Many drivers make costly mistakes that raise their premiums or leave them underinsured. By understanding these common pitfalls, you can make smarter decisions and get better coverage for less.
To ensure you’re on the right track, compare our best car insurance providers for policies tailored to your needs.
Key Insights on Common Car Insurance Mistakes
Shopping around for quotes and understanding coverage needs can save you money.
Mistakes like underinsuring, overinsuring, or failing to update your policy can lead to financial losses.
Regularly reviewing your policy ensures you’re getting the best value and protection.
Let’s explore 11 frequent car insurance mistakes and how to avoid them.
1. Not Shopping Around for Quotes
One of the most common car insurance mistakes is sticking with the same provider without exploring other options. Rates vary significantly between insurers, and failing to shop around could mean overpaying for coverage.
The Insurance Information Institute recommends getting quotes from at least three companies to compare coverage and costs. Even if you’re happy with your current provider, it’s worth checking periodically to see if another insurer offers better rates or discounts.
2. Choosing Coverage Based Only on Price
While it’s tempting to choose the cheapest policy, focusing solely on price can backfire. Low-cost policies often come with limited coverage or high deductibles, leaving you vulnerable in the event of an accident.
Instead of just looking at premiums, evaluate what the policy includes—such as liability limits, collision coverage, and customer service reputation.
Spending slightly more for adequate protection can save you from significant out-of-pocket expenses later. Look for the sweet spot between affordable monthly premiums, manageable out-of-pocket deductibles, and adequate coverage.
3. Buying Only Minimum Required Coverage
- State minimums vs. recommended levels: Many drivers assume that meeting their state’s minimum liability requirements is enough. However, minimum coverage often falls short in serious accidents. For example, liability limits might not cover all medical bills or property damage, leaving you responsible for the remainder.
- Liability gap risks: If your state requires $25,000 in property damage liability but you cause $50,000 in damages, you’ll have to pay the difference out of pocket. Consider purchasing higher liability limits or additional coverage like uninsured motorist protection to avoid this risk.
4. Overlooking Gap Insurance for New Cars
If you finance or lease a new car, gap insurance is crucial. This coverage pays the difference between your car's depreciated value and what you owe on your loan if the vehicle is totaled.
New cars lose value quickly—up to 20% in the first year. This depreciation is even more dramatic for the most expensive cars to insure, where the financial gap can widen substantially.
Without gap insurance, you could end up owing thousands of dollars to replace the depreciated amount, even after your insurer pays out.
5. Setting Inappropriate Deductibles
Your deductible—the amount you pay out of pocket before insurance kicks in—affects your premiums. A higher deductible lowers your premium but increases your financial burden after an accident.
Choose a deductible that aligns with your budget and savings. If a $1,000 deductible feels too high to cover in an emergency, opt for a lower one, even if it means slightly higher premiums.
6. Providing Inaccurate Information
- Common application errors: Errors like misstating your address, commute distance, or vehicle usage can lead to incorrect rates—or worse—policy cancellation if discovered later.
- Consequences of misrepresentation: Lying on your application might seem harmless, but insurers could deny claims or charge higher premiums if they find discrepancies. Always provide accurate details when applying for or renewing a policy.
7. Not Adding All Household Drivers
So, who needs to be listed? Every licensed driver in your household who has access to your vehicle should be listed on your policy. Failing to do so could result in denied claims if they’re involved in an accident.
Keep in mind that adding a teen driver may increase premiums initially, but it ensures proper coverage. Many insurers offer discounts for good grades or completing driver education courses.
8. Forgetting to Update Life Changes
- Events that affect coverage: Major life changes—like moving, getting married, or buying a new car—can impact your insurance rates and needs. For instance, moving to a lower-crime area might reduce premiums.
- When to notify your insurer: Always inform your insurer about changes such as adding a new driver or switching jobs (which might alter commute distances). Keeping your policy up-to-date ensures accurate pricing and avoids potential claim issues.
9. Missing Out on Available Discounts
- Common overlooked discounts: Many drivers miss out on savings opportunities like bundling home and auto insurance, installing anti-theft devices, or utilizing telematics devices to monitor driving habits. Other discounts may include safe driving records, low mileage usage, or being part of certain organizations.
- Qualification requirements: Ask your insurer about all available discounts and ensure you meet eligibility criteria. Small savings add up over time and can significantly lower overall costs.
10. Over-Insuring Older Vehicles
- When to drop comprehensive/collision: For older cars with low market value, paying for comprehensive or collision coverage might not be cost-effective. The payout after an accident may be less than the premiums paid annually.
- Value-to-premium calculation: Use tools like Kelley Blue Book to compare the cost of these coverage options against your car’s value. If the math doesn’t add up, consider dropping optional coverages while keeping liability protection.
11. Not Reviewing Policies Regularly
- Annual review checklist: Insurance needs change over time—perhaps you’ve moved closer to work or paid off a loan. Reviewing your policy annually helps ensure it still meets your needs without unnecessary extras.
- Red flags for policy changes: Look out for unexplained premium increases or outdated information (e.g., an old address). Regular reviews allow you to address these issues promptly and potentially save money by switching providers if needed.
Bottom Line: Save Money By Insuring Properly
Avoiding these common car insurance mistakes can save you money while ensuring adequate protection. From shopping around for quotes to regularly reviewing your policy, staying proactive helps prevent costly errors that could impact both finances and peace of mind.
Whether it’s adjusting deductibles, updating life changes, or exploring discounts, small steps make a big difference in optimizing your car insurance coverage.
