Student Guide to Car Insurance

If you’re lucky enough to drive your own set of wheels during college, now’s the time to do a little bit of homework on car insurance. Even if your parents have taken care of your policy until now, it’s a smart idea to know what you need to stay safe and legal once you have to get your own car insurance.

In this student guide to car insurance, we’ll tackle the basics: We’ll start off with why skipping car insurance is a really (really, really) bad idea. We’ll also discuss whether you can stay on your parents’ policy and, if not, what kind of coverage you need and how to save as much money as possible.

Why Do I Need Car Insurance?

If you’re making car payments or even just paying for a tank of gas every week, driving a car probably already seems expensive enough. Car insurance adds another monthly bill on top of that, and it can be tempting to skip it to save some cash. Don’t do it!

We get it: Things are tight. But forgoing your car insurance is a big gamble for a few big reasons:

  • It’s probably illegal in your state to drive without car insurance. So if you get pulled over and can’t provide proof of insurance, you’ll at least face a steep fine. You could even lose your license and your car.
  • A crash could be very costly without car insurance to cover you. Even if you simply hit a tree and walk away unharmed, without insurance, you’ll have to pay every penny that it takes to repair your car or buy a new one. But what if you’re injured — or you injure someone else? If you have health insurance, it will cover you, but when you’re at fault in a crash that hurts others, you can be held liable for their medical expenses. You’ll also be on the hook for the damage to their vehicle, too.
  • Car insurance can give you peace of mind whenever you get behind the wheel. In turn, that can help you become a more calm, confident driver who’s at a lower risk of getting into a crash.

There’s good news, though: Car insurance doesn’t have to be that expensive — there are lots of ways to save. In fact, you may even be able to stay on your parents’ policy. We’ll tackle whether that’s the case for you below.

Can I Stay on My Parents’ Car Insurance Policy?

You might be eager to stake your financial independence, but it probably makes more sense to remain on your parents’ car insurance policy as long as you’re eligible (and as long as they’re willing). That’s because your parents are probably considered much lower-risk drivers than you. Because of that, it will almost certainly be cheaper for them to keep you on their policy than for you to get your own. As a bonus, they can likely afford to pay for higher limits that would mean greater coverage if you were in a crash.

Fortunately, there is no magic age where you’ll be kicked off your parents’ auto insurance. But if you want to stay covered by their policy, you’ll probably need to keep the following in mind:

  • Don’t change your primary address. Even if you’re off at school most of the time, most insurers will let you stay on your parents’ policy if your primary address is still with them.
  • Your parents should be listed on the important car-related documents. They should be on the title of the vehicle, not you. And if you’re financing a car, they should at least be listed as co-owners.
  • Don’t get hitched. If you decide to elope one weekend with your college sweetheart, you might get kicked off your parents’ policy since you’ll no longer be considered a dependent.

What Kind of Car Insurance Do I Need?

If you can’t stay on your parents’ policy, don’t get too bummed. Getting a quote for car insurance can be confusing, but it doesn’t have to be. We’ll take a look at the major types of car insurance and cover what you need, why, and how much.

Liability (Bodily Injury/Property Damage)

Liability insurance is required by law in almost every state. It covers you when you are at fault in an accident that injures someone else (bodily injury liability), damages someone else’s car (property damage liability), or both.

When you get a car insurance quote, the amount of liability insurance that’s included will be written like this: 25/50/25. That’s how much coverage you have, in thousands, for three things: bodily injury liability per person (in this example, $25,000), bodily injury liability per accident ($50,000), and property damage liability ($25,000).

Do I need it? Absolutely. This is the core of your car insurance, and something you can’t can’t skip. So how much do you need?

Every state except New Hampshire requires a certain minimum amount of liability insurance. You can find your state’s requirements in this table by the Insurance Information Institute (III). Your insurer won’t allow you to purchase any less than the state minimum.

However, experts don’t recommend only getting the state minimum amount, since it might backfire if you get into a bad crash. Hospital bills, after all, are notoriously expensive — and so is replacing someone else’s Mercedes.

While you may not have a lot of assets to protect as a student, you should still get whatever you can reasonably afford above the state minimum. If that’s not much (or anything) other than bare-bones coverage, be sure to opt for more once you graduate, wrangle that well-paying job, or buy a house.

Comprehensive Coverage

Comprehensive coverage kicks in if your car is damaged by something other than an accident — think storm damage, theft, or vandalism. So if someone smashes your car windows in a drunken rage after a big football game, comprehensive takes care of the replacement costs.

Do I need it? Maybe. If your car is relatively new, you’re probably going to want comprehensive coverage — and if you’re making car payments, you’ll probably be required to have it. Basically, if your car is totaled and you can’t easily go out and buy one that’s similar, you’ll want comprehensive coverage.

On the other hand, if you’re still driving that old clunker your parents got you for your first car, comprehensive coverage will probably be overkill. After all, once you add up the price of the coverage and pay your deductible, you might be able to get another used car — maybe even one with fewer miles on the odometer.

When you opt for comprehensive coverage, you won’t choose a specified amount of coverage like you do with liability. Instead, you’ll choose a deductible — that’s the amount you’ll pay before your coverage kicks in. This may be as little as $100 or as much as $2,000. If you have a $500 deductible and the damage amounts to $1,200, you’ll pay $500 and the insurance company will cover $700.

A higher deductible will save you some money on your coverage, but you should only opt for an amount that you can comfortably pay.

Collision Coverage

Collision covers the cost of fixing your car when you’re in a wreck. (Remember, property damage liability only covers these costs for someone else’s car when you’re at fault.) Just like with comprehensive, you’ll choose a deductible for collision coverage. Higher deductibles mean a lower rate and vice versa.

Do I need it? Again, maybe. If you have a newer car and opted to get comprehensive coverage, you’ll definitely want to get collision, too. If you decided against comprehensive coverage because your car just isn’t worth much anymore, you can probably safely forgo collision, too.

Uninsured/Underinsured Motorist

Uninsured and/or underinsured motorist coverage is another form of liability insurance. In this case, it applies when an uninsured or underinsured driver is at fault in an accident, making it more difficult for you to get your crash-related bills paid. Some states require this type of coverage, which you’ll generally get in an amount equal to your regular liability policy.

Do I need it? Yes, if your state requires it. Even if that’s not the case, we still recommend it.

Truth be told, this is one of the biggest judgment calls in car insurance. But consider this: More than 12% of drivers nationwide don’t have car insurance, according to the III. It might be safe to assume that number is higher among college students with tight budgets. If you’re in an accident with one of them, you’ll be glad you paid a bit extra for this coverage.

Medical Payments/Personal Injury Protection

Again, the bodily injury liability insurance at the core of your quote applies to others when you’re at fault in a crash. Medical payments or personal injury protection coverage helps cover your own bills (or those of your passengers) if you’re hurt in a crash.

Do I need it? Probably not, as long as you’re covered by a good health insurance plan. Remember, you can typically remain on your parents’ health insurance plan until age 26, even if you’re not a dependent.

How Can I Save Money on Car Insurance?

A lot of factors go into what you’ll pay for car insurance. Unfortunately, one of the biggies is your age. When you’re under 25, you’ll typically pay more for car insurance because you’re at a greater risk of getting into a crash and filing a claim.

The average yearly cost of car insurance for a 21-year-old in 2015 was $3,620, according to a study by Value Penguin. Ouch. (If you need a reason to embrace the aging process, consider this: That number plummets to $2,078 once you’re 30.)

Other demographic information, such as whether you’re a man or a woman, where you live, and whether you’re single or married will also affect your rate. Sorry, city boys: In general, the cards are stacked highest against young, single men who live in densely populated areas.

You can’t change those basics, but there are several other ways you can shrink your car insurance bill. We’ll outline a few of those below.

Discounts, Discounts, and More Discounts

Auto insurance companies are willing to knock a lot of money off your insurance rate for all sorts of reasons. Don’t be shy about asking for a complete list, since some of them might not be publicized.

Here are some of the easiest discounts for you to take advantage of as a student:

  • Good student discount: Are you under 25? Are you a full-time student with pretty good grades? You’ll probably be eligible for a good student discount. Criteria will vary depending on your insurance company, but usually you’ll need at least a 3.0 grade point average. In certain circumstances, you may also be able to qualify if you’re on an honor roll or dean’s list, or if you have high standardized test scores.
  • Resident student discount: Maybe you’re attending school far away from home and don’t plan to drive except when you come back for visits. Your insurance company will give you a big break for this, since driving less means there’s less chance you’ll get into an accident.
  • Safe driver discount: Never been in an accident? Never gotten a ticket? Criteria will vary from insurer to insurer, but you’ll probably be eligible for a safe driver discount.
  • Pay in full/automatic payment discount: If you’re willing to pay for six months or a year of car insurance up front, your insurer might give you a discount. Same goes if you sign up for automatic payments — just make sure you keep track on your own and have ample money in any account that your insurance company may draw from.
  • Driving school discount: If it’s not already required in your state to get licensed, taking a defensive driving class can mean a big discount from your insurer. Sometimes, taking such a class can also keep your insurer from raising your rate after you get a ticket. To find a defensive driving class, check with your state’s division of motor vehicles; they are held frequently and typically only require four to eight hours of your time.
  • Anti-theft discount: Does your car have an alarm or any other anti-theft features, such as an electronic immobilizer? You can probably get a discount.
  • Safety equipment discount: Your car might come equipped with safety features such as air bags, anti-lock brakes, daytime running lights, or motorized seat belts. All of them can mean you pay less for car insurance.
  • Early signing discount: If you’re shopping for car insurance with enough time before your current policy lapses (say, a month), some insurers will give you a small discount since you didn’t wait until the last minute.
  • Multiple policies discount: If you live off campus, renters insurance is a wise move to protect your belongings. (If you’re a full-time student under 26 who lives on campus, you’re probably covered by your parents’ homeowners insurance.) Go through the same company for renters and car insurance, and you may nab a discount for bundling your policies.
  • Data-tracking discount: Some insurers offer an initial discount if you sign up to use a small device that tracks your driving habits. If the device records good driving habits, you could save even more. However, the flip side can also be true. For instance, if Progressive’s Snapshot records riskier driving behavior, such as frequent hard braking, your rate could go up. Be sure to check the details of your insurer’s program before you sign up.

Choose Your Ride Wisely

Perhaps you’ve been chugging along in your rust bucket long enough, and you’re thinking of upgrading. The type of car you pick can have a big effect on your insurance rates, so choose wisely.

In general, any car that can go really fast will make your insurance really expensive, so consider whether impressing your friends is really worth the premium. Same goes for luxury rides, if you’re lucky enough to have the money for those.

Sticking to vehicles such as family-friendly sedans and SUVs might not have a lot of sex appeal, but it will help keep your car insurance rates as low as possible.

If you have your eye on a specific make and model, you can get a sense of what you might pay by checking this database at Insure.com.

Go for a Higher Deductible

When you get car insurance, certain parts of your policy will require you to choose a deductible. That’s a fancy term for what you will have to pay before your auto insurance company picks up the rest of the tab. For instance, if you have a $500 deductible on collision coverage and the damage amounts to $3,000, you’ll have to pay $500 toward your car repairs after an accident before your insurance kicks in and covers the remaining $2,500.

You can choose from a wide range of deductibles — typically, as low as $100 or as high as $2,000 or even more. Choosing a higher deductible will mean a lower rate since you’re agreeing to shoulder more of the burden in case you make a claim.

That makes higher deductibles an easy way to save money on your monthly premium. But you should only choose a high deductible if you have savings (either your own, or perhaps an advance from the Bank of Mom and Dad) to cover that hefty bill if you need to after a crash. Otherwise, you’ll be scrambling to scrape together those funds during an already stressful situation.

Give Your Wheels a Rest

When you get a car insurance quote, the insurer will ask you approximately how many miles you drive each year. The reason is simple: The less you drive, the less chance your car will wind up wrapped around a telephone pole.

A few lifestyle choices can help you drive less and, therefore, pay less for your car insurance:

  • Do you go to school in a bigger city with a good mass transit system? Opt for the bus or the subway over your car.
  • Can you move close to campus, or stay put in the dorms? You’ll cut way down on mileage.
  • If you wrangle a part-time job or internship, can you carpool with friends who work nearby? You’ll save on car insurance — and make Mother Nature a little happier, too.

Be Careful With the Plastic

Perhaps you recently got your first credit card, and it’s burning a hole in your pocket: Suddenly, that expensive dinner with friends looks a lot more appealing than yet another night of ramen. That’s understandable, but be careful.

Before you start swiping up a storm with your credit card, take a step back and think. You’re just starting to build your credit, which can affect a whole lot of your financial life in the future — everything from what kind of car loan you qualify for to whether you can get a desirable new apartment. Bad credit can even ruin your chances of getting hired for a dream job.

And yes, your credit can even affect what you pay for your car insurance. That’s because insurers have data showing that people with bad credit are more likely to file a claim and cost them money.

Moral of the story? Use your credit responsibly, paying bills on time every month. Try not to get into the habit of carrying a balance, either — interest charges can add up quickly, sinking you deep into debt before you even realize what’s happening.

For a thorough primer on how to harness the power of plastic for good, not evil, read up on How to Build Good Credit in College. If you want to establish credit with the best card possible, check out our guide to the Best Credit Cards for Students in 2015.

Where Can I Find the Best Car Insurance?

First, breathe a little sigh of relief: You probably don’t have to talk to an insurance agent unless you want to. These days, it’s easy to get car insurance quotes online, a process that usually only takes a few minutes with each insurer. (If that still sounds like a big time commitment, it’s worth it: Your rate can vary dramatically from company to company. It always pays to shop around, especially when it comes to car insurance.)

If you still have questions about car insurance, or simply find the subject fascinating (who doesn’t?), you can learn more from some of The Simple Dollar’s past articles. Don’t worry — the exam will be open book.

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