4 Things to Know About Auto Insurance Coverage

Auto insurance is one of those things you need to have but you may never use. Even if you never need it, it's well worth the peace of mind knowing you won't be wiped out financially in case you have an accident. Auto insurance can be a little complicated and difficult to understand, but your agent can walk you through a policy and make sure you have good coverage that you can afford. Here are a few things to know about auto insurance.

1. Check Rates Before Buying a New Car

Before you trade in your old vehicle, check the insurance rates for the car you're considering before you buy it. The cost of insurance for different cars can vary quite a bit, and you don't want to be shocked by a large insurance bill.

The type of car is especially important for teen drivers who don't have a lot of experience and who may drive aggressively. The rate to cover a teen in a sports car could be cost-prohibitive, so it's good to know the expected insurance costs before you buy a car.

2. Compare Rates in Different States

If you'll be graduating and taking a job in a different state or retiring to a warmer climate, be sure to check into insurance rates in the state you plan to move to. The cost of auto insurance varies by state with some states being much more expensive than others. Knowing this in advance could help you decide if you need to trade down before you move or make adjustments to your policy to offset a rate hike.

3. Don't Let Insurance Lapse

It might be tough to keep up with insurance payments sometimes, but letting your insurance lapse can be a mistake. It may be illegal to drive without insurance, but even if it isn't, it's not wise since an accident could set you back financially.

Plus, if you let insurance lapse, you could have difficulty getting a new insurance policy when you're ready. If you can get insurance, it might be at a much higher rate. If you sell your car, you might even consider buying a less expensive non-owner policy just so you can be protected while driving another person's car and so you'll have continuous insurance coverage.

4. Improve Your Credit for a Better Rate

Your insurance company may pull your credit report when you apply for auto insurance. If you have poor credit, you'll probably have to pay a higher monthly fee for insurance. If you take time to improve your credit score, it will benefit your financial life in several ways, including lowering your insurance costs.

Once your credit score has improved, you might try switching to a new insurance company or negotiating a better rate with your own company so you can lower your payments.