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Frequently Asked Questions About Car Insurance

Answered by Money's insurance editorial team.

• What does liability car insurance cover?

  Liability car insurance is designed to protect you financially if you cause an accident. It has two components: bodily injury liability, which pays for medical expenses, lost wages, and legal fees for people you injure, and property damage liability, which covers the cost to repair or replace other people's property you damage. Nearly every state requires drivers to carry minimum liability coverage, though the required amounts vary. Financial experts generally recommend carrying higher limits than your state's minimum to better protect your assets in the event of a serious accident.
• How much does car insurance cost per month?

  The national average cost of car insurance is roughly $167 per month (about $2,000 per year) for a full coverage policy. If you only need state-minimum liability coverage, the average drops to around $50 per month ($600 annually). However, your actual rate depends heavily on where you live — drivers in Michigan and Florida often pay well above the national average, while those in Maine and Ohio tend to pay less. Other major factors include your age, driving record, credit history, the vehicle you drive, and how much coverage you choose.
• What is comprehensive car insurance?

  Comprehensive insurance covers damage to your vehicle caused by events other than a collision with another car. This includes protection against theft, vandalism, fire, natural disasters (hail, floods, falling trees), hitting an animal, and broken windshields. Comprehensive coverage comes with a deductible you choose — typically between $250 and $1,000 — and your insurer pays the remaining repair or replacement cost up to your vehicle's actual cash value. While not legally required, lenders and leasing companies almost always require comprehensive coverage on financed vehicles.
• How much car insurance coverage do I actually need?

  At a minimum, you need to meet your state's required coverage levels. But the right amount of insurance depends on your personal financial situation. If you have a car loan or lease, your lender will require collision and comprehensive coverage. Beyond that, consider your total assets — if you own a home or have significant savings, carrying higher liability limits (such as 100/300/100 instead of the minimum) helps protect those assets from a lawsuit after a serious accident. An umbrella policy can provide an additional layer of protection at a relatively low cost.
• Why is car insurance so expensive for young drivers?

  Insurance companies set rates based on statistical risk, and drivers under 25 — especially teenagers — are involved in significantly more accidents per mile driven than older, more experienced drivers. A 16-year-old driver can expect to pay two to three times more than a 30-year-old with a similar vehicle and coverage level. The good news is that rates decrease steadily as young drivers gain experience and build a clean driving record. Many insurers also offer good student discounts (typically 5-15% off) for students maintaining a B average or better.
• What factors do insurers use to determine my rate?

  Car insurance companies evaluate a combination of factors when calculating your premium. The most significant include your driving record (accidents and violations), location (state, city, and even ZIP code), age and driving experience, credit-based insurance score (in most states), vehicle make and model (repair costs, safety ratings, theft rates), and coverage selections (limits and deductibles). You can't control all of these, but maintaining a clean driving record, good credit, and choosing a vehicle that's affordable to insure are the most effective ways to keep your rate competitive.