Expert’s Guide to Choosing Car Insurance

August 18th, 2010
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Insurance Learning Center

When it comes to comparing car insurance companies, there are so many factors in play that it can seem impossible to sort them all out. Each one claims to give the most discounts, the best rates, and the best customer care or special perks.
Knowing what company to go with can involve a lot of research, but how do you know what to look for? The best way to proceed is to arm yourself with information! With the following breakdown of the 10 most important factors used to compare insurance companies, you’ll have the tools you need to begin your quest for the best company and rate. Once you’re familiar with these tips, don’t forget to check out Autocricket.com to find the insurance that is best for you!

1. What You’re Paying Now

It may seem obvious, but knowing exactly what you’re paying now, and exactly why, is the first and possibly most important step in selecting an auto insurance provider. Even as nothing more than a basis for comparison, understanding your rate is essential. Your insurance company should send you a comprehensive policy breakdown each year which shows you exactly what you pay and exactly what you’re getting for your money. If you don’t know where this document is, you can request another copy from your insurance agent, or if you’re feeling lazy, you can take a look at your latest bill. Each bill will show your payment amount and cycle, remaining principle, and a lot of other helpful info about your policy.

Starting your hunt for a new provider without this vital information is like going on a hike without a trail map. You may know vaguely what you’re looking for, but it’s easy to head in the wrong direction or get lost. You could end up paying slightly less for a lot less coverage. You might even get stuck paying more than you already do.

2. How Much Coverage You Really Need

So you know what you’re paying now, but what are you really buying? It is time to determine how much coverage you need.

How much is your car actually worth? How much do you drive it? Is your commute long and treacherous, or do you just walk to work most days? What else do you have to lose? Most people know that auto insurance covers more than the cost of the car; it also covers liability—medical fees, legal fees, and more. A reasonable liability limit is $50,000 bodily injury liability for an individual injured, $100,000 for all people injured in an accident and $25,000 property damage liability (often written out like: 50/100/25). Even if your car is a clunker, that $25,000 property damage is essential, as more than half of the cars on the road are worth more than $20,000. If you overlook this aspect, you could end up losing your home or other assets.

Another important factor in deciding how much insurance you need is the deductible. A higher deductible is a pain when you actually get in an accident, but can save you money over the long term. Consider a very good deductible rate of $200. If you get in an accident, the insurance company will pay for all but the first $200 of the damages. However, increasing your deductible to $500 could reduce your collision and comprehensive coverage cost by 15-30%. Increasing it to $1,000 could save you more than 40%. If you get in an accident every single year, this is a bad bargain. If accidents are a rare occurrence for you, you’d be better off lowering your premium and just saving $1,000 in an emergency fund to cover the deductible.

The biggest item to consider in terms of coverage needs is collision insurance. This is a must for most people, but if your car isn’t worth all that much, it may be a smart move to go without collision. If you can afford to eat a few thousand dollars in the event of a car-totaling crash, why pay hundreds a year for collision coverage? If you can go five years without an accident, you’ve saved money.

Some of these propositions might appear risky, but if you’re a safe driver, it shouldn’t be a concern. If you’re not at fault for an accident, the other driver’s liability insurance may cover the costs anyway.

3. Convenience Fees

A good insurance company makes things as convenient as possible for their customers. Most of us don’t even mind paying a fee for that convenience. If you’re trying to save as much money as possible on auto insurance, however, these little fees can add up fast.

So what constitutes a convenience fee? A convenience fee is a small charge that insurance companies add for breaking up your bill into smaller payments. That’s right: you pay for the convenience of writing a check to your insurance company every month. If possible, pay the entire premium all at once. If this is too daunting, split it into two payments, one every six months. At $1-3.50 dollars a month, convenience fees can add as much as $42 a year to your total insurance costs.

4. Your Credit Rating

You’ve probably been hearing a lot lately about your credit rating, or credit score. This is for good reason, as it can have an impact on everything from getting a loan for a car to renting an apartment, to how much you pay for auto insurance. Statistically, people with poor credit ratings are more likely to file a claim. Insurance companies know this, and they raise their rates accordingly for customers they view as high-risk.

This can actually work to your advantage if you know you have good credit. Once per year, you can request that your insurance company looks up your credit rating and adjusts your premium accordingly. Don’t do this unless you’re sure your rating is good. If they turn up bad news when they look into your score, your rate will go up instead of down. The good thing is they can’t do this mid-term unless you ask, so you should be safe—at least until the next billing cycle begins.

So what does this mean for you? If you know that your policy is up for renewal, or if you’re about to buy a new insurance policy by switching companies, take a few months to try to clean up your dirty financial laundry. Make sure all your bills are paid in time.  Pay off the balance on any credit cards. Make a few phone calls to see if you can get discrepancies removed from your record. If you want to get discounts, it’s important to make yourself into the type of customer insurance companies want to have. This will be a major factor when you start comparing which discounts different insurance companies offer.

5. The Car You Drive

The car you drive is one of the biggest factors that insurance companies consider when determing your rate. Most people assume this is a direct correlation to the cost of the car—expensive cars cost more to insure. This is true to an extent, but there are numerous other factors that influence this. How likely is it to inflict damage on another vehicle? How likely is it that the car will be stolen? In the event of an accident, how safe is the car? How much does it cost to make repairs? For instance, a Saturn may cost less to insure than other similar cars simply because of their dent resistant doors.

Keep this in mind as you go shopping for your next vehicle. It might be a good idea to consult the web for information. Many insurance companies provide lists of cars and how much more or less it costs to insure them. Factor these amounts into any purchasing decision you make, because they are essentially boosters to the sticker price of the car just like major drops in resale value or high maintenance fees. Alternatively, if you really have your heart set on that Hummer H2, check the insurance companies’ web sites to see which agency is kindest to owners of this exact make and model. Neglecting this source of extra charges could result in bills that are well over your projected budget.

6. What Discounts You Are Eligible For

When it comes to picking the right insurance policy, the magic word is “discounts.” Most are modest, but if you specifically look and ask for them, they can really add up. After you’ve conducted your primary research and narrowed your selections down to a few top choices, make some phone calls. Getting an agent on the phone or meeting with one in person is the best way to find out what discounts insurance companies offer. They are trying to get you to choose their company, so they are incentivized to tell you about every single discount you may be eligible for. Here are some of the main ones you might want to ask about:

  • Low-risk Occupations. Insurance companies have done a great deal of research to determine which occupations are more or less likely to file expensive insurance claims. Engineers, pilots and actors are all less likely to file a claim, and therefore cost less to insure. Lawyers and other high-stress, high-travel occupations are charged more.
  • Organizations. Are you a member of AAA or the AARP? Many organizations like these provide discounts on insurance to members.
  • Combined Coverage. Insurance companies want to be the basket into which you put all your eggs. Almost without fail, they will give you a discount for insuring multiple vehicles and your home, or purchasing life insurance through their company.
  • Renewal. If you’ve been a long time customer of an insurance company, you are likely eligible for a renewal discount. Even if you’re just purchasing your policy, it’s good to ask about this potential discount so you’ll know how much you might save in the future.
  • Safety Features. Anything from air bags to anti-lock breaks can net you a discount on your auto insurance. Lo-Jack is another evergreen way to save money on your premium.
  • Mileage. Almost all companies will give you a discount for driving your car less than a certain number of miles on a regular basis. That mileage varies, of course, from company to company.

If you don’t ask about discounts, you may never know how much money you could be saving.

7. Hidden Fees

The evil twin of the discount is the hidden fee. Insurance agents are happy to tell you about all the great discounts you can get, but to discover all the odd things you may be charged for requires a little more digging. Many people believe insurance companies charge more if your car is red. This is a myth. However, they will often charge you more if your marital status is “single” or “divorced.”

How can you know if an insurance company will do this? One easy way is to go to their website and solicit free quotes. Fill out the entire application and get your rate. Then go back and change a single aspect of it, for instance, marital status. If the quote jumps up, you know you’ve discovered one of the company’s hidden fees. Other big examples include the car you drive, where you live, where you work, and of course your credit rating.

8. The True Value of Your Car

How much you think your car is worth and how much your insurance company thinks your car is worth may be startlingly different. The go-to source for car value is Kelly Blue Book, or in some cases, dealership rates. However, each insurance company has their own proprietary method of determining a vehicle’s value based on the make and model, state of repair, mileage, accident history and a number of other factors. Finding out how a given company determines this value can be difficult, or even impossible.
Fortunately, there can be ways to get around this. First, know that you can always appeal the amount that insurance companies claim your car is worth if it’s totaled. Keeping records of maintenance to prove your car is well maintained is one way of fighting back. Another way is to solicit quotes from dealers in your area to determine what they would charge you for the exact same car.
As an alternative, you could purchase gap insurance. If you have gap insurance and your car is totaled, the insurance company will pay the difference on what you owe to the dealer, paying off your remaining balance. Comparing how much insurance companies pay for gap insurance is another good way to differentiate between them. Also look for language in the policy such as “to make whole.” If an insurance policy pledges this, they are required to pay the balance on the car and even the sales tax; however, sometimes they need to be reminded of this little detail. Without this consideration, you may end up paying off two cars at once for months at a time.

9. Rental Insurance

If you’ve ever rented a car, you’ve been offered renters insurance, better known as a Collision Damage Waiver (CDW). These mini insurance policies cost up to $40, and are pushed by the rental companies. They are often sold to customers on a commission, incentivizing the rental companies to push the policies as hard as possible. CDWs cover you in the event of an accident, but do you really need it? Chances are, your normal auto insurance already covers this as part of your liability coverage. Even if rental insurance isn’t a part of your overall auto insurance policy, many credit card companies throw in free CDWs as long as you pay for 100% of the rental on that specific card.

Don’t just assume you’re good to go, however. Especially if you’re renting a van or other large vehicle, make sure that you are covered by someone. Call your auto insurer or credit card company and double check, or just consult your policy. Saving money is great, but if you crash and it turns out you weren’t covered after all, you could end up paying dearly. On top of the costs of repairing the car, rental agencies can also charge you for each day the car is out of commission, since they couldn’t rent the vehicle to somebody else.  Be ready to ask for proof that they had no other cars available during the time they levy the charge.

10. Your Driving History

When it comes to how much you pay for auto insurance, no factor is greater than your own driving history. Are you an incredibly safe driver, or do you have a record teeming with accidents and speeding tickets? Switching insurance companies is a good way to shed a few of those extra fees from your record, but if your driving history is bad enough, red flags will go up at the agency and they’ll make sure their risk is covered by charging you a hefty premium.

The best way to avoid fees related to your driving history is to avoid getting a ticket in the first place. If you’re pulled over and sighted for an infraction, appeal the ticket. Appealing costs you nothing, and at the very least will delay the rise in your insurance rates until later. The longer you can delay the hearing, the more likely you are to get the charges dropped or reduced. You can also offer to take a driving safety course instead. Even at your own expense, it will likely be less than the cost of the ticket and the resulting insurance premium spike.

When you are issued a ticket or get in an accident, even a no-fault accident, your insurance rates will go up. There is no way around this. Violations and accidents are recorded for 3 years and cannot be removed from your file before that. Once the third anniversary passes, your premium will go down. If you know exactly when you got in your accident or received your ticket, you can use this knowledge to your advantage. Renew your insurance policy or buy a new one when the three year time period is close to running out on your last violation. If the tickets are about to drop off your record anyway, insurance agents are apt to just let it slip off early. If there is still six months to a year remaining, getting out of the rate spike early is a lot less likely.

There is no doubt that different insurance policies view tickets and accidents differently. You would be very wise to check each one to see which is most forgiving of your past transgressions. Even if you have a spotless record, there are a number of factors to consider along this line. If you are in a no-fault accident, will your rate still go up? What about if you don’t file a claim? Does the company have some form of accident forgiveness policy? Do your research carefully to ensure you will be covered.

Don’t forget to use AutoCricket.com to find the best deal on auto insurance!


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