How to choose the best car insurance coverage for your needs

Car insurance isn’t something that is nice to have. In most states, it’s a requirement for drivers to obtain minimum liability coverage. And if you’re financing your vehicle, specifically, the lender may have additional coverage requirements to meet, too.

However, finding affordable car insurance is becoming more difficult as rates continue to spike. Car insurance rates were up 2.2% in January from the month prior, according to Bureau of Labor Statistics data. On an annual basis, rates rose 11.8% in January 2025 compared to the year prior. This has forced consumers to make difficult decisions, choosing between coverage they need versus what they can afford. 

Despite the rate increase, it’s important to find coverage that fits your needs. Below, we’ll break down what factors are affecting costs and how to find the best auto insurance for your situation. 

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What’s driving up auto insurance costs? 

Car insurance rates have gone up significantly due to a multitude of factors. While it’s easy to point to inflation and your driving record, what is increasing rates is a lot more nuanced. 

“We’re in a hard market for insurance. Premiums are up, guidelines are tightened, eligibility is harder now than ever before,” says Colleen Parsons, an independent insurance broker with World Insurance Associates.

Parsons notes that increased litigation, personal injury settlements, and even car parts are hiking up car insurance costs. That’s on top of the more traditional factors affecting auto insurance premiums. 

“Rising costs of car repairs, car prices, medical expenses are what premiums pay. As these costs increase, so will car insurance rates. If tariffs on cars cause car prices to increase, so will insurance rates even more in the coming year,” says Brian Boyd, president at Cover My Risk, Inc., an independent insurance agency.

Alaina Hixson, director of sales and operations at The Churchill Agency, an independent agency offering auto insurance nationwide, also notes that extreme weather events and fraud have been underlying factors affecting rates. 

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How to choose the best car insurance coverage for your needs

Here are some steps to find the best auto insurance coverage for your particular situation:

Evaluate your needs 

Before searching for car insurance coverage, evaluate your needs. While nearly all drivers will need some level of liability insurance, it may be worth looking into collision coverage, comprehensive coverage, uninsured motorist coverage, and personal injury protection (PIP). 

If you have an auto loan, gap insurance can be a smart investment, as it covers any gap between your car’s current value and your remaining balance. 

“It’s the most important to carry a reasonable amount of liability, because if you hurt somebody else you can very easily be sued, you can cause injury and harm to someone else. So you want to be well protected,” says Hixson. 

However, Parsons notes that if your car loan balance has been paid, collision protection is optional. This could result in savings, however, it’s important to note you’d then be responsible for damages or replacing your vehicle in a car accident. Used vehicle prices are still elevated, so do your research and look at your cash reserves before dropping this coverage. Parsons recommends getting comprehensive coverage. 

“It’s the cheaper of the two between your collision and comprehensive. Comprehensive is usually nothing really your fault. So your car is parked, a tree branch falls on it, it’s vandalized, it’s broken into,” says Parsons. 

Evaluating your specific needs based on your situation will help you find the best insurance. Boyd suggests avoiding accident forgiveness policies that cost more now and instead let insurers adjust rates if you get into an accident. 

Check potential discounts 

To help you secure cheap insurance, check out potential discounts from various insurance companies. One of the most significant is a bundling discount, where you have multiple insurance policies with one company. If you already have auto and home insurance, it could help to have them with the same insurer. 

Additionally, signing up for paperless billing may be an easy way to score a car insurance discount. 

“If you have young drivers, a lot of companies give a good student discount. Usually, you just need a B or better grade average, including college,” says Parsons.

Some car insurance companies may also offer driver training and student away discounts for young drivers. Parsons also recommends looking into discounts for taking an online defensive driving course. 

Other car insurance discounts include a good driver discount, vehicle safety and anti-theft discounts. You may also qualify for additional savings based on your profession or affiliation, such as being a teacher or in the military. 

Review financial strength ratings 

When you’re shopping around for car insurance coverage, you want to find a company that can be a trusted partner and hold up their end of the bargain. If you need to file a claim, you want an insurance company that can help cover costs. 

That’s why it’s a good idea to look at the AM Best Financial Strength Rating (FSR) for a company. AM Best is a third-party entity that evaluates a company’s “ability to meet their ongoing insurance obligations.” Having a Superior (A+) or Excellent (A) rating is ideal. 

Get multiple auto insurance quotes 

The key to finding cheap auto insurance is to compare car insurance quotes from multiple providers. If you review a minimum of four or five options, you’ll have a good understanding of what rates you qualify for and which companies offer the lowest rates. 

While cost is important, the most affordable coverage may not be the best for your situation. Look at coverage types, potential discounts, deductible amounts and customer reviews. You can check out ratings on Trustpilot and the Better Business Bureau (BBB) and review the National Association of Insurance Commissioners’ complaint index. 

Look into telematics programs 

Hixson recommends looking into telematics programs that base your rate on your specific driving habits. Some may be able to reward you for safer driving, while others, like pay-per-mile insurance or pay-as-you drive, can offer lower rates because you drive fewer miles. 

Typically, these programs look at your acceleration, braking, speed, and distance and you must download an app and use a monitoring device. 

Choose a higher deductible 

Paying more via a higher auto insurance deductible can help reduce your premiums. Be aware that your deductible is the portion that you’re responsible for before any insurance benefits kick in. So, if you can afford to pay a higher deductible, you may be able to lower insurance costs.

Select an annual term 

To help combat higher rates, select a 12-month annual policy instead of a six-month policy.

“If your company has a rate increase, they can’t do it until your renewal. So if you only have an annual policy, then you’re only going to get it once a year versus if you have a six-month policy, they could increase your rates twice, depending on how many times they increase rates,” says Parsons.

Pay upfront 

If it’s financially feasible, you can save money on your car insurance by paying for your policy upfront instead of in monthly payments. Check to see if the insurance company offers a discount for paying in full. Before doing so, make sure you have an emergency fund and understand how this will impact your cash flow. 

The bottom line 

Figuring out how to find cheap car insurance in today’s climate is becoming more difficult. The best thing to do is to maintain a clean driving record and avoid all forms of distracted driving, such as using the phone or eating. Being a responsible borrower and making payments on time may also help. 

“Do your best to create superior credit. While we do not pull credit, an insurance score is pulled that mirrors credit. This is not a factor in all 50 states, but most states will allow an insurance score to be part of the auto rate,” says Boyd.

While budget is a top priority for many people, you don’t necessarily want to get the lowest coverage limits out there. 

“I think you just can’t take big risks with insurance. Try to cut your budget in other ways…You know you’re going to kick yourself if you didn’t have enough coverage,” says Parsons.

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Stephen Collopy

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