How to Choose Car Insurance in 4 Steps

Because there are so many companies that sell car insurance, it can be hard to sort through them all to find the best policy for you and your family. It's easy to feel confused when every carrier says they have the best deal. At first glance, it may look like all the policies are the same, but there may be important differences you need to think about. Your goal should be to find one that has all the features you need at a price that is comparable to others.

Follow these four steps to find the best policy for your car insurance needs:

1. Figure out how much coverage you need.

The policy that costs the least might not be the one you need. Some cheap plans might not cover collision, which pays to fix your own car after an accident. They might not offer full coverage, which pays for damage to your car that isn't caused by a car accident, like damage from natural disasters, theft, or vandalism.

The non-profit Insurance Information Institute says that all states except New Hampshire require property and bodily injury liability coverage.

1 A policy that only gives you the minimum amount of liability protection required by law may save you money, but it probably won't cover legal claims that can come from serious accidents that cause property damage or injuries.

Keep in mind that not everyone needs the same kind of insurance. For example, you may need gap insurance if you lease a car. Gap insurance pays the difference between the car's actual cash value and the amount you still owe on your lease if the car is totaled.

2. Check how car insurance companies are doing financially

Everyone wants to get a good deal on their auto insurance, but low rates won't help you if the company you choose can't pay its claims. Investopedia says that you can find out how financially stable your insurance company is by looking at online reports from independent rating companies like A.M. Best, Fitch, Moody's, and Standard & Poor's. 2

Each ratings agency has its own way of judging the financial health of insurance companies.

3. Get several car insurance quotes and compare them

You can shop for insurance online, over the phone, or by meeting with insurance agents in person. Bankrate says in a report that it's important to get several quotes because prices for the same level of coverage vary a lot. 3 Insurance prices are based on risk, so this is what happens. Each insurance company has its own way of figuring out how likely a policyholder is to file a claim.

Some insurers use insurance scores a lot to figure out how likely it is that a policyholder will file a claim. Other companies might pay more attention to the kind of car you drive and how much it would cost to fix it after an accident.

How much you pay for car insurance might also depend on where you live. If there are more car accidents than usual in your ZIP code, your insurance costs could go up.

4. Ask if there are any deals

MarketWatch says that a lot of insurance companies offer discounts.4 If your teen has good grades and is on your auto insurance policy, he or she may be eligible for a lower rate. Some insurance companies give discounts to drivers who drive less than a certain number of miles per year or who take driver education classes. If your car has a device to keep it from being stolen, that could also get you a discount.

Make sure to ask for a list of all the discounts they offer. It could change a lot how much you pay for your policy.