Posted on WalletHub on Nov 4, 2021
Why are car insurance laws so different from state to state?
Everyone who drives a vehicle in the USA is required to carry insurance (except in the state of New Hampshire). The laws governing car insurance are set at the state level, they are not mandated by the federal government. So, the minimum insurance requirements (and hence the cost of car insurance) vary from state to state. The cost of insurance can also vary from county to county within a state. Factors such as the income level, weather, driving conditions, population density, level of crime and litigation, and even local politics, all play a role in determining how much you will pay for car insurance.
For instance, more rural areas where fewer people live and drive usually have lower insurance costs than more densely populated urban areas. Places with higher crime levels typically have higher insurance costs, as do more litigious states. However, once a person decides where to stay (maybe due to a job), this is not a factor that can be changed. For instance, if your job requires you to be in Michigan, New York, Louisiana, or Florida, you are stuck with high-cost car insurance.
What are the pros and cons of choosing a national car insurance company over a local insurer?
First off, one must select an insurance company from which to buy the insurance. This is a complicated choice since there are hundreds of insurance providers in every area. At the broadest level, it comes down to choosing a well-known national insurance provider (think of State Farm, Allstate, MetLife, etc.) versus a regional or local firm.
The big national insurance companies have both web-based and physical offices where you can explore your options. You will be able to change the type and amount of insurance you want and see the impact on the cost, so you can customize your insurance to your needs. For instance, you can easily change parameters such as the amount of the deductible, amount of liability insurance, coverage for uninsured motorists, etc., and see what the rates will be for all the different permutations and combinations.
Since many of these companies are large with well-funded balance sheets, they are usually in good financial health and will be able to pay off claims made by the insured folks. You can check their financial rating from rating agencies such as S&P, Moody’s, Fitch, AM Best, etc. Do ensure that you check the rating from multiple agencies since different rating agencies can have different ratings for the same insurance company, and insurance companies are likely to tout only their best rating from one agency and tend to ignore lower ratings from other rating agencies. You should also do your research on their claims experience since some of them may make it harder for people to file claims. Their physical presence may also be limited in your area, so be sure to check if this is important for you.
Regional providers (some may be present in tens of states, so they may be large firms) and local insurance companies generally will provide more personalized service, though their web-based options may be limited. Since they are smaller and less well-known, it is important to do your due diligence and make sure that they have the financial strength to be able to withstand claims that may be made. After all, it is no use buying insurance from a financially weak firm if it is likely to file for bankruptcy at the first sign of trouble – a bankrupt insurance company will not be around to pay any of your claims even though you may have already paid the insurance premiums! But they are more likely to have local agents near you and could provide more human interaction if that is important for you. They may be more knowledgeable about local conditions than some national providers (e.g., are many folks in your area driving without insurance and should you get coverage for uninsured or underinsured motorists), though the gap is narrowing with more of the latter using big data analytics to generate insights specific to the local areas.
What are the most important things to look for when shopping for car insurance?
So, what other factors should you look out for when buying car insurance? First, and perhaps most important, you should shop around and compare rates from several different insurance companies. You can also see what quotes you can get from insurance agents who may be able to get rates from multiple companies. Be aware that the rates can and do differ by several thousand dollars per year, and insurance agents may not always get the best rates for you, so you should do your homework. You should ask if any discounts are available. Often, you may be able to get discounts by bundling your auto and home insurance. You could also get discounts for seniors, by agreeing to auto-pay with your bank account, paying the insurance premium annually or semiannually instead of monthly, or discounts for memberships in clubs such as AAA, etc.
Another important factor to consider is the amount and type of coverage. For example, you can choose a larger deductible and get a lower rate if the accidents in your area are rare. You may decide to forego collision coverage (which covers damage to your vehicle) for a second car that you do not drive much or for an older car that may not be worth much. Note that insurance costs are generally more expensive for more expensive cars or for cars where the repair costs are higher, so you may want to keep that in mind when buying a car in the first place. If you often drive through areas where uninsured motorists are more likely, then you could consider getting a higher amount of coverage for uninsured or underinsured motorists.
Overall, getting the car insurance right is a complex decision and a “one size fits all” approach is unlikely to be optimal. Getting more information and learning about the different types of coverage and insurance companies should help you successfully navigate through this maze.