Understanding car insurance quotes

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In a Nutshell

Taking the time to understand the numbers and terms in your insurance quote may give you a clear picture of what the policy covers and what it costs. It can help you effectively compare quotes and shop for the best insurance for your needs. It can also prevent surprises if you find yourself needing to submit an insurance claim for a car accident or other issue.

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Car insurance quotes give you a snapshot of auto insurance policies, from the types of coverage they provide to the amount you’ll pay for them.

Requesting a quote is usually the first step in the process of getting car insurance. Many insurers offer the ability to get a quote online. If you like the idea of talking to someone about your options, a car insurance agent can also give you a quote.

Having a car insurance policy isn’t required in every state in the U.S., though it is in most. But all states do have financial liability laws. If you forego auto insurance — and it’s not required where you live — you may need to prove you’d be able to cover costs in the event of an accident.


What factors influence car insurance quotes?

Multiple factors influence the cost of car insurance coverage. Two of these are underwriting and your credit-based insurance score (if allowed in your state).

You might have heard the term “underwriting” used in relation to other types of insurance. Underwriting is the process of assessing the risk the company is taking on by issuing you a policy.

Calculated based on details found in your credit reports, an insurance score is a numerical score representing the chances that you’ll have an accident or fill out an insurance claim.

Together, underwriting and your insurance score may consider several factors, including the following:

  • Your location — Minimum coverage amounts vary by state. Some states require more coverage, which could mean that an insurer may have to pay more if you file a claim. In addition, your ZIP code can affect your auto insurance rates. So if you live in a city, you may pay more for car insurance coverage than if you lived in a rural area.
  • Your personal history — Insurers may consider your age, driving record and history, previous car insurance claims, credit history and even your marital status.
  • Your vehicle information The make, model, age and mileage of your car can all influence your quote. Some vehicles cost more to insure because of theft rate, safety factors and potential replacement costs.
How do your insurance scores affect your car insurance rates?

Key information in your quote

Auto insurance quotes can be overwhelming if you’re not familiar with the numbers and terms used. Here’s a breakdown of some key details.

Liability coverage and limits

One of the main parts of an auto insurance quote is liability coverage. There are two types of liability coverage: coverage for bodily injuries and coverage for property damage.

  • Bodily injury liability can cover other people’s injuries if you’re found at fault for an accident.
  • Property damage liability can cover damage to others’ property that you cause while driving your vehicle.

Liability limits are the maximum amount your insurance will pay in the event you’re found responsible for an accident. The numbers stated on your policy may be the minimum coverage amounts your state requires. But you can also elect to buy coverage beyond the minimum, typically presented as a trio of specific coverage limits in thousands. The three coverage limits are for injury-related expenses per person involved, injury-related expenses per incident, and property damage per incident. These may be represented on an insurance quote as values like 50/100/25, for example.

So if your quote says “50/100/25,” that means your insurance could pay up to $50,000 in injury-related expenses for each person involved in an accident and a total of $100,000 in injury-related expenses per incident. The insurer could also pay up to $25,000 in property damages per incident.

Deductible

When you file a claim, this is a threshold you’d need to meet (and the amount you’d end up paying out of pocket) before your insurance coverage applies. Your insurance would kick in to cover any amount beyond your deductible, up to any limits that may exist on your policy and depending on any other policy terms.

Cash value

Depending on the types of coverage you choose, if you file a claim where your entire vehicle needs to be replaced, there are two main ways to calculate its cash value.

  • Actual cash value: Your car’s market value at the time of the incident, which is what your insurer would pay you for your car, minus any deductible, if it were totaled or stolen.
  • Replacement cost value: The amount the insurer would pay you for the cost of a new car that is the same make and model as your totaled car. A replacement-cost-value policy typically costs more than an actual-cash-value policy.

Premium

The premium is the amount you pay for coverage. The length of your policy and payment terms can vary by insurer. Depending on your policy, you may be able to make one annual premium payment, two six-month payments, monthly payments or another payment arrangement with your provider.

Other types of coverage that may appear on your insurance quote

Your insurance quote may feature additional types of coverage, beyond liability. Depending on your state and insurer, these coverage types may be required or optional.

Comprehensive coverage

This can pay for damages caused by events other than a collision, like theft, natural disaster or contact with an animal. Your auto loan lender may require this coverage if you finance or lease your car.

Collision coverage

This can help protect you if you hit another car or stationary object or if your car is hit while parked. Like comprehensive coverage, collision coverage may be required by a lender if you lease or finance your car.

Uninsured motorist bodily injury coverage

Unfortunately, not everyone has insurance. That’s why some states now require uninsured motorist bodily injury coverage. If you and an uninsured driver collide (and they are at fault), this will help cover you.

It may also cover damage by underinsured drivers, or drivers who don’t have enough liability coverage to pay for the full cost of the damage or injuries.

Personal injury protection

PIP coverage can help pay injury-related expenses for you and your passengers. It can cover costs like medical fees, lost wages, childcare, funeral costs and other out-of-pocket expenses. The amount of coverage varies widely by state. PIP is required in no-fault states.

Medical payments coverage

This optional coverage, available in states that don’t require PIP, is similar to personal injury protection. It can help pay for any medical bills that result from a car accident or injury, for both you and your passengers, no matter who is at fault. But unlike PIP, it doesn’t cover related expenses, like lost wages or childcare, and coverage limits are lower.

Gap insurance

If your car is badly damaged or totaled in an accident, gap insurance — that’s shorthand for “guaranteed asset protection” insurance — may cover the difference between what you owe on the vehicle and its current value. GAP insurance may be required when you lease a vehicle. If you’re buying a new car, you could also benefit from GAP coverage — as a new vehicle can lose about 20% of its value the first year you have it. For those who made a small down payment or have a long loan term, this coverage might help minimize making any remaining payments on a totaled car.

Roadside-assistance coverage

If you ever need help on the road, this coverage might help you pay for it. Towing, locksmith services and even tire changes could be covered by roadside-assistance coverage.

Comparing car insurance quotes

As with a car loan, shopping around for your auto insurance policy could pay off. While you’re comparing quotes, look at more than just the premium. Here are a few factors for you to compare.

Are the deductibles and coverage amounts the same?

Make sure the deductibles and coverage amounts are consistent across the quotes you’re comparing. If they’re different, you won’t be able to do an apples-to-apples cost comparison.

Generally, insurance policies with lower premiums have higher deductibles and vice versa. That said, if you’re considering a lower-premium policy with a higher deductible, make sure you’d be able to cover that deductible without experiencing financial hardship.

How to find good, cheap car insurance

Does the insurer offer discounts?

If you want to significantly lower your premium, look into discounts for safe drivers, low mileage, teen drivers and even bundled insurance policies.

Is the company reputable?

Take some time to check the stability and quality of the insurance companies you’re considering. Check the car insurance company’s financial strength rating on the five major insurance rating agency websites. You can also search for consumer complaints and financial information on the National Association of Insurance Commissioners website.

Does it meet your state coverage minimums?

You’ll want to make sure you have all the coverage required by your state. For more information on state requirements, visit your state insurance commissioner’s site.


What’s next?

Learning more about the details in your car insurance quote can be a valuable use of your time when shopping for a new policy. If you understand the types of coverage in the quote, you can get a clearer picture of what your financial responsibilities might be if you need to file a claim.

Remember that the premium isn’t everything when shopping for auto insurance coverage. The deductible and the types and amounts of coverage should also reflect your financial situation and ability to pay for expenses out of pocket. Because finances change, it may be worthwhile to shop around each year to ensure you continue to get the best policy and price for your needs.