Is cheap car insurance good? What you need to know.
Written by Team Clearcover | June 11th, 2021
9 minute read
When looking for ways to save money on your auto insurance, it makes sense to consider the cheapest car insurance policies online as part of your research. But here’s the question: Is cheap car insurance worth it?
While a cheap car insurance policy may be a sought-after option (having an auto insurance policy in place is better than not having it at all, and it’s the law in 48 out of 50 states), it may not provide enough protection to cover all your bills if you’re in an accident.
Let’s take a closer look at low-cost car insurance policies and what they mean for drivers—and how you can get better, more complete coverage at a better price.
In this article, we’ll cover:
What cheap car insurance is
What a state minimum is (and how to find it for your state)
If cheap car insurance is good for your situation
A concrete example of how low-cost car insurance coverage works (and what it doesn’t cover if you’re in an accident)
How you can get more coverage at a better price
Is cheap car insurance worth it?
Cheap car insurance can save you a bit of money in the present, but it could cost you more money in the long run. If you’re in an accident and don't have the coverage you need, you could be personally liable for any damages that aren’t covered by your policy if you’re at fault.
What’s considered a cheap car insurance policy, anyway? The answer to that varies. Often, the lowest cost car insurance policies are based on the bare-minimum coverage that’s required by your state (you’ll learn more about state minimums in the next section).
Here’s what to think about when you’re considering a state-minimum auto insurance policy:
Your risk tolerance level. What level of financial risk are you comfortable taking on if your car insurance policy doesn’t cover all damages?
The amount of cash savings you have on hand. Not only do you have to determine what you’re comfortable paying for as your deductible, but you also need to consider if you’re comfortable paying out of pocket for property damage that isn’t covered by a low-cost car insurance policy if you’re at fault.
What works best for your individual needs. Do you want to make sure you can get a comparable replacement car if your car is totaled? Will you need a rental car or rideshare if your car is being repaired? Think through these additional costs and whether or not you’d rather pay out of pocket for them or have your policy cover them for you.
When you’re considering auto insurance policies, it’s easy to get stuck in questions of is cheap car insurance good or is cheap car insurance bad, but the most important question to ask yourself (or a trusted car insurance agent) is how to get the most coverage and protection you can for the best price.
After all, if you’re saving a little extra in premiums each year with a cheap car insurance policy but opening yourself up to thousands of dollars in additional risk, going with the cheapest car insurance online might not be worth it.
Not having the right coverages in place not only could make you more susceptible to big financial losses in an accident, but it could also leave you unprepared for unexpected minor costs that really add up, such as not having alternative transportation or roadside assistance coverage when you need it most.
There are ways to be smart about saving money on your car insurance without committing yourself to a car insurance policy that leaves you at greater financial risk.
Instead, we recommend the following:
Using car insurance discounts to your advantage
Shopping around for the best car insurance quotes
Choosing a digital car insurance company that saves you money through the use of technology
Why is state minimum car insurance an important factor when shopping for low-cost car insurance?
Each state that requires drivers to have an auto insurance policy also has a required state minimum for car insurance. This state-required minimum is set by state laws and is considered the bare minimum basic coverage required by drivers in that state.
(FYI, auto insurance is required for drivers in every state except for New Hampshire and Virginia. However, New Hampshire and Virginia drivers are still held liable for damages they cause by car accidents, whether they have a car insurance policy or not!)
Here’s the important thing to know: When you’re looking for the cheapest car insurance online, the lowest cost (or cheapest) quotes you’ll receive will most likely be based on your state’s minimum alone—with no additional coverages or protection.
And that leaves the question: Will that bare minimum coverage be enough for you?
Let’s take a look.
Is cheap car insurance good for your situation?
First, let’s back up a little and talk about why car insurance exists in the first place.
Car insurance coverage isn’t just to repair or replace damaged vehicles and pay medical costs. Car insurance is there to protect you from catastrophic financial losses. Without it, you’ll be on the hook to pay whatever expenses happen because of an accident—whether you can afford to pay or not.
In many states, if someone files a lawsuit against you after an accident and you don’t have the coverage you need, your personal assets (like your savings account and house) may be taken to cover the costs.
If that sounds scary, it’s because it is. That’s why getting the right amount of coverage is so important.
So, if you’re wondering if cheap car insurance is worth it (or worth the risk), start here:
1. First, find out your state’s minimum required car insurance coverage. To do so, contact your state’s department of insurance or visit their website. You can also connect with an experienced car insurance agent to learn more.
2. Next, review your own financial situation, including:
Your available income and savings
Your retirement savings and additional financial assets, such as investment accounts
The out-of-pocket cost to replace your current car if it was totaled
Automobile costs you have associated with your car, including your monthly payment, maintenance, car loan expenses, and more
Your health insurance coverage and the out-of-pocket health plan deductible if you had major medical costs after a car accident
How you would pay for your living expenses if you were unable to work due to a car accident
3. After you’ve reviewed your finances, determine if the cheap car insurance coverage you’re considering provides you with:
Car replacement or repair based on your car’s total replacement costs
Access to alternative transportation, such as a rental car or rideshare, when your car is unusable due to an accident
Roadside assistance if your car breaks down (with Clearcover Roadside Assistance coverage, you can get help with just a few taps in our award-winning app)
Medical payments if your health coverage isn’t sufficient or if you have a high-deductible health plan
Additional financial protections beyond the state minimum—in case you accidentally cause a lot of damage
How to make sure your vehicle is covered for multiple types of accidents
Even if you have the basic required insurance coverages in place for your state, your vehicle still might not be fully protected.
If your car is damaged in an accident and the other driver is at fault, you’ll file a claim against the other person’s car insurance policy to repair or replace your vehicle. But what if that driver doesn’t have insurance? Or what if your vehicle is damaged in a non-driving-related incident, such as a fire or tornado?
Here are a few other common situations where you’ll need additional coverage to make sure your car is fully protected:
You’re in an accident with an uninsured or underinsured driver who is at fault
Your vehicle is damaged by a severe storm
Your car window is damaged by being broken into
You’re in a single-vehicle accident, such as losing control of your car on an icy road and hitting a tree
What kinds of coverages will you need in these situations?
Having Collision Coverage in place can help you if your car needs to be replaced or repaired when it’s damaged due to a single-vehicle accident or by an uninsured driver. (In fact, a coverage called Uninsured Motorist Property Damage may be an option for the latter on a state-by-state basis.) For Collision, that means (other than the deductible) you don’t have to pay out-of-pocket for a replacement vehicle or costly repairs if yours is damaged in a covered incident.
If you have Comprehensive Coverage (which is almost always sold with collision coverage), your vehicle is protected against additional covered incidents that are not collision related, such as vandalism, weather damages, and more. So if your car is totaled due to a tree limb falling on it, you'll get the actual cash value of your car, less your deductible, to replace it. Thank goodness!
What’s “actual cash value”?
Great question! Actual cash value is the current market value of your vehicle—it’s what your car is actually worth right now (or what it would have been worth before the accident!). It’s also sometimes called “fair market value.”
Car insurance companies usually pay a claim based on the actual cash value of your vehicle (not what you originally paid for it or the cost to get a new car).
See how a basic, low-cost car insurance policy works—and how it could affect your finances
Let’s use a fictional example to see how this all fits together when you’re considering whether cheap car insurance coverage is right for you.
Let’s say you live in Chicago, Illinois, and you own your car outright with no car payment. As a driver in Illinois, you’re required to carry at least the following car insurance coverages:
Bodily Injury Liability Coverage of at least $25,000 per person per accident and $50,000 total per accident. What is Bodily Injury Liability Coverage?
Property Damage Liability of at least $20,000 per accident. What is Property Damage Liability Coverage?
Uninsured Motorist Bodily Injury Coverage (UM) of $25,000 per person and $50,000 per accident. What is Uninsured Motorist Bodily Injury Coverage?
Underinsured Motorist Bodily Injury Insurance (UIM) Coverage: Illinois requires this coverage if you purchase higher limits of Uninsured Motorist Bodily Injury Coverage (UM). What is Underinsured Motorist Bodily Injury Insurance Coverage?
(By the way: Even though these are Illinois’ bare-minimum required coverages, the Illinois Department of Insurance itself suggests buying higher limits to protect yourself against a lawsuit!). (1)
In this example, we’ll say you review your financial situation and decide you’re comfortable with the risk of getting the state minimum auto insurance coverage. You find cheap car insurance online, sign up for a policy, and cross the task off your to-do list.
You feel good about saving a few dollars a month on premiums, and you tell yourself you’ll increase your coverage later in the year once you secure a raise at work.
In this scenario, you end up in a weather-related accident on the highway with two other vehicles. Unfortunately, you’re ultimately found responsible due to following too closely in severe weather.
Here are the damages:
One of the vehicles was a new luxury SUV that ended up needing $14K in repairs.
The other vehicle was totaled and had an actual cash value of $8K.
Thankfully, no one was severely injured, but one driver has a broken arm with medical bills totaling $7K and another driver needed months of physical therapy for severe whiplash that later totals to $5K. Not to mention, some parties will have experienced pain and suffering from the event, which could involve additional payments.
Your newer car ended up needing $12K worth of serious repairs before it was driveable again.
Based on having the state minimum required Property Damage Liability coverage (and no additional Collision coverage), you could be personally responsible for $14K in repairs for the three vehicles: $2K for the other two vehicles and $12K for your own. Your Bodily Injury Liability coverage does fully cover the medical bills due to the accident.
(If you’re feeling stressed just looking at these numbers, take a deep breath. Thankfully, this is just an example. Make sure you have the appropriate insurance coverage for your situation and get a quote today.)
What’s recommended for car insurance coverage?
To help you determine what kind of coverage you need, think through the following:
How many people are you insuring and what are their ages? Depending on the stage of life and driving experience of those you’re insuring, increased liability, collision, and comprehensive coverage could be helpful protection.
Do you have health insurance that could adequately cover you if you’re injured? Have a high-deductible healthcare plan? Increasing your car insurance coverage to protect against added medical costs in the case of an accident is a smart move.
The age of your car or the cost for repairs. Do you have a vehicle that has hard-to-find parts when a repair is needed? Is your car an older (or even an antique) model that does not have simple replacement parts? These costs are factors to consider!
How much are you willing to pay out of pocket for your car insurance policy’s deductible? The higher the deductible, the lower the premiums on your policy. However, a higher deductible also means the more you’ll pay out of pocket in the event of an incident.
Try our car insurance calculator to get an estimated cost for the coverages you need. (And don’t forget that we’re always available to help you think through the right coverage package for your situation.)
How a deductible works
Why are car insurance policy premiums cheaper if your deductible is larger? It’s simple. The more financial responsibility you agree to take on out of pocket (in the form of your deductible), the less your premium will be.
Taking on a higher deductible for your car insurance policy is one way to save money on your policy in the short run without selling yourself short on coverage.
An Easy Way to Find Out Which Coverages You Need
By the way, we know this stuff can get complicated, so we developed a tool to help make thinking through your car insurance coverage easier.
(And it only takes 60 seconds of your time.)
Find out what coverage is right for you.
Get more car insurance coverage at a better price
If you only take one thing from this article, here it is: You can absolutely save money on car insurance without skimping on coverage, and you don’t have to go with the first cheap car insurance policy you find online.
With Clearcover Insurance Company, you can get a better price for more coverage and better protection. Make payments, file claims, and get roadside assistance—it’s all a couple taps away in our award-winning app.
And with our Clear Claims™ process, your eligible claim could have payment issued in as little as 30 minutes—and our current record is 7 minutes. It’s just a better car insurance experience that puts you in complete control.
We make switching hassle-free. Save money on better coverage today (like, right now)—that’s the power of digital car insurance. Check your price today.
