competing on other things.

What factors are not used to price car insurance?

Seems like everything is sometimes, but that's not really the case. Here are some factors that don't matter for your car insurance:

  • The color of your car - this is an old urban myth!
  • The fact that this is your first car. Prior insurance does matter, and sometimes there's a bit of a new car discount, but there's no break for first-time car owners.
  • Race, religion, national origin, or sexual orientation. Your insurance company doesn't have this information and won't ask for it, so they can't price for it. However, in many states, sex or gender and marital status can be used in pricing. Also, while national origin isn't a factor, if you have a foreign drivers license or haven't lived in the US long enough to build up credit and driving history, you may end up paying more for insurance.

Can I afford my car loan and my insurance?

We can definitely help you figure out what your insurance will cost. Our friends at Fisecal, a financial wellness company, have a loan calculator you can use to estimate your payments. Here's their calculator - just know if you submit your email it's to them, not to us.

And don't forget to budget for maintenance and repairs as well!

Things you should know once you buy car insurance

What do you do after you buy insurance for your first car?

Congrats on getting your insurance! Here's what to do:

  • Look for your insurance documents, which you'll probably get by email.
  • Get your car registered. If you buy from a dealer, you can usually give them the declarations page from your insurance paperwork. The declarations page is usually at the front of the packet and lists your information, your car, and the coverages on your policy. If you buy from a private seller, you'll need to do this yourself. Just search for the DMV and "car registration" in your state and you'll find the forms and instructions
  • Put the auto ID card from your insurance packet in your glove compartment, and stick a copy in your wallet. This is your proof of insurance if you're ever pulled over or in a crash.
  • If you've set up a payment plan for your car insurance, set a reminder on your phone for when the first bill should come in so you make sure you're receiving them and paying them on time.

What are some important things to know about car insurance once I've bought a policy?

Here are the tips we share with our customers:

  • Make sure you have your auto ID card in your car with a copy in your wallet.
  • Look out for your first bill to make sure you get it and set up payment for it. Don't forget to pay your car insurance bill. If you don't pay, your insurance company will cancel your policy. That means you'll be driving without insurance, which is illegal in most states and also means you have no coverage in a crash.
  • Look at your policy documents to see if you have a 6 month or 12 month policy. You should expect renewal documents about a month to six weeks before your renewal date. The price is likely to be different because insurance companies are always tweaking their rates, so take a look.
  • If you're not happy with the price you're paying for insurance, use the renewal paperwork to remind yourself to shop! Ask your agent to give you a few quotes, or reach out to a few car insurance companies online or by phone. Have your renewal declaration page in front of you so you can make sure the quotes you're getting are actually for the same coverages and deductibles.
  • With each renewal, think about whether anything has changed in your life that might cause you to change your policy. Are you getting paid a lot more, or do you have more assets? Think about upping your liability limits. Have more savings than you did? You could increase your deductible so your overall rate is lower (though if you do have a crash, you'll have to kick in more before the insurance company will pay).

Mostly, enjoy your new car, and drive safely!

This is general information based on questions our customers ask us. It may not be right for your specific situation. You should get some advice from a licensed insurance agent (like us!) before you make a decision on your own insurance.