How to choose Car Insurance in 4 Steps

Since there are so many companies that sell auto insurance, sorting through all the options to find the right policy for you and your family can be a challenging task. With every company claiming to offer the best value, it's easy to feel confused. At first glance, all policies may look the same, but there are important differences that you may need to consider. Your goal should be to find one that includes all the benefits you need at a competitive price.

Follow these four steps to find the best car insurance policy for you:

1. Determine the level of Coverage You Need

The cheapest policy may not be the one you need. Cheap plans may not provide collision coverage, which pays to repair your own car after an accident. They may not offer comprehensive coverage, which covers damage to your car that was not caused by an auto accident, such as a natural disaster, theft, or vandalism.

The nonprofit Insurance Information Institute notes that all states except New Hampshire require coverage for property liability and bodily injury.1 a policy that only offers the minimum amount of liability protection required by law may be able to save you money, but it probably won't cover legal claims that could arise from a serious accident involving property damage or injury.

Remember that everyone's insurance needs are different. For example, if you are renting a car, you may need gap insurance. If the car is completely damaged, gap insurance will cover the difference between the actual cash value of the vehicle and the outstanding balance on your lease.

2. Review The Financial Health Of Car Insurance Companies

Everyone wants to get a good deal on their auto insurance policy, but a low rate will be useless if the company you choose is not around to pay for its claims. Online reports from independent rating companies, such as A.M. Best, Fitch, Moody's, and Standard & Poor's, can help you assess your insurer's financial health, Investopedia says.2

Each rating agency uses their own standards to evaluate an insurance company and its financial health.

3. Compare Multiple Car Insurance Quotes

You can shop for insurance by going online, using the phone, or working directly with an insurance agent. A report by Bankrate says that getting multiple offers is important because prices for the same level of coverage vary widely.3 this happens because the price of insurance is based on risk. Each company has its own formula for measuring the risk of policyholders in filing a claim.

Some insurance companies rely heavily on insurance scores to determine how likely a policyholder is to make a claim. Other companies may give more weight to the type of car you drive and how expensive repairs can cost after an accident.

Where you live can also be a factor in determining how much you pay for car insurance. If your ZIP code has an above-average car accident rate, your insurance costs could be higher.

4. Ask About Discounts

Many insurance companies offer discounts, MarketWatch notes.4 If you have a teen with good grades on your auto policy, he or she may qualify for a lower insurance rate. Some insurance companies offer discounts to drivers who meet the annual low mileage threshold or take driver education classes. If your car is equipped with an anti-theft device, it could also qualify you for a discount.

Be sure to ask for a list of all available discounts. This can make a big difference in how much you pay for your policy.

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