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The idea behind life insurance — that it’s one way to help protect loved ones — is fairly simple. But navigating the sea of options and figuring out which policy to go with isn’t always so straightforward.

Below are tips for comparing life insurance policies and understanding the insurance buying process.

Choosing the Right Policy

Before you start reviewing different life insurance coverage options, it’s a good idea to first decide which type of policy you need. The following guidelines can come in handy.

Buying Term Life Insurance

Term life insurance offers protection for a specific time period, usually five, 10, 15, 20, 25, or 30 years. If you die during that time, your beneficiaries receive a cash benefit.

A term policy can be matched to a particular length of time when coverage is needed. For example, if your top priority is to provide enough income for your dependents to pay for college, then a 20-year policy may fit your needs. Or if you need a policy that will help your beneficiaries repay outstanding debts, maybe a 25-year policy would make more sense.

If your budget is limited, buying term life insurance may make more sense. These policies tend to be more affordable than permanent life insurance because they are statistically less likely to pay out than permanent life policies.

Typically, there are a couple of reasons a term policy expires: if the insured stops paying the premiums or if they live past the term of the policy. Renewal is possible, but terms and rates may vary based on the applicant’s health and age. (The renewal is typically in one-year increments, and the cost will likely be significantly more than the cost during the initial term.)

Insured people who wish to extend their policies may want to contact different providers to determine how continuing coverage after the end of their life insurance terms generally works.
If your financial needs change during the term of the life insurance policy, contact your insurer. Some may offer a convertible policy, which involves converting a term life policy to a permanent policy in exchange for higher premiums.

Buying Permanent Life Insurance

Permanent life insurance works a bit differently. For starters, it provides protection for the insured’s lifetime, as long as the premiums are paid.

Unlike term life, a permanent life insurance policy will pay a death benefit no matter when the insured passes away. It may also come with a savings component, which can grow on a tax-deferred basis and be used to borrow funds for a variety of reasons or pay premiums. Even if the insured has less than ideal credit, the funds can still be borrowed against. In that case, the death benefit is considered collateral for a loan. (Make sure to check with your insurance provider or other advisor before withdrawing money because taking cash out of the policy can cause it to collapse unless the death benefit or premiums are adjusted.)

In practice, this can mean that when the insured passes away before repaying what was borrowed against the policy, the life insurance company deducts what’s still owed from the beneficiary payout.

There are several other options for permanent life insurance, including:

•  Whole life insurance. This coverage provides foreseeable lifelong coverage, which includes a fixed premium and death benefit.

•  Universal life insurance. Universal life insurance provides flexible lifelong protection and several cash accumulation options.

•  Variable universal life insurance. This type of coverage offers flexible death benefits and several investment options for the cash accumulation component.

It’s important to note that permanent life insurance is typically more expensive than term life insurance. So, when you’re weighing out the options, the cost of the policy might be a crucial factor to calculate.

Recommended: Term vs. Whole Life Insurance

Calculating the Right Amount of Coverage

There are several different ways to calculate how much coverage is necessary. Some insurers and advisers recommend multiplying the insured’s salary by 10 or 15. While that can be an effective rule of thumb, be sure to account for all your beneficiaries’ anticipated needs. For instance, you might need a higher coverage amount if you have children and plan on helping them pay for college. On the other hand, if additional resources or assets are available to your beneficiaries at the time of your death, a lower coverage amount might make more sense.

Another option is to use an online life insurance calculator to estimate the cost of different levels of coverage. If you take this route, be sure to include all the debt that beneficiaries or an estate may be responsible for, including shared revolving debt.

Keep in mind that the amount of life insurance coverage you choose will impact the price of your monthly premiums.

Comparing Life Insurance Providers

Once you’ve determined the right type and amount of life insurance coverage you need, it’s time to gather life insurance quotes. Look for insurance companies with established financial histories, strong consumer ratings, and flexible product offerings. Several credit rating agencies look at insurance providers’ overall financial strength and their ability to meet existing insurance obligations (i.e., pay out the benefits).

But ratings aren’t a guarantee, so be sure to review ratings for all the companies you’re considering. For example, A+ and A++ are A.M. Best’s superior ratings. They denote companies that, according to the agency’s analyses, have shown an exceptional ability to meet their insurance obligations and have evidenced financial strength. (All 50 states, the District of Columbia, and Puerto Rico have programs to ensure that insurance proceeds are paid if an insurer becomes insolvent.)

Recommended: How to Buy Life Insurance in 9 Steps

Gathering Multiple Life Insurance Quotes

Some providers require you to complete a simple online application before you receive a quote. In order to provide an accurate quote, the insurance company may ask you to share some personal details, such as your age, location, gender, health, and desired coverage.

Since permanent life insurance policies tend to be more complex, it can be wise to consult with an agent who can help you compare the pros and cons of different types of policies.

Comparing Life Insurance Quotes

Here are some things to pay close attention to as you’re reviewing life insurance quotes and considering which policy meets your needs.

Cost

The cost of a policy is generally determined by underwriters employed by the life insurance provider. They look at numerous factors, including applicants’ age, health conditions, and medical history, to determine the risk of covering them.

While each provider may use similar methodologies, costs can vary depending on the amount of coverage they are willing to provide and the price paid by the insured.

Again, the value of the company and the services offered can also play a role in how much a policy may cost. So, while aiming to get the lowest monthly bill may seem like the right solution, it’s wise to evaluate whether that lower-priced option can provide the desired coverage over the life of the policy.

Customization

Since no two people have the same financial goals or coverage expectations, some insurers offer policies designed to match a given applicant’s specific needs.

For example, insurers may offer different riders or payment plan options to customize a policy to fit an individual’s goals. Insurers who offer more flexibility might be a better fit for some buyers.

Product Range

Buying life insurance from a company that offers a wide range of products is not only a convenient way to shop for insurance, but it may even help you save money. That’s because insurance companies sometimes offer discounts for bundling multiple insurance policies together, such as life, automobile, or rental insurance.

People shopping for life insurance can review the other products each insurance company offers to determine whether buying a bundled policy can save time, money, and the potential hassle of working with more than one provider.

Long-Term Cash Value Potential

Since permanent life insurance has a cash value component that can grow over time, it’s important to factor in this trait when you’re comparing each policy’s potential value. Although low-cost policies may seem an attractive option, they may not provide as much coverage over the life of the policy.

For buyers who prioritize cash value and dividend distribution, picking a life insurance policy that offers either or both of those features may be a good choice. But keep in mind: Policies with higher dividend payouts are, typically, more costly each month. Many policies have guaranteed rates of return depending on the investment options. However, the market will often outpace the guarantees in insurance policies, so consider your investment objectives and risk tolerance before getting a life insurance policy as an investment vehicle.

Using an Agent

While it’s possible to buy life insurance online, sometimes it’s wiser to contact an insurance agent. Because different life insurance products come with varying fine print details and complex terminology, an insurance agent could be helpful in guiding you through the key differences between policies and products. You can also ask them any lingering questions.

An agent who is well-versed in a product’s details can also explain important distinctions such as cost, coverage limits, and varying terms. It’s worth noting that many insurance agents are paid on commission. In most cases, you won’t pay more by going through an insurance agent. The commission is included in the quote and goes to the insurer if the policyholder buys a policy directly from an insurance company.

The Takeaway

Life insurance can be a good way to provide for your loved ones after you’ve died. There are different types of policies to consider. Term life insurance offers coverage for a specific period of time, and if you die during that time, your beneficiaries will receive a cash benefit. Permanent life insurance offers protection for the rest of the insured’s life and will pay beneficiaries a death benefit no matter when the insured dies. It often comes with a savings component that can grow on a tax-deferred basis and be used for a variety of purposes.

As you begin to research companies and gather quotes, take note of the cost, ability to customize, long-term cash potential, and range of products the insurer offers. An agent can help you make sense of your options and select the plan that’s right for you.

SoFi has partnered with Ladder to offer competitive term life insurance policies that are quick to set up and easy to understand. Apply in just minutes and get an instant decision. As your circumstances change, you can update or cancel your policy with no fees and no hassles.

FAQ

What are the main types of life insurance policies?

There are two primary types: term life insurance and permanent life insurance. Term policies provide coverage for a specific period (e.g., 10-30 years), while permanent policies offer lifelong coverage and often include a cash value component that can grow over time.

How do I choose between term and permanent life insurance?

It depends on your needs and budget. Term life insurance is usually more affordable and suited for temporary financial obligations (such as a mortgage or children’s education). Permanent life insurance is more expensive but provides lifelong coverage and may build savings value.

What factors should I compare when evaluating life insurance policies?

When comparing policies, consider cost (premiums), coverage amount, policy duration, flexibility, and cash value potential. It’s also helpful to review the insurer’s product range and any options for customization or bundling.

What is the cash value component in life insurance?

Some permanent life insurance policies include a cash value feature, which grows over time on a tax-deferred basis. Policyholders may be able to borrow against it or use it to pay premiums, though unpaid loans can reduce the final payout.

Should I use an insurance agent when comparing policies?

While you can shop online, an insurance agent can help explain differences in coverage, pricing, and terms across policies. They can also answer questions and guide you toward a policy that fits your needs.

Coverage and pricing is subject to eligibility and underwriting criteria.
Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers- for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.
Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other, SoFi Technologies, Inc. (SoFi) and SoFi Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under LadderlifeTM policies. SoFi is compensated by Ladder for each issued term life policy.
Ladder offers coverage to people who are between the ages of 20 and 60 as of their nearest birthday. Your current age plus the term length cannot exceed 70 years.
All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.

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.

SOPRO-Q226-006

To some, it may sound like as much fun as going to 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. Obviously, if you’ve bought a new car, you need to look into options. But 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, such as 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 another insurer could look at it differently, so it’s worth your time to investigate. (Note: California, Hawaii, Massachusetts, and Michigan don’t let insurers set policy rates based on credit scores. And Maryland, Oregon, and Utah have strict limitations in place.)

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, while the latter could leave you exposed to financial disaster.

Nearly every state makes it a law that you have to pay for liability coverage or you can’t drive a car. After meeting that basic requirement, 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 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 that you’d like 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 for 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’s 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, and despite what you may think, it’s not that hard to switch. 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.

FAQ

When should I consider switching car insurance companies?

You should consider switching when your life circumstances change, such as buying a new car or adding a spouse or child to your plan. Switching also makes sense if you want to lower costs, are dissatisfied with customer service, or are looking for specific perks, such as roadside assistance.

What are the key steps for switching car insurance?

The process involves researching your liability, collision, and comprehensive coverage needs before shopping around and getting quotes from at least three different insurers. After selecting a new plan, contact your old insurer to cancel and ensure there’s no gap between the old policy ending and the new one beginning. Finally, remember to update your insurance ID card with the new policy information.

How often can I switch car insurance providers?

You can switch insurance companies as often as you like. However, be aware that some insurers may charge a fee if you cancel before your policy period expires. The Insurance Information Institute recommends that customers review their coverage once every year.

Photo credit: iStock/Edwin Tan

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

SOPRO-Q226-003

Life insurance terms can be confusing when you first come across them, so learning the language of life insurance can help when you’re thinking about or shopping for a policy.

You may know that for many people, life insurance is important to have, and perhaps you’ve started some initial research into life insurance policies.

Learning common life insurance definitions can help you make an informed decision when looking into coverage options.

Life Insurance Terms

Discover life insurance definitions, simplified.

Accidental Death Benefit

If a life insurance policy includes an accidental death benefit, the cause of death will be examined to determine whether the insured’s death meets the policy’s definition of accidental. This is often a rider, or additional benefit for an additional fee, attached to the policy. An example of an accidental death could be one caused by a car crash, a slip, or machinery.

Annuity

This is a contract in which the buyer deposits money with a life insurance company for investment on a tax-deferred basis. Annuities are designed to help protect the contract holder from the risk of outliving their income.

An annuity may include a death benefit that will pay the beneficiary a specified minimum amount.

Beneficiary

This is the person or entity designated to receive the death benefit from a life insurance policy or annuity contract.

Contestable Period

For up to two years, a life insurance company may deny payment of a claim to beneficiaries because of suicide or misrepresentation on an application — for example, if the insured was listed as a nonsmoker but smoked often and died of complications related to that.

Death Benefit

This term refers to the amount that will be paid to the beneficiary upon the death of the insured. The phrase “death benefit” is common life insurance terminology you’ll see in a life insurance policy.

Evidence of Insurability

In order for you to qualify for a particular policy at a particular price, companies have the right to ask for information about your health and lifestyle. An insurance company will use this information when deciding on approval and rate. If you’re overweight, a smoker, or have a history of health problems, your policy will likely cost more than someone without those issues.

Free Examination Period

Also known as the “free look period,” this is a 10- to 30-day window during which you can cancel your new policy without penalty and get a refund of premiums.

Group Life Insurance

This provides coverage to a group of people under one contract. Group contracts are often sold to businesses that want to provide life insurance for their employees. Group life insurance can also be sold to associations to cover their members.

Insured

This is the person whose life is insured by the policy. The insured may also be the policyholder.

Permanent Life Insurance

These kinds of policies can provide lifelong coverage and the opportunity to build cash value, which accumulates tax-deferred. Whole life and universal life insurance policies fall under this umbrella term. Permanent life insurance is more expensive and complicated than term life insurance.

Policy

This is the official, legal document that includes the terms of the policy owner’s insurance. The policy will name the insured, the policy owner, the death benefit, and the beneficiary.

Policyholder

This refers to the person who owns the life insurance policy. It can be the person who’s insured by the policy.

Premium

The payment the customer makes to the insurance company to pay for the policy is called the premium. It may be paid annually, semiannually, quarterly, or monthly.

Term Life Insurance

This type of life insurance offers coverage for a set number of years, or “term,” of the insured’s life, commonly 20 or 30 years. If the insured individual dies during the years of coverage, a death benefit will be paid to the beneficiaries. Term life insurance costs less than permanent life insurance.

Recommended: 8 Popular Types of Life Insurance for Any Age

Underwriting

Often viewed as a mysterious process, underwriting — a crucial part of the application process — is simply when factors are evaluated relating to the applicant’s current health, medical history, lifestyle habits, hobbies, occupation, and financial profile to determine eligibility for coverage as well as what the appropriate premiums should be.

Universal Life Insurance

With this kind of permanent life insurance, policyholders may be able to adjust their premium payments and death benefits. The cash value gains vary depending on the type of universal life insurance policy purchased.

Variable Life Insurance

With variable life, another type of permanent life insurance, the death benefit and the cash value fluctuate according to the investment performance of a separate account fund.

Earnings accumulate tax-deferred. Fees and expenses can reduce the portion of premiums that go toward the cash value.

Whole Life Insurance

Whole life is another type of permanent cash value insurance. The premiums, rate of return on cash value, and death benefit are fixed and guaranteed. The cash value component grows tax-deferred. Whole life tends to be more expensive than other types of permanent insurance.

Recommended: Term vs. Whole Life Insurance

The Takeaway

Life insurance can be an important way to protect your loved ones’ financial future in the event of your death. While its terms can be a mouthful, they don’t have to be confusing. Understanding the definitions of life insurance can help you put a plan in place to protect your family.

SoFi has partnered with Ladder to offer competitive term life insurance policies that are quick to set up and easy to understand. Apply in just minutes and get an instant decision. As your circumstances change, you can update or cancel your policy with no fees and no hassles.

FAQ

What is the difference between term and permanent life insurance?

Term life insurance provides coverage for a specific period (such as 20 or 30 years) and is usually more affordable. Permanent life insurance lasts a lifetime and can build cash value over time, but it tends to be more expensive and complex.

Who receives the payout from a life insurance policy?

The beneficiary is the person or entity you designate to receive the death benefit when you pass away. This payout is typically tax-advantaged and can help cover expenses such as funeral costs, debts, or ongoing living needs.

How do insurers decide your eligibility and premium?

Insurance companies use a process called underwriting to evaluate your health, lifestyle, and financial situation. Based on this assessment, they determine whether to approve your application and how much you’ll pay in premiums.

Photo credit: iStock/mapodile

Coverage and pricing is subject to eligibility and underwriting criteria.
Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers- for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.
Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other, SoFi Technologies, Inc. (SoFi) and SoFi Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under LadderlifeTM policies. SoFi is compensated by Ladder for each issued term life policy.
Ladder offers coverage to people who are between the ages of 20 and 60 as of their nearest birthday. Your current age plus the term length cannot exceed 70 years.
All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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.

SOPRO-Q226-002

Shopping for auto insurance or dealing with an insurance claim? It’s common to hit a few potholes on the way to understanding car insurance.

Auto insurance terminology can be difficult to navigate, so this glossary may help you find your way.

Car Insurance Terminology

Here are basic auto insurance terms explained:

Accident Forgiveness

Accident forgiveness is a benefit that can be added to a car insurance policy to prevent a driver’s premium from increasing after their first at-fault accident.

Each insurer’s definition of accident forgiveness may vary, and it isn’t available in every state. Some insurers include it at no charge, or it may be an add-on, which means it may be earned or purchased.

Actual Cash Value

Actual cash value is the term used to describe what a vehicle was worth before it was damaged or stolen, taking depreciation into consideration. The amount is calculated by the insurer.

Adjuster

An adjuster is an employee who evaluates claims for an insurance company. The adjuster investigates the claim and makes a fair and informed decision regarding how much the insurance company should pay.

Agent or Broker

Both agents and brokers help consumers obtain auto insurance, but their roles are different. An agent represents an insurance company (or companies), sells insurance, and performs services for policyholders. A broker represents the consumer and may evaluate several companies to find a policy that best suits an individual, family, or organization’s needs.

Both agents and brokers are licensed and regulated by state laws, and both may be paid commissions from insurance companies.

At Fault

Drivers are considered at fault in an accident when it’s determined that something they did (or didn’t do) caused the collision to occur. A driver may still be considered at fault even if no ticket was issued or if the insurance company divides the blame between the parties involved in the accident.

In some states, drivers can’t receive an insurance payout if they are found to be more than 50% at fault.

Casualty Insurance

Casualty insurance protects a driver who is legally responsible for another person’s injuries or property damage in a car accident.

Claim

When an insured person asks their insurance company to cover a loss, it’s called a claim.

Claimant

A claimant is a person who submits an insurance claim.

Collision Coverage

Collision coverage helps pay for damage to an insured driver’s car if the driver causes a crash with another car, hits an object (a mailbox or fence, for example), or causes a rollover.

It also may help if another driver is responsible for the accident but doesn’t have any insurance or enough insurance to cover the costs.

Collision coverage is usually required with an auto loan. Learn more about smarter ways to get a car loan.

Comprehensive Coverage

Comprehensive coverage pays for damage that’s caused by hitting an animal on the road, as well as specified noncollision events, such as car theft, a fire, or a falling object. It’s usually required with an auto loan.

Recommended: How Much Auto Insurance Do I Really Need?

Damage Appraisal

When a car is in an accident, an insurance company’s claims adjuster may appraise the damage, and/or the car owner may get repair estimates from one or two body shops.

Policyholders can appeal an appraisal if it seems low and they have some evidence to prove it.

Declarations Page

In an insurance policy, the declarations page includes its most significant details, including who is insured, information about the covered vehicle, the types of coverage, and the coverage limits.

Deductible

This is the predetermined amount the policyholder will pay for repairs before insurance coverage kicks in. Generally, the higher the deductible, the lower the monthly premium.

Depreciation

Depreciation is the value lost from a vehicle’s original price due to age, mileage, overall condition, and other factors. Depreciation determines the actual cash value of a car when the insurer decides it’s a total loss.

Effective Date

This is the exact date on which an auto insurance policy starts to cover a vehicle.

Endorsement

An endorsement, or rider, is a written agreement that adds to or modifies the coverage provided by an insurance policy.

Exclusion

Exclusions are anything that an auto insurance policy doesn’t cover. Some common exclusions are wear and tear, mechanical breakdowns, and accidents while racing.

Full Coverage

Full coverage usually refers to a car insurance policy that includes liability, collision, and comprehensive coverage.

GAP Coverage

Guaranteed asset protection insurance is optional coverage that helps pay off an auto loan if a car is destroyed or stolen and the insured person owes more than the car’s depreciated value. It covers the difference, or gap, between what is owed and what the insurance company would pay on the claim.

Indemnity

Indemnity is the insurance company’s promise to help return policyholders to the position they were in before a covered incident caused a loss. The insurer “indemnifies” the policyholder from losses by taking on some of the financial responsibility.

Liability Insurance

If you’re at fault in an accident, your liability coverage pays for the other driver’s (or drivers’) car repairs and medical bills.

Coverage limits are often expressed in three numbers. For example, if a policy is written as 25/50/15, that means it covers up to $25,000 for each person injured in an accident, $50,000 for the entire accident, and $15,000 worth of property damage.

The cost of liability-only car insurance varies by state, as does the required minimum level of liability insurance.

Limit

This is the maximum amount a car insurance policy will pay for a particular incident. Coverage limits can vary greatly from one policy to the next.

Medical Payments Coverage

Medical payments coverage (or medical expense coverage, or MedPay) is optional coverage that can help pay medical expenses related to a vehicle accident.

It covers the insured driver, their passengers, and any pedestrians who are injured in an accident, regardless of who caused it.

It also may cover the policyholder when that person is a passenger in another vehicle or is injured by a vehicle when walking, riding a bike, or riding public transportation. This coverage isn’t available in all states.

No-Fault Insurance

Several states have no-fault laws, which generally means that when there’s a car accident, everyone involved files a claim with their own insurance company, regardless of fault.

Also known as personal injury protection, no-fault insurance covers medical expenses regardless of who’s at fault. It doesn’t mean, however, that fault won’t be determined. No-fault insurance covers injuries and medical bills. If a person’s car is damaged in an accident and they weren’t at fault, the at-fault driver’s insurance company will be responsible for the repairs.

Optional Coverage

Optional coverage refers to any car insurance coverage that isn’t required by law.

Personal Injury Protection

Several states require personal injury protection (PIP) coverage to help pay for medical expenses that an insured driver and any passengers incur due to an accident, regardless of who’s at fault.

PIP also may cover loss of income, funeral expenses, and other costs. PIP is the basic coverage required by no-fault insurance states.

Primary (and Secondary) Driver

The person who drives an insured car the most often is considered its primary driver. Typically, the primary driver is the person who owns or leases the vehicle. If spouses share an insurance policy, they may both be listed as primary drivers on a car.

A car may also have multiple secondary, or occasional, drivers. Generally, these are licensed drivers who live in the same household (children, grandparents, roommates, nannies, etc.) and may use the insured car occasionally, but they aren’t the car’s primary driver.

Recommended: How Does Car Insurance Work

Primary Use

This term refers to how a vehicle is most often used — for commuting to work, business, farming, or pleasure.

Premium

A premium is the amount a person pays for auto insurance. Premiums may be paid monthly, quarterly, twice a year, or annually, depending on personal choice and what the provider allows.

Replacement Cost

Some insurance companies offer replacement cost coverage for newer vehicles. This means that if a car is damaged or stolen, the insurer will pay to replace it with the same vehicle.

Coverage varies by company, and not every insurance company offers replacement coverage.

State-Required Minimum

Every state has different legal minimum requirements for the types and amounts of insurance coverage drivers must have. The limits are usually low. Lenders may require more coverage for those who are buying or leasing a car.

Total Loss or “Totaled”

If a car is severely damaged, the insurer may determine that it’s a total loss. That usually means the car is so badly damaged that it either can’t be safely repaired or its market value is less than the price of putting it back together.

If a state has a total-loss threshold, an insurer considers the car a total loss when the cost of the damage exceeds the limit set by the state.

Underwriting

The underwriting process involves evaluating the risks (and determining appropriate rates) in insuring a particular driver.

These days, computer programs handle most insurance underwriting, but if a case is unusual, a professional may step in to further assess the situation.

Uninsured and Underinsured Motorist Coverage

Uninsured motorist and underinsured motorist coverage protects drivers and their passengers when they’re involved in an accident with a motorist who has little or no insurance. Some states require this coverage, but the limits vary.

Uninsured/underinsured motorist bodily injury insurance covers medical costs, while uninsured/underinsured motorist property damage insurance pays to repair a vehicle.

The Takeaway

Understanding car insurance basics is important for drivers. Knowing auto insurance terms, what coverage your state or lender may require, and what other types of coverage could further safeguard your finances can make you a more informed consumer.

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.

FAQ

What is the difference between actual cash value and replacement cost?

Actual cash value is what a vehicle was worth before being damaged, accounting for depreciation. Replacement cost coverage (which some insurers offer for newer cars) pays to replace the car with the same vehicle.

Does liability insurance cover my own car repairs?

No, liability insurance pays for the other driver’s car repairs and medical bills if you’re at fault. You’d need collision coverage to help pay for damages to your own vehicle.

What is a deductible in auto insurance?

A deductible is the predetermined amount the policyholder pays for repairs before their insurance coverage begins. Generally, a higher deductible leads to a lower monthly premium.

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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If you’ve been shopping for an electric vehicle (EV) — or you already own one — you may be wondering about maintenance costs down the road. One common concern is the electric car battery replacement cost you may face.

You can make a rough guess ahead of time based on the battery pack’s capacity. The more kilowatt-hours (kWh) the pack can store, the more expensive an out-of-warranty replacement is likely to be. Other factors come into play as well, of course, so the replacement cost will vary on a case-by-case basis.

Here’s what you need to know about EV battery replacement costs in 2026.

How Much Does It Cost to Replace an EV Battery?

Data from 2024-2025 indicate that replacement of an EV car’s battery costs anywhere from $5,000 to $20,000, including parts and labor. This wide range reflects the sizable array of EVs now on the market.

As noted above, one useful rule of thumb is that the cost of replacing the battery corresponds roughly with the size of the battery pack.

Industry data puts the manufacturing cost of replacement packs at around $110 to $130 per kWh. So, for example, a 75 kWh pack might represent $8,000 to $10,000 in parts before overhead and labor are added. Labor — requiring high-voltage vehicle specialists — typically adds another $1,000 to $3,000 to the bill.

Recommended: How to Lower Car Insurance & Save Money

What Factors Affect EV Battery Replacement Cost?

Several elements drive the cost of replacing a battery in an electric car. The biggest are the EV’s make and model, battery size, and warranty coverage, plus the cost of labor.

If you’re looking for online estimates, seek out prices from current original equipment manufacturers (OEM) and reputable third parties. Your actual quote will vary by region, dealer, and the condition of the pack you’re buying (new, refurbished, or used).

Vehicle Make and Model

The make and model of the vehicle is probably the biggest element in an electric car’s battery cost. Luxury automakers typically charge more for OEM parts. Also, some brands have limited third-party options. A BMW i3 battery replacement through the dealer can run $18,000 or more, while third-party alternatives for the same vehicle might cost $6,500 to $13,500.

Battery Size

Again, the bigger the battery, the higher the EV battery replacement cost. When comparing EVs, remember that the kWh rating on the window sticker doesn’t represent only the range of how far the car will go. It can also serve as a reliable indicator of your worst-case expense — that is, the electric car battery replacement cost post-warranty.

Note that the price of replacing an EV battery is likely to be far more than the cost of a hybrid car battery replacement, what with the huge difference in battery size and capacity.

Labor Costs

EV battery packs are structural components mounted beneath the floor of the vehicle. The average pack weighs close to 1,000 pounds, so installation of a replacement battery requires specialized lifts, high-voltage safety procedures, and diagnostic recalibration.

Labor rates at certified EV centers commonly run $150 to $250 per hour. The job may take anywhere from four to 15 hours, depending on the vehicle design and any additional complications from corrosion or collision damage.

Recommended: How Much Does Car Insurance Cost? Average Costs and Tips to Lower Your Monthly Premium

Warranty Coverage

Another important factor in an electric car’s battery cost is whether the battery is still under warranty. A typical warranty is eight to 10 years, so for EVs on the newer side, the cost of replacing the battery in your electric car could be heavily subsidized or, possibly, free.

How Long Do EV Batteries Last?

Electric vehicle batteries may last 12 to 15 years in moderate climates, according to the National Laboratory of the Rockies.

As of 2025, an industry analysis of more than 22,000 electric vehicles found that batteries degrade by 2.3% per year on average. At that rate, the average battery would retain 81.6% of its original capacity after eight years.

Also, driving habits, charging practices, and climate generally affect longevity. To help keep your battery healthy, EV experts recommend these best practices:

•   Recharge the battery to 80% rather than 100%

•   Make sure the battery charge stays at 20% or more

•   Use slower Level 1 or 2 charging when possible

Recommended: Auto Insurance Terms

Are EV Batteries Covered by Warranty?

Per Federal law, automakers must warranty EV and hybrid batteries for eight years or 100,000 miles, whichever comes first. California’s requirements are more rigorous: Beginning with 2026 vehicles, batteries must retain at least 70% of their range for 10 years or 150,000 miles.

Automakers typically promise that their EV batteries will retain at least 70% of their original capacity during the coverage period. But don’t expect all manufacturers — or even all models from the same automaker — to have equivalent protections.

If you’re considering buying a used EV, check to make sure its warranties will transfer to second or third owners. Verify the in-service date, remaining coverage, and whether the warranty transfers in full. And remember that warranties generally exclude damage from accidents, unauthorized modifications, or failure to follow manufacturer service guidelines.

Does Insurance Cover EV Battery Replacement?

Whether your auto insurance will cover the EV car battery’s cost of replacement depends on the reason it’s being replaced. If it’s a matter of battery degradation, capacity loss over time, or age-related decline, provisions in the car’s warranty will apply.

Electric vehicle insurance is for more dramatic situations, such as a battery that gets damaged in a crash. In that case, collision coverage typically pays for repair or replacement as part of the broader claim. If your EV battery is damaged by a natural disaster or deliberate harm such as vandalism or theft, comprehensive coverage usually applies.

For future reference, it’s worth asking your insurance agent for specifics about how your car insurance works in this scenario. For example, you might ask if your existing policy covers battery damage, how it treats replacement with OEM vs. refurbished packs, and how the insurer would decide whether to write off a post-collision EV as a total loss.

Recommended: How Much Auto Insurance Do I Really Need?

The Takeaway

Real-world data shows that EV batteries remain viable for many years. Yet it is possible that an EV owner might need to swap in a fresh battery, potentially costing thousands of dollars. Fortunately, manufacturer warranties and falling battery prices can help mitigate the expense.

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.

FAQ

How much does EV battery recycling or disposal cost?

Generally, EV battery recycling doesn’t cost the owner anything. In fact, recyclers can recover certain valuable materials — including lithium, cobalt, and nickel — from old batteries to generate a small return. Some state and local programs exist to make EV battery recycling more accessible for consumers.

By contrast to recycling, disposal can cost from $500 to more than $2,000, depending on the size and type of battery.

Does extreme heat or cold shorten battery life?

Yes. That’s why most modern EVs use active thermal management systems — cooling and heating hardware — to buffer against extremes. Sustained high temperatures can speed up chemical reactions inside the battery, reducing its capacity irreversibly. Low temperatures tend to make lithium-ion batteries less efficient, but range and capacity should return to normal as the battery warms up.

Can you upgrade to a higher-capacity battery when replacing it?

You can, but it’s difficult and not always advisable. The vehicle’s software, cooling systems, and chassis are all engineered around a specific battery configuration, which limits flexibility. That’s why a dealership will generally replace an existing battery pack with a similar or compatible unit. Also, introducing a new type of battery risks voiding your car’s warranty.

Do government incentives apply to EV battery replacement?

Currently, there are no significant federal EV incentives of any sort, meaning there is no federal tax credit for replacing an out-of-warranty battery pack. Some state-level programs offer limited assistance.

How does battery degradation affect resale value?

Battery health makes a big difference in the pricing of used EVs. Sometimes referred to as the “state of health,” an EV’s battery health percentage indicates how much energy it can store now compared to its original capacity. EVs with 90% to 95% battery health typically command baseline market prices, while those with battery health of 80% to 89% are often discounted by 5% to 15%. Cars with battery health below 80% generally sell at steep discounts.

Photo credit: iStock/SimonSkafar

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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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