Auto Insurance in California: A Beginner’s Guide for New and International Drivers

This article explains the essentials of U.S. auto insurance—especially for drivers who are new to California.

The first half covers the basics of American auto insurance, and the second half dives into the current insurance landscape in California.

【Video Version Available Here】

Basic Types of Insurance

U.S. auto insurance can be broadly divided into two categories.

The first is mandatory Liability Coverage, and the second is optional coverage (vehicle insurance).

Vehicle insurance comes in two types: Collision Coverage and Comprehensive Coverage.

Additionally, there’s Uninsured Motorist coverage.

Coverage Details for Each Type

Collision Coverage provides compensation for accidents involving other vehicles.

It covers damage to your own car when you’re in an accident with another vehicle.

Comprehensive Coverage provides compensation for damage to your vehicle from causes other than collisions with other cars.

For example: vehicle theft, damage from falling objects, natural disasters (floods, fires), and animal collisions.

This coverage compensates for vehicle damage caused by these types of incidents.

Why Uninsured Motorist Coverage Is Necessary

Uninsured Motorist coverage is useful when you’re involved in an accident and the other party doesn’t have insurance.

This insurance allows you to use your own coverage to pay for car repairs and medical treatment for passengers.

You might be wondering: “If liability insurance is mandatory in America, how can the other driver not have insurance?”

Unfortunately, that’s the reality.

Because insurance premiums are quite expensive, a significant number of people drive without the mandatory liability insurance.

Uninsured Motorist coverage is one way to protect yourself in case you’re in an accident with an uninsured driver.

Basic Structure of Insurance Enrollment

To drive in America, you must have mandatory liability insurance.

In addition to that, you can optionally choose vehicle insurance (Collision Coverage, Comprehensive Coverage) and Uninsured Motorist coverage.

How Coverage Limits Work in the U.S.

Unlike some countries where insurance may have no upper limit, U.S. auto insurance policies have defined coverage limits.

This is largely because the U.S. is a highly litigious society.

Without caps, insurance companies would be exposed to potentially unlimited compensation claims in lawsuits, so they set limits to manage their risk.

Minimum Coverage Requirements by State

Each state sets its own minimum coverage amounts, and you cannot legally drive in that state without insurance meeting those requirements.

For example, California’s current minimum coverage amounts (updated January 1, 2025) are: $30,000 per person for bodily injury, $60,000 per accident for bodily injury, $15,000 per accident for property damage.

Since minimum coverage requirements vary by state, it’s important to check the standards for the state where you plan to drive before enrolling.

Recommended Coverage Limits

Coverage limits are divided into several tiers, and a common question is which level to choose.

While recommendations vary based on budget, we suggest enrolling in at least mid-tier coverage rather than the bare minimum.

Mid-tier coverage limits are: $50,000 per person for bodily injury, $100,000 total per accident for bodily injury, $25,000 for property damage.

If possible, we recommend upper-tier coverage: $100,000 per person for bodily injury, $300,000 total per accident for bodily injury, $50,000 for property damage.

Premium Coverage Plans

If your budget allows, there’s also premium coverage: $250,000 per person for bodily injury, $500,000 total per accident for bodily injury, $100,000 for property damage.

Having this premium coverage gives you the most peace of mind, but budget constraints are understandable.

Either mid-tier ($50,000 per person) or upper-tier ($100,000 per person) coverage should provide solid protection for most drivers.

Factors That Determine Insurance Premiums

So what determines your auto insurance premium in the U.S.?

Premiums are determined by the insurance company’s risk assessment.

The main factors include:

Vehicle Risk: More expensive cars mean higher premiums.

Age Risk: Younger drivers are considered higher risk and pay higher premiums.

Area Risk: Accident rates vary by region. Urban areas with more traffic tend to have higher premiums.

Driving History: New license holders and those with recent violations pay higher premiums.

Clean driving records and longer driving history tend to lower premiums. Factors like marital status can also affect rates.

Deciding Whether to Get Optional Coverage

Optional coverage is a frequent topic of conversation with our customers.

Since it’s optional, the final decision is yours.

However, our recommendation is to enroll unless there are special circumstances.

Yes, optional coverage will increase your premiums.

But if you’re ever in an accident—whether you cause it or are caught up in one—the compensation from your insurance company will be much more substantial.

California roads are busy and diverse, and from our experience, accident rates have risen considerably in recent years.

Vehicle theft and parts theft have also become extremely common.

There are many cases where people become victims through no fault of their own, and it’s difficult to completely avoid such incidents.

Cases Where Optional Coverage May Not Be Necessary

However, if your inherent risk is low, there are cases where optional coverage may not be necessary.

For example: a car purchased very cheaply through a private sale, a car received as a gift, or a car worth only $1,000–$2,000.

In these cases, even if you’re in an accident or your car is stolen, the financial loss is relatively small.

When a vehicle’s value is low, paying high premiums for optional coverage doesn’t make financial sense, so you might reasonably skip it.

Choosing How to Enroll in Insurance

There are two ways to enroll: through an insurance agent or by going directly to the insurance company.

For direct enrollment, you can now complete everything from quotes to sign-up on company websites.

Insurance agents work with multiple insurance companies, so they can advise you on the best coverage options for your situation and help you compare plans.

Key Points for Choosing an Insurance Company

Choosing the right insurance company is a very important decision.

We place great emphasis on customer support quality.

From our experience switching insurance companies several times, we’ve found that customer support quality varies significantly between companies.

When an accident occurs, even if you go through an agent, you may need to communicate directly with the insurance company.

Companies with poor customer support may require you to repeat the same explanation multiple times because information isn’t being shared properly within the organization.

Qualities of good customer support include: reliable responses to inquiries, quick turnaround, and thorough information sharing between staff members.

While you can’t fully evaluate a company until you’ve actually filed a claim, we recommend making decisions based on reviews, word of mouth, and rating sites.

Two Important Additional Tips

The first tip is that some insurance companies consider overseas driving history.

If you have a clean driving record from your home country, it may be worth presenting proof of that record to your insurer, as some companies will factor it in when calculating your premium.

The second tip is that we strongly recommend installing a dashcam.

We recommend that anyone driving in the U.S. install a dashcam.

The reason is that it provides clear evidence when accidents occur.

After an accident, it’s common to hear “I’m not at fault” claims from the other party, and drivers are generally advised not to say “I’m sorry” at the scene—which often leads to disputes.

Especially when the other party becomes aggressive, language barriers can put you at a disadvantage, and there are cases where people end up paying settlements even when they’re not at fault.

Benefits of Installing a Dashcam

A dashcam plays an important role in preventing such situations.

While it requires an initial investment of a few hundred dollars, it becomes crucial evidence in emergencies.

We also recommend installing cameras both front and rear so you can record in both directions.

Ease of Filing Claims Is Also an Important Factor

How easy it is to file claims should also factor into your decision.

Some insurance companies still only accept claims by phone, which can be inconvenient.

Companies that accept claims via email or their website—especially those with smartphone apps—are much more convenient.

With an app, you can send accident photos and communicate smoothly, which is a significant advantage.

Challenges California Faces with Auto Insurance

Now let’s look at the auto insurance challenges currently facing California.

In the U.S., insurance is required to drive—car purchase and insurance enrollment go hand in hand.

Background of Rising Premiums

There are two major problems right now. The first is skyrocketing premiums.

Simply put, it’s become unprofitable for insurance companies.

The insurance business model collects premiums from many customers into a pool, then pays out from that pool when accidents or other covered events occur.

After deducting operating costs—personnel, advertising, rent, and other fixed expenses—the remainder becomes the insurer’s profit.

The problem is that recent inflation has driven up the amounts insurance companies must pay for claims.

California in particular has seen significant price increases in parts and labor costs for repairs.

This means insurance companies’ financial burdens have increased substantially.

Impact of Increased Theft

Another major problem is the increase in theft.

Since theft is typically covered under Comprehensive policies, when vehicles or parts are stolen, insurance companies bear the payment burden.

This is another factor increasing insurers’ costs.

On top of that, insurance companies’ own fixed costs like personnel and rent have also risen.

Specific Examples of Premium Increases

To maintain profitability after deducting these rising costs, insurance companies have no choice but to increase revenue—meaning raise premiums.

A few years ago, you could get insurance for around $2,000 per year, but the situation has changed dramatically.

For example, when new drivers or those with international driving permits try to enroll in auto insurance, it can cost $5,000 per year or more.

In worse cases, quotes reach $8,000 per year.

This is just the insurance premium—not the vehicle price.

Young people are particularly affected—someone in their early 20s who just obtained a license can face annual premiums exceeding $10,000.

This premium inflation has become a major issue across California.

The Waiting Period Problem

The second major problem is that waiting periods have been established, making enrollment take much longer than before.

It used to be possible to complete everything from quote to enrollment within the same day, but in recent years, waiting periods have been implemented.

Enrollment can take two weeks, or in worst cases, three weeks.

This creates a real problem—what do you do during that waiting period?

You end up in a situation where you can’t use a car even though you need it for daily life.

The insurance companies’ official explanation is that it’s a review period for risk mitigation, but it may also be related to staffing reductions and cost-cutting measures.

The Tokio Marine Case

One notable example is Tokio Marine, a major Japanese insurance company that had expanded into the U.S. market.

Tokio Marine had been offering competitive rates and fast enrollment—especially for customers with international driving permits—making them a popular choice for international drivers in California.

Their premiums were relatively reasonable, and their customer support was strong.

Market Withdrawal and Industry Crisis

However, Tokio Marine announced its withdrawal from personal lines insurance in California.

The current insurance industry is in such dire straits that operating profitably in California has become extremely difficult.

California has high accident rates, a high cost of living, and high labor costs, making it a challenging environment for insurers.

Several insurance companies have announced they’re stopping new enrollments in the state altogether.

Growing Financial Burden

Insurance premiums used to be just another routine expense—not something most people worried about.

But annual premiums of $5,000 or more are a serious concern.

The amounts have gotten so high that some people are reconsidering car ownership itself.

Young people and students are particularly affected.

With rent and tuition also rising, the additional insurance burden is extremely difficult to absorb.

Limitations of Alternatives

Unlike cities with extensive public transit, California doesn’t offer an easy car-free lifestyle, especially outside of downtown areas.

That leaves you with the choice of either owning a car or relying on rideshare services like Uber.

But commuting to school or work by Uber is impractical for daily use, and the costs add up quickly.

In this situation, we’re always thinking about what we can do as a business and what value we can provide to our customers.