Buy the Right Coverage and Still Save Money

Who wouldn't want to save money on their car insurance? Especially when you know that the final insurance price can vary by hundreds of dollars, not only according to the type of car but also depending on your choice of an insurance company and the type of policy you have bought.

But how do you find the balance between how much you can afford and the actual coverage you need? This guide will provide you with some valuable tips and ways to save money... and still get the right coverage for you.

To do that, let us first examine what can bump up your car insurance premiums.

Factors that determine the final price of the policy

The annual cost of an auto insurance policy averages around $850. Exactly how much a consumer will pay for on his premium will depend on the following factors:

  • Driving record. A consumer whose driving history is full of traffic violations or accidents, should expect to pay a higher premium compared to one who has a better driving history. New drivers and those who have not had insurance for a long time are also expected to pay higher premiums.

  • Frequency of car use. The more time the car is used, the greater is the chance for accidents to happen and this, therefore, translates to higher payments. On the other hand, lesser frequency of use means it is less likely that the driver will be involved in collisions or traffic violations.

  • Place where the vehicle is parked or where the consumer lives. Certain areas in the country have higher incidence of accidents, theft and vandalism. In these areas, the premium on auto insurance is much higher compared to rural or small town areas.

  • Age of the driver. Older drivers tend to drive more carefully compared to the younger ones. It is, therefore, expected that auto insurance carriers charge young drivers, those 25 years old and younger, with higher premiums.

  • The driver's gender. Insurance carriers generally do not charge female drivers as much as they do with male drivers. Women, in general, get involved in lesser number of accidents. They also figure in lesser number of cases of drunk driving.

  • The driver's vehicle. Auto insurance for certain cars come at a higher price compared to others. For instance, a February 2012 report by MarketWatch mentioned that Audi's convertible, the R8 Spyder Quattro, commands a yearly premium of $3,384. Compare this to GMC's pickup, the Sierra K150, which only costs $1,121 annually. In general, factors like cost, chances of theft, cost of repairs, safety record and even size of engine can impact cost.

  • The driver's credit score. Many auto insurance companies look at an individual's credit rating as basis for predicting the chances that the said person will file a claim as well as the possible cost of the said claim.

  • The amount and type of coverage. Buying more than the minimum required by the state will understandably cost more. However, doubling the coverage will not necessarily mean double the amount of premium paid. The increase in coverage will not mean a proportional increase in cost.

Determining the right coverage for you

Start with the minimum coverage requirements in your state

Your starting point in determining the right coverage for you is the minimum requirements set in your state.

Go to this page for a table with the minimum auto insurance requirements by state.

Many financial experts will tell you that the minimum coverage required by your state is not enough. Remember if you happen to be at fault over an accident, the expenses incurred by the injured motorist or motorists can be many times over the state's minimum coverage amount. It is likely that if your policy is inadequate, the injured motorist's lawyer will go after your assets.

It is advisable for you to get a 100/300 coverage for bodily injury liability (This means a $100,000 limit for a single motorist involved in an accident and $300,000 limit for all motorists who got injured in an accident).

If assets do not total to a significant amount:

However, if an individual's total assets do not total to a significant amount, the state's minimum coverage limits may suffice. In the event an injured motorist pursues legal action, he might not be able to get much from the driver. If you are in this situation, getting the state minimum limits could be a better option and it will likely save you money.

A lease contract or expensive vehicle:

If you have a car lease contract or you own an expensive vehicle, then a comprehensive and collision coverage would be a necessity.

  • A comprehensive coverage would indemnify you in case your car gets damage because of falling objects, fire, explosions, theft and other problems that are unexpected.
  • A collision coverage takes care of damages arising from colliding into another vehicle, light posts, fire hydrants and other similar objects.

However, if you have an old car or a vehicle whose value is close to or lesser than the total of the premium and deductible on the policy, then getting either type of coverage may not be worth it.

PIP coverage

The table with the minimum requirements shows that not all states make it a requirement for a driver to get personal injury protection.

PIP provides coverage without having to establish who is responsible for the incident. In addition, PIP does not require the policyholder to pay any deductible before the insurance carrier pays the medical expenses. PIP coverage can be important to a driver as it ensures that those needing treatment will be covered and that it also lessens the likelihood that the driver gets sued.

When taking out PIP coverage get at least $10,000 of coverage.

Uninsured and underinsured coverage

Uninsured and underinsured coverage should also be considered. According to the latest study by the Insurance Research Council, one in seven drivers has no auto insurance. With this alarming statistic, it is therefore a good decision to include coverage for the uninsured and underinsured motorist.

If you are the one who got hit, this coverage also allows for quick indemnification without having to sue the other driver. The insurance carrier will be the one to go after the other driver.

Dos and Don'ts when buying car insurance

DOs

When purchasing auto insurance:

  • Do a research on the companies you are considering to purchase insurance from. A company has to be properly licensed by the insurance department of the state. It has to be able to show financial stability, it has to have a solid track record of providing quality service and you should feel at ease in dealing with them.

  • Have a list of five quotes from different insurance carriers. This gives you sufficient number of choices.

  • Get price quotations on various coverage amounts. Make a comparison of the rates attached on different coverages. In this manner you will be able to see which fits within your budget while providing you enough coverage.

  • Provide current and accurate information on your driving record. This is necessary so that you will get accurate quotes from the insurance companies.

DON'Ts

When purchasing auto insurance:

  • Do not forget to go over the fine print. Read the quotations and offers carefully. Auto insurance policies can be tricky if the driver is not careful with them. Read exactly what is under coverage, what instances or factors can increase premiums, how much you are expected to pay as deductibles and the factors or instances that would void the coverage.

  • When you get quotations, do not think that these are final. You might pay a different amount once the contract is purchased.

  • Do not be lured by the lowest quotes. Many providers only use these quotes to lure you in. Once you are hooked, they will charge you with a different, higher rate.

  • Do not buy coverage that is redundant. For example, if you have a car lease contract, the dealer may already be charging you coverage against theft so you need not add it to your auto insurance policy.

  • Do not forget to be familiar with car insurance laws implemented in your state. Each state has its own set of unique laws and getting to know these is necessary.

Mistakes to avoid

Here are some mistakes that can cost you more in the end.

  • Not shopping around. This is a common mistake with many consumers especially when renewing their policies. Many simply renew with the same insurance carrier and not consider what other companies can offer. In doing so they deny themselves the opportunity to get the best deal and save money.

  • Getting only the state mandated minimum coverage. The minimum limits set by states are simply inadequate. A driver with enough assets can lose them in the event an injured motorist is determined to go after these assets because the driver's policy is insufficient.

  • Getting a deductible that that is beyond budget. Increasing the deductible will bring down the premium. However, if it goes beyond the driver's budget, it can be a problem after a collision.

  • Not getting collision and comprehensive policies. These are important especially if repairing or purchasing a new vehicle is beyond the

  • Not doing a background check on the insurance company. A bad insurance carrier can give you headaches even when your claim is valid. So, do not be enticed by the low cost offered by an obscure company or a provider with an unproven track record in customer service.

  • Not going over the terms of the policy. Many drivers do not take the time to understand what they have purchased. They usually go over the terms only when an accident or collision has taken place. Then they get upset that their expectations are not met.

  • Providing false information to the insurance carrier. Insurance companies base their quotations on information submitted to them. Sometimes drivers submit false information in an effort to get a lower quotation. However, this is not be a good move as it is a form of misrepresentation which could jeopardize any claim they file in the future.

Hidden costs to avoid

One of the ways that one can lower the cost of auto insurance is by eliminating hidden costs. These are items that when removed will not have an effect on one's coverage level. The following are the most common forms of hidden costs in car insurance policies:

  • Forgiveness policy. Each time you encounter an accident, your premiums will go up. With a forgiveness policy, the insurance provider agrees not to increase the premium after your first accident. This may save you money. However, having this feature means additional cost on your part. If you feel comfortable not having this feature and if you are looking to cut costs on your auto insurance, then doing away with a forgiveness policy may be a right move for you.

  • Installment fee. This is a payment option, which gives the policyholder the ability to make payments on installment basis or as a single amount. This convenience will cost you extra money. Check if your policy has this feature.

  • Teenage driver. This addition can be costly. Be sure that you only add a teen driver when he or she already has a driver's license. Also, if your teenager seldom drives, you may want to ask for a discount for an occasional driver. Furthermore, if your teenager is taking driving courses, provide this information to your insurance carrier - many companies offer discounts if teens take formal driving courses.

  • Car model. Certain car models are assessed with higher insurance cost compared to others. An insurance provider will usually determine policy costs based on the cost of the vehicle, its safety features, replacement price and susceptibility to theft. Based on this set of criteria some vehicles are bound to rate higher than the rest. If you are shopping around for a car, consider this information. Better yet, ask your agent for suggestions on what car models will attract you better insurance terms.

  • Extra features. This is another common area for hidden costs. Some features inserted in your policy you many not need at all. For instance, roadside assistance. You may do away with this feature (which comes at a price), if you are a member of a motor club that offers this assistance to members. Another feature you may do away with is full coverage - if the value of your car has gone done, you may not have a need for this feature. Because in the event your car gets totally damaged you only get the cash equivalent of your car's worth.

More tips on how to save money on your auto insurance

Here are some more tips that can save you money:

  • Study any other insurance policies you have and see if these provide coverage on the same areas that a car insurance policy covers. For instance, a health insurance policy may already cover injury protection.

  • Explore the possibility of increasing the deductible. The higher is the deductible, the lower is the insurance cost. However, make sure that the deductible is something you can afford in the event of an accident.

  • Combine auto insurance with home insurance. Many insurance carriers provide discounts if both of these policies are purchased from them.

  • If you drive an old car, you might consider dropping collision and comprehensive coverage.

  • Maintain a good credit score. Many companies give importance to credit rating when providing car insurance quotes. A good score can mean to a provider that you are less likely to file a claim in the future.

  • Drive less. Some providers offer discounts to drivers with less mileage as it means lesser chances of getting into accidents.

  • Buy cars that are low profile and or require low maintenance. Vehicles that have a reputation for high maintenance are usually the ones that attract thieves and therefore require higher coverage.

  • Ask about a provider's available discounts. A company usually has discounts for cars with anti-theft devices, anti-lock breaking systems, seat belts, airbags, etc. There are also those who offer lower rates to individuals who have clean driving records, or those who have undertaken recent driving courses.

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