NerdWallet: 5 Steps To Picking The Right Car Insurance Company

Workers stage a car accident during the filming of the movie "Transformers 3" in Chicago, Illinois.

Workers stage a car accident during the filming of the movie "Transformers 3" in Chicago, Illinois.  (2010 Getty Images)

One of the most important decisions a driver can make is which auto insurance policy to purchase. However, while most car owners understand that picking the right car insurance company is paramount, it can be a confusing process to go through. To help decide which of the many auto insurance companies out there will best fit your needs, use the five steps below to narrow down your options:

Step One: Understand The Coverage You Need

Nearly every state requires you to have liability insurance, which covers damages if you accidently injure someone or for damaging another vehicle or property. Check here to see what your state requirements are for liability insurance to make sure you’re getting the minimum coverage required. In some cases, this may be all the coverage you need.

You’ll also want to figure out if you need collision insurance which covers for damages to your car and comprehensive insurance which covers your car in non-accident cases such as theft or flooding. These are good policies to have, but they may not be worth it for some drivers whose car value is worth less than premiums and payout. While these policies may not be required by your state, either policy may be required by an insurance company or your financial institution if you have a loan on your car. If you don’t need comprehensive or collision but it’s required by an insurance company, you may want to choose another insurance company so you don’t have to pay for a policy you don’t need.

Step Two: Gather Quotes

One of the best ways to purchase insurance from a company you’ll be happy with is to ask for recommendations from friends and family. In particular, try to ask for recommendations from those whose opinions you trust who also live around you, as geographic location can greatly impact costs.

Now that you’ve heard assessments of popular auto insurers from your nearest and dearest, it’s time to start gathering some quotes. In addition to the companies you discussed with your friends and family, be sure to seek out policy prices from as many other auto insurance companies that you can.

Step Three: Ask About Discounts

There are several different discounts that auto insurance companies offer that will help you find significant savings. Many standard discounts include an early shopping discount for switching to a new insurer a certain number of days before your current policy expires, discounts for taking a defensive driving course, good student discounts for students who have at least a 3.0 or B average, good driver discount for those with a good driving history, discounts for having anti-theft features on your car, exclusive group discounts and many other types of discounts.

Many insurers will also reward you with discounts for being a good customer. For example, some will offer discounts for being a loyal customer, paying your premium in full or having a multi-car policy or bundling your car insurance with your home or life insurance policies.

Step Four: Vet insurance companies

Do your research on each insurance company. Find out if they have strong ratings for financial strength from Standard & Poor’s, A.M. Best, or Moody’s. You want to have full confidence that your insurer can pay claims and meet their financial obligations to you.

Check out an insurer’s website to see if it’s user-friendly and if the information you’re looking for is easily located. You’ll probably be spending a lot of time on it to manage your account or check on claims so make sure it is one that is appealing and efficient for you to use. If you prefer not to use the website as much, you’ll want to make sure that you can easily reach a representative.

You’ll also want to investigate complaints about the insurer. You can find this through your state’s department of insurance website (a quick Internet search will turn up the URL for your state’s site). Once you’ve found your state’s site, locate the customer complaint ratio for each company you’re interested in. This figure represents the number of consumer complaints filed per 1,000 claims processed by the company.

Step Five: Consult an Agent

If you’ve completed steps 1-4 and still feel that you need an expert opinion on the matter, contact an independent insurance agent. He or she will be able to match you with a company that fits your budget and insurance needs, and will help you work through the process of purchasing the policy. Be sure you share all the research you’ve done with your agent so that he or she has a better picture of what you’re looking for and which companies you’re definitely not interested in.

Hannah Kim is a financial analyst for NerdWallet, a financial literacy organization
that helps consumers save for retirement, find cheap insurance, improve their credit scores and make smarter financial decisions overall