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Should you get into a car accident and harm someone else or yourself with your car, your car insurance may cover the costs of medical bills. Depending on the coverage included in your policy, car insurance could also cover damage to your car while it’s parked, like if a large tree branch were to fall on it.

Ultimately, what your auto insurance will cover — and how much — depends on what type of car insurance you have and the amount of coverage you select. Read on to learn more about how exactly auto insurance works.

How Car Insurance Works

When you purchase car insurance, you can choose different types of insurance and policy amounts. Depending on the state where you live, there are certain car insurance requirements you’ll need to meet — more about this later on.

Adding more types of insurance and higher coverage limits provides greater coverage, but it also raises your premiums. Having a lower deductible can also bump up your rates. On the other hand, a higher deductible can lower your rates. (A deductible is a common insurance term that means how much you would need to pay upfront before insurance coverage kicks in.)

Recommended: How Does Car Insurance Work?

Car Insurance Requirements

Most states require car insurance, with the type of insurance and minimum coverage amounts depending on the state.

The only two states that do not require car insurance are Virginia and New Hampshire. While auto insurance is not mandatory in New Hampshire, if you’re at fault in an accident, you would need to show that you have enough funds to meet the state’s motor vehicle financial responsibility requirements. In Virginia, if you don’t have the minimum coverage amounts for car insurance, you’ll need to pay a yearly uninsured motor vehicle fee of $500 on top of your regular registration fees.

If you’re not sure what the minimum requirements for car insurance are where you live, you can check your state’s DMV site. Keep in mind that while you can squeak by with the minimum coverage, how much car insurance you need varies. Depending on your situation, it may be a good idea to get more coverage.

Types of Car Insurance

When comparing car insurance, there are six main types to keep in mind.

Bodily Injury Liability

If you get into a car accident and are found to be at fault, bodily injury liability coverage can help cover medical bills and wages lost for taking time off of work because of bodily harm. It can also cover named drivers, such as family members on your policy or drivers who are using your car with your permission.

Bodily injury liability is typically must-have coverage. According to the Insurance Information Institute (III), the average claim for bodily injury was $22,734 in 2021. Having enough coverage could help protect your property, assets and home.

Collision

If you crash into another car or an object, or your car gets damaged from driving over a pothole, collision coverage can pay for the costs to repair any damages to your car. It can also cover damages should your car flip over. Once your deductible is paid, the coverage will kick in.

If the other driver is the one at fault, then typically a claim can be filed with their insurance company and they’ll cover the costs. In the case the other driver’s coverage amounts aren’t enough, and you don’t have uninsured motorist coverage (sometimes called underinsured coverage), then your own collision policy can step in.

If you’re taking out a loan and still paying off your car, lenders likely require you to have full coverage, which includes liability, collision, and comprehensive insurance.

Recommended: How Much Does Insurance Go Up After an Accident?

Comprehensive

While collision coverage can cover the costs of damage during a car crash, comprehensive liability includes everything else — like a deer running into the front of your car, riots and vandalism, a tree branch falling on your car, or a hail storm or other natural disaster. Comprehensive coverage can also pay for a broken windshield (though whether it makes sense to file a claim depends on your policy and deductible). It can also cover theft, of either your entire car or a piece of your car, such as a hood ornament.

As mentioned before, if you’re still making payments on your car, you most likely are required to have both comprehensive and collision insurance in addition to liability coverage.

Personal Injury Protection (PIP)

Should you, the driver, or your passengers get harmed in a car accident, personal injury protection (PIP), also known as medical payments coverage, can help pay for medical bills, lost wages and sometimes funeral costs. It can cover these costs no matter who is at fault, hence why it’s sometimes called no-fault insurance.

Depending on your policy, PIP can also help pay for bodily harm should you get injured while walking or riding a scooter or a bike.

Property Damage

Like bodily injury liability, property damage coverage is also usually required in most states. Let’s say you or a named driver on your policy damages another vehicle or property, such as the side of a building. In these situations, property damage can reimburse the cost of repairs.

Uninsured or Underinsured Motorist

In the case of a hit-and-run, uninsured or underinsured motorist coverage can foot the bill for covered damages. Or, should someone who hits you not have adequate insurance, this type of policy can help pay for any shortfalls.

Special Considerations When Choosing a Policy

Besides the standard types of policies, there are some additional considerations to keep in mind when it comes to choosing an auto insurance policy.

Roadside Assistance

While not a type of insurance, roadside assistance can come in handy should you get a flat tire or your battery dies while on the road. While you can usually attach this to your existing auto policy as an add-on, what exactly is covered might vary by carrier.

Outside of purchasing roadside assistance as an add-on to your car policy, you can also shop around for companies that offer roadside assistance as a standalone service.

New Car Replacement Coverage

If your new car gets totaled, new car replacement coverage can replace the vehicle in its entirety. This is usually available as an add-on if you purchased a policy with collision and comprehensive insurance.

Depending on the insurance company and carrier, this might cover cars that are no more than two years old. Plus, restrictions and limitations might differ.

Rental Reimbursement Coverage

If your car is getting repaired and those repairs are covered under a car insurance claim, a policy might include an add-on to cover the fees for getting a rental car or other transportation while your vehicle is in the shop. Whether you take public transit, rent a car, or take a rideshare, what exactly is covered depends on your specific policy and limits.

Rideshare Coverage

If you’re a rideshare driver for a company like Uber or Lyft, you’ll need to meet the minimum coverage amounts for that particular company. Some insurance companies provide rideshare coverage in their policies. If not, you might need to get a rideshare endorsement or a separate rideshare insurance policy.

Car Rental Coverage

If you have liability and comprehensive coverage on your car, then that coverage can typically carry over to when you rent a car within the country. As mentioned before, depending on the particulars of the policy and car insurance company, this might not be applicable in every state, and the amount of coverage can also vary.

Recommended: Car Insurance Guide for New Drivers and 3 Ways to Save

What Does Car Insurance NOT Cover?

While auto insurance can cover a lot of things, it doesn’t cover normal wear and tear or routine maintenance. And unless it’s a rental car, it doesn’t provide coverage when you’re driving someone else’s car.

A policy also doesn’t pay for lost personal belongings in your car, such as headphones or gym gear. This could be covered by a homeowners or renters insurance policy.

At the end of the day, not all policies are alike nor are they created equally. It’s important to check to see what your policy will cover.

The Takeaway

There are six main types of insurance: bodily injury liability, collision, comprehensive, personal injury protection, property damage and uninsured or underinsured motorist coverage. The type of coverage and limits required vary by state. When choosing a policy, you’ll also want to consider whether additional coverage like roadside assistance, car rental coverage, or new car replacement coverage is right for you.

Taking the opportunity to compare car insurance companies before committing to a policy can be a smart move that might save you money on your insurance rate. When you’re ready to shop for auto insurance, SoFi can help. Our online auto insurance comparison tool lets you see quotes from a network of top insurance providers within minutes, saving you time and hassle.

Photo credit: iStock/tommaso79

¹SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc’s service. Vehicle Identification Number is confirmed by LexisNexis and car values are provided by J.D. Power. Auto Tracker is provided on an “as-is, as-available” basis with all faults and defects, with no warranty, express or implied. The values shown on this page are a rough estimate based on your car’s year, make, and model, but don’t take into account things such as your mileage, accident history, or car condition.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Insurance not available in all states.
Gabi is a registered service mark of Gabi Personal Insurance Agency, Inc.
SoFi is compensated by Gabi for each customer who completes an application through the SoFi-Gabi partnership.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOPT0523024

To some, it may sound like as much fun as the dentist, but switching car insurance companies can make a great deal of sense. Besides, getting new car insurance really doesn’t have to be an ordeal.

That being said, to make sure you’re getting the best policy for your situation — and potentially snagging a price cut when you make a successful switch — it’s important to follow a step-by-step plan. Read on to learn what to do if you’re wondering how to switch car insurance.

When Do You Need to Switch Car Insurance?

Wondering whether switching car insurance companies makes sense? Here are some common reasons to make the change:

•   Your life circumstances have changed: Many people seek a new policy when their life has changed. Clearly if you have bought a new car, you need to look into options. If you’re planning to move to another state (or even to a different zip code), if you want to add a spouse or a child to the plan or even if you have a new job, your existing insurance might no longer be the best fit.

•   You want to lower costs: Getting the least expensive premium is often the goal of getting new car insurance. If you noticed a sharp increase in your premium and didn’t have an accident or any other triggering incident, then switching may be a good way to lower your car insurance premiums.

•   You’re dissatisfied or looking to get certain perks: There are other reasons to change insurers aside from cost. Maybe you had a poor customer service experience with your current provider. Or perhaps you want a service that another insurer offers, like free roadside assistance.

•   Your credit score changed drastically: Another reason you might want to consider getting new car insurance is a drastic decrease or increase in your credit score. That shift could have a good (or bad) effect on your present policy, but a different insurer could look at it differently, so it’s worth your time to investigate. (Note: California, Hawaii, Massachusetts, Michigan, and New Jersey don’t let insurers set policy rates based on credit scores.)

On the other hand, there are some times when changing up your insurance might not be the best idea, including when:

•   You’ve just had an accident or gotten a ticket: If you’ve had a recent accident or received a ticket, it might not be a good time for a change. Your insurer will likely raise your rate but the recalculation won’t take effect until your annual renewal time. You may as well take advantage of the months you have left before the policy renews.

•   You’ll lose certain benefits if you switch: Some companies offer loyalty discounts or accident forgiveness clauses for customers who stick with them. Make sure the loss of those benefits is worth it to you.

How to Switch Car Insurance in 5 Steps

If you’re ready to change car insurance, here’s what to do.

1. Research and Evaluate Your Coverage Needs

Do you have too much insurance or too little? The former could strain your budget, but the latter could leave you exposed to financial disaster.

Nearly every state makes it a law that you pay for some liability coverage or you can’t drive the car. After figuring out that base, it’s time to determine your collision and comprehensive car insurance needs.

Taking into account your type of car, your driver’s record, and your assets, you can determine how much auto insurance coverage you really need. You need to know that before you approach insurers eager for your business.

2. Shop Around

There are many more car insurance companies out there than you may realize, making it a highly competitive business. Experts recommend that you get quotes from at least three insurers.

You’ll need to have facts ready to feed into the evaluation to get a quote, including:

•   The address where the car will be stored

•   The car’s make, model, and year

•   The Vehicle Identification Number (VIN)

•   Your driver’s license or Social Security number

Be prepared to give the same facts to each insurer so you can make an accurate comparison.

Also, check out the companies’ customer service records and review each company’s payment options. Don’t forget to find out what discounts that you could qualify for, too.

3. Contact Your Current Insurer

Once you’ve picked your new plan and have proof of insurance, contact your previous insurance company to cancel. Keep in mind that some insurance companies may penalize you if you cancel before the policy expires.

To be on the safe side, log onto your account and cancel the automatic payments after you’ve ended the old policy. Some experts recommend that you put this all in writing and send a letter to your insurer, specifying to cancel the coverage by the agreed-upon date.

4. Avoid a Coverage Gap

It’s extremely important to make sure there are no gaps in your auto insurance, even a single day. You’ll bring a firestorm of legal and financial problems on yourself if you have an accident while uninsured, and you may even lose your driver’s license.

Also, should you seek out a new insurer in the future, if you have a record of lapsed insurance, you could be stuck with an expensive policy. So before canceling your old insurance, make sure to triple-check the effective date of your new policy.

Recommended: Auto Insurance Terms, Explained

5. Print Out Your ID Cards and Switch

After you’ve signed up with your new insurer and canceled your old plan, take the former ID card out of your car or your wallet and replace it with your new one. If you haven’t received the card in the mail yet, you can always print it out.

If your state allows digital proof of ID, you can access your digital ID card through the insurer’s app.

How Often Can You Switch Car Insurance Providers?

You can switch companies as often as you like, and there is generally no penalty for doing so (though some insurers do charge a fee if you switch before the end of your coverage period). The Insurance Information Institute recommends reviewing your coverage once a year.

Aside from switching carriers entirely, you can also speak to your current insurer about updating your plan if your life circumstances have changed since you got your existing plan.

Recommended: Car Insurance Guide for New Drivers

The Takeaway

A better auto insurance plan might exist for you — but how to switch car insurance, you wonder? It’s not that hard. Making the change requires research into how much coverage you really need, obtaining quotes, and then, once you’ve decided to switch, canceling properly and making absolutely sure there are no coverage gaps.

When you’re ready to shop for auto insurance, SoFi can help. Our online auto insurance comparison tool lets you see quotes from a network of top insurance providers within minutes, saving you time and hassle.

Photo credit: iStock/Edwin Tan

¹SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc’s service. Vehicle Identification Number is confirmed by LexisNexis and car values are provided by J.D. Power. Auto Tracker is provided on an “as-is, as-available” basis with all faults and defects, with no warranty, express or implied. The values shown on this page are a rough estimate based on your car’s year, make, and model, but don’t take into account things such as your mileage, accident history, or car condition.

Insurance not available in all states.
Gabi is a registered service mark of Gabi Personal Insurance Agency, Inc.
SoFi is compensated by Gabi for each customer who completes an application through the SoFi-Gabi partnership.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOPT0523021

If you drive a car, you need car insurance — and not just because it’s the law in nearly every state.

Fortunately, these days, getting car insurance is usually a simple process. You can buy car insurance online, over the phone, or even in person — but the easiest way to do so is with a few mouse clicks.

5 Steps to Getting Car Insurance

Knowing how to get car insurance that suits the type of vehicle you have and your driving habits is easier when you know your way around the car insurance market. Here’s our step-by-step guide to buying automobile insurance.

1. Figure Out What Type Of Coverage You Need.

The first step in learning how to get insurance on a car? Understanding what car insurance is in the first place and how much coverage you really need.

There’s a veritable dictionary of different auto insurance terms to understand, but one of the most important distinctions is between liability insurance and full insurance coverage.

•   Liability insurance is coverage that pays out to another driver if you’re found to be at fault in an accident. Liability insurance is further split into property damage and bodily injury coverage, coverage for vehicular damages and medical expenses, respectively.

•   Uninsured/underinsured motorist coverage is another type of liability insurance that pays out in the event of an accident involving another driver who doesn’t have insurance (or much of it).

•   Full coverage includes liability insurance but also pays out for damage to your own vehicle, even if you’re at fault. This may include collision coverage, which pays out in the event of an accident involving another vehicle, and comprehensive coverage, which pays out in the event of non-collision damages, such as fire, falling objects, or glass damage.

•   You may also be able to purchase medical payments coverage, which can offset the cost of your medical bills in the event of an accident, or personal injury protection insurance, which can help with lost wages and other expenses. These types of coverage kick in regardless of who’s at fault.

Most state laws only require liability insurance. However, this varies, as do the minimum policy limits in each state, so be sure to get familiar with your state laws before you go shopping.

Requirements aside, full coverage might be worth considering. Even in a minor accident, you could face thousands of dollars in repair costs, not to mention random damages like a windshield crack due to a rock kicked up on the highway.

And keep in mind, too, that even full coverage doesn’t mean everything is covered, or coverages are unlimited. How much coverage you decide you want is up to you. It’s worth factoring in the age and value of your vehicle, other coverages you may have that can help, and how high a deductible you could afford to pay out of pocket in the event of an accident. Higher deductibles generally mean lower monthly car premiums — but, of course, you’re on the hook for a larger portion of the expenses if you do need to file a claim.

Recommended: What Does Car Insurance Cover?

2. Gather Your Information.

Once you have an idea of the kind of coverage you need, it’s time to get serious about shopping. You’ll need certain information in order to buy an auto insurance policy, so in order to make the transaction go smoothly, it’s a good idea to gather the following ahead of time:

•   The name and birth date of every driver to be put on the policy

•   The driver’s license number and issuing state of every driver to be put on the policy

•   The driving history (both at-fault and not-at-fault accidents) of every driver to be put on the policy

•   The car’s make, model, and vehicle identification number

•   The car’s current mileage

•   The estimated mileage the car is driven each year, as well as its primary purpose (business or leisure)

•   Any car safety features, like car alarms

•   The address the car is kept at most of the time

•   The name and policy number of your current insurance plan, if you have one

Other information may also be required, but gathering the basic details ahead of time should help save you some time.

3. Choose Your Shopping Method.

There are three main ways to purchase car insurance: directly from an insurance company, through a captive agent, or through an independent broker.

•   Buying auto insurance directly (either online or over the phone) from an insurance company means you can do the research yourself. However, getting individual quotes from a variety of different companies can take time.

•   Buying auto insurance through a captive agent means you’re working with a representative from a single insurance company, which can be useful if you want a single point of contact who can help walk you through every step of the process. This might also be a good idea if you have more than one insurance policy through the same company because you may qualify for multi-policy discounts.

•   Buying auto insurance through an independent broker can create a bespoke insurance-buying experience where the broker does the footwork of shopping around for the best deal to suit your needs. However, your premiums may include a broker’s fee.

Each approach has its own drawbacks and benefits, and the best one when deciding how to get auto insurance for you will depend on your preferences.

4. Compare Quotes.

Car insurance is one of those areas of life where you can save a lot of money by shopping around. Of course, getting multiple quotes can be time consuming, but given that car insurance premiums can cost more than $148 per month, it might just be worth your time.

Fortunately, these days, there are some great auto insurance comparison websites and apps that can help you see your potential savings by filling out just a single form. (Be aware that you may start getting phone calls, emails, and letters from insurers eager to acquire your business, however.)

Recommended: Car Insurance Guide for New Drivers and 3 Ways to Save

5. Drive Happy — But Check In Regularly.

We’ve all heard the commercials, but it really is true: You may stand to save money by switching your car insurance to a different carrier, so it’s worth checking in at least once a year to make sure you’re happy with your coverage and its cost.

That said, many carriers also offer loyalty discounts to longtime customers, and if you get a lower offer elsewhere, your insurer may be able to match it. Your car insurance premium may get lower over time if you improve your driving record or your credit history, and you may also be able to score discounts by bundling different types of insurance from the same provider (like renters insurance, homeowners insurance, etc).

Of course, it’s not just monthly costs that are worth considering. You may decide you want more or less coverage over time or as your life situation changes, which is another good reason to check in from time to time. Additionally, if you do decide to switch carriers, make sure you’re purchasing a policy of equivalent coverage — otherwise, you’re not saving money on an equivalent product, you’re just buying something cheaper from elsewhere.

The Takeaway

Knowing how to buy car insurance might not be exciting, but car insurance is an important financial product that could relieve a financial burden in the case of an accident. As you start exploring your options, you’ll want to decide the type and amount of coverage you’ll need based on the age and value of your vehicle, your budget, and other coverage that you may have.

Taking the opportunity to compare car insurance companies before committing to a policy can be a smart move that might save you money on your insurance rate. When you’re ready to shop for auto insurance, SoFi can help. Our online auto insurance comparison tool lets you see quotes from a network of top insurance providers within minutes, saving you time and hassle.

Photo credit: iStock/LumiNola

¹SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc’s service. Vehicle Identification Number is confirmed by LexisNexis and car values are provided by J.D. Power. Auto Tracker is provided on an “as-is, as-available” basis with all faults and defects, with no warranty, express or implied. The values shown on this page are a rough estimate based on your car’s year, make, and model, but don’t take into account things such as your mileage, accident history, or car condition.

Insurance not available in all states.
Gabi is a registered service mark of Gabi Personal Insurance Agency, Inc.
SoFi is compensated by Gabi for each customer who completes an application through the SoFi-Gabi partnership.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SOPT1021002

Those moments right after a car accident deliver some of the worst stress imaginable. You’re figuring out if anyone is hurt and how bad your car’s been damaged. And before too long you’re asking yourself this stomach-churning question: “How much will my insurance go up after an accident?”

There are many factors at play, including who was at fault, how serious the injuries and damage, your driving record, what state you live in, and the policies of your chosen insurance company.

Understanding these factors and digging into the forces controlling car insurance rates can help you pursue the best options possible.

Why Do Rates Go Up After an Accident?

Auto insurance is a highly competitive business, and that competition plays a role in keeping rates low. But it also means that when an accident happens, there can be quite a jump in what you pay for coverage.

When you’ve had a car accident and you are at fault, your insurer now assumes you drive in a way that could cause an accident. That may sound unfair, but that’s part of how car insurance works. They are assuming a higher risk, and that is passed on to you in the form of a higher rate.

If you are found not at fault in the accident, your insurance rate may go up by a small percentage. California and Oklahoma are two states, however, that mandate insurance companies cannot raise insurance rates after an accident where the driver was not at fault.

This is yet another reason why it’s important to go over policies carefully when making your choice. It’s smart to compare the rates among top insurers and even look at how much insurance increases after an accident with various insurers.

There is one bright spot in the insurance landscape when dealing with an accident. If your insurer offers and you elect to pay for accident forgiveness, your insurance rate will not go up after your first at-fault accident. Driving record and driving experience requirements must be met before this benefit is available.

Recommended: Auto Insurance Terms, Explained

Average Rate Increases by State

After an at-fault accident, yes, your car insurance is likely to go up. Rates can increase by about 50% a year on average after an accident, according to 2023 WalletHub research. But as the Forbes Advisor analysis below shows, just how much your rate jumps can depend on the state in which you’re insured and whether the accident caused injuries and/or property damage.

How Do I Keep My Rates Low After an Accident?

If you’ve had a car accident, there are some things you may be able to do to keep your car insurance rates from rising.

First, explore discounts that you may have overlooked. Check with your insurer to make sure you’re receiving discounts you’re eligible for.

•   If you haven’t already signed up for paperless billing, now might be a good time to take advantage of the discount you may receive with this option.

•   The number of miles you drive annually is one factor that goes into calculating your insurance rate. Check with your insurer to make sure your rate correctly reflects your annual mileage.

•   Consider a usage-based insurance that tracks different elements of your driving habits and sets your rate accordingly. Better driving habits equate to lower rates.

•   Ask about multi-policy discounts if you have all your policies with one insurer.

•   Check into military and government employee discounts.

Another tactic that might be worth pursuing if you’ve had an accident but are looking for ways to decrease your car insurance rate is to increase your deductible. The higher your deductible, the lower your premium.

Look into how much insurance you’re carrying on the car. It’s worth your time to determine how much coverage you need. If your car is worth less than the deductible plus your annual total for car insurance, it could be time to rethink your coverage.

And another thing to scrutinize is what kind of car you drive. Some cars are cheaper to insure than others.

When Does Car Insurance Go Down After an Accident?

Generally speaking, it takes three to five years for car insurance to go down following most at-fault accidents. The insurers are going by the statistical wisdom that if you’re in one accident, the chances are higher that you will be in another. Some insurers also take into account the seriousness of the accident and whether impaired driving was a factor in the accident.

One tactic people employ to lower their rates is to shop around for a new insurer. While the record of the accident and claim will be visible to a second insurer, you may still be able to get better deals.

Your insurance rates will also be affected by your credit. Merely being involved in an accident will not damage your credit, but an improvement in your credit score can be used as leverage in getting a lower premium.

Don’t rule out getting a brushup on your driving to improve those skills. Some insurance companies will discount your rates if you complete a defensive driving or driver education course.

Recommended: Cost of Car Insurance for Young Drivers

The Takeaway

The question of how much does car insurance go up after an accident has an answer that can seem hard to figure out. Rates can go up by about 50% a year on average after an accident. But that figure may fluctuate depending on a variety of factors including who was at fault, the seriousness of the accident, your driving record, and to a surprising degree, the state in which you live.

Taking the opportunity to compare car insurance companies before committing to a policy can be a smart move that might save you money on your insurance rate. When you’re ready to shop for auto insurance, SoFi can help. Our online auto insurance comparison tool lets you see quotes from a network of top insurance providers within minutes, saving you time and hassle.

Photo credit: iStock/simpson33

Insurance not available in all states.
Gabi is a registered service mark of Gabi Personal Insurance Agency, Inc.
SoFi is compensated by Gabi for each customer who completes an application through the SoFi-Gabi partnership.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOPT0523022

When you buy a home, you’re likely paying more than just the down payment and closing costs. You’ill probably also need to purchase homeowner’s insurance. While this coverage is not mandated by law, many mortgage lenders require it before they agree to finance the purchase of your home.

Here’s what first-time homebuyers need to know before shopping for homeowners insurance.

What Does Homeowners Insurance Cover?

Homeowners insurance coverage provides protection for both a home and its contents against damage, theft, and up to 16 named perils, including fire, hail, windstorms, smoke, vandalism, and theft. It also typically includes personal liability coverage for accidents that may happen on the property (think of people slipping and falling down your stairs, or your dog biting a neighbor on the property).

On the flip side, basic homeowners insurance likely won’t cover damage from disasters such as floods and earthquakes, and even war (seriously). Homebuyers who live in an area prone to certain events or natural disasters may want to consider supplemental coverage. In some cases, their lender may even require it.

It’s a good idea to learn what’s generally covered by each homeowners insurance policy type — and what isn’t — to ensure you have the right protection in place.

When You Need to Buy Homeowners Insurance

If buyers plan to get a mortgage to purchase their home, their lender will likely require they obtain homeowners insurance coverage before signing off at closing.

In reality, this is a sound business tactic, as the lender will want to protect its investment, which is the property, not the person it’s lending to (harsh, we know). Let’s say the home is damaged in a windstorm or burns to the ground. Insurance will cover the cost, after a deductible, without burdening the homeowner. The homeowner can then continue to pay their mortgage on time, much to the delight of the lender.

Again, if you live in an area prone to certain disasters like floods or earthquakes, your lender may require additional coverage. Check with your lender on what’s necessary before signing.

If a person’s first home happens to be a condo or co-op, the board may also require specific coverage, thanks to a shared responsibility for the entire complex.

Recommended: House or Condo: Which Is Right For You? Take the Quiz

Can You Forgo Homeowners Insurance?

Technically, there are no laws requiring a person to obtain homeowners insurance, but it’s a rule put in place by many lenders.

If you’re paying cash for a new home, you can forgo purchasing homeowners insurance, though that may be a risky proposition.

Think you can somehow snake the system? Think again. If a lender doesn’t feel that the homebuyer is working hard or fast enough to find homeowners insurance before closing, the lender may go ahead and purchase insurance in that person’s name with what’s called “lender-placed insurance.”

This isn’t as cool as it sounds. Not only will it increase the mortgage payment, lender-placed insurance is typically more expensive than traditional homeowners insurance. And it may not even provide all the protection a homeowner needs or wants.

To give yourself enough time to find the right policy for you, aim to start shopping around a good 30 days before closing.

How Much Coverage a Person Needs

How much homeowners insurance a new homeowner needs will depend on the value of their home and the possessions in it. As a first step, would-be homeowners can ask their agent for a recommended amount of coverage.

After determining that number, it’s also a good idea to take stock of belongings and see if any items may require additional coverage (think expensive antiques, paintings, or other irreplaceable items). It could also be smart to photograph and digitally catalog major items in a home for proof needed on any claims.

Replacement Cost vs. Actual Cash Value

When shopping for homeowners insurance, there’s replacement cost coverage and actual cash value coverage.

Replacement cost coverage pays the amount needed to replace items with the same or similar item, while actual cash value coverage only covers the current, depreciated value of a home or possessions.

This means that if you have actual cash value coverage and disaster hits, you’ll only be able to get enough cash for the depreciated value of the home and items, not the cost of what it may take to replace them.

Most standard homeowners insurance policies cover the replacement cost of a physical home and the actual cash value of the insured’s personal property, but some policies and endorsements also cover the replacement cost of personal property.

The upshot: It’s best to go for replacement cost coverage whenever possible.

Recommended: How Much Is Homeowners Insurance?

The Takeaway

Is homeowners insurance required to buy a home? If you’re taking out a mortgage, that’s almost always a “yes.” It’s worth looking at your options — and understanding what will and will not be covered — so you can feel at ease in your new home for years to come.

Of course, shopping for homeowners insurance often requires considering several options, from the amount of coverage to the kind of policy to the cost of the premium. To help simplify the process, SoFi has partnered with Experian to bring customizable and affordable homeowners insurance to our members.

Experian allows you to match your current coverage to new policy offers with little to no data entry. And you can easily bundle your home and auto insurance to save money. All with no fees and no paperwork.

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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