A couple of months ago I had to embark on a journey that I really wasn’t looking forward to taking. I had to find new auto insurance. It seemed like during almost every television commercial break there was a little green reptile, a gal in a white apron or a scruffy man in a suit named “Mayhem” telling me that their insurance company is the best and would save me thousands in mere minutes. How was I supposed to know which company was really for me with all this noise coming at me?
If you find yourself in the same boat, shopping for the best and most cost-effective auto insurance policy is daunting. Here are some tips to help you cut through the hype and get started.
1. Understand Options and Your Needs
The first thing you should do when starting to shop for car insurance is to figure out what your insurance needs actually are and gain a clear understanding of the vocabulary you will encounter. For example, you will probably need to consider if you need comprehensive or collision coverage and, by state law you will definitely need liability coverage. Comprehensive covers everything from animal collisions (1.5 million deer are hit by vehicles each year), to vandalism, to natural disaster damage. Collision coverage is exactly what it sounds like as well. If your car collides with another car or stationary object your insurance will cover the damage. Liability coverage does not cover your car, but will cover the damage caused to another in the event of an accident. Liability is the minimum coverage needed to legally drive your automobile. There are other types of supplemental coverage as well, including uninsured motorist coverage (most states require this), medical payment coverage and personal injury protection coverage.
Once you have an understanding of your options, you should evaluate your needs. For example, if you are “burdened” with a luxury automobile, protect your asset with comprehensive coverage. However, if your car is a clunker worth about $1,000, it wouldn’t make sense to spend half that each year covering it with comprehensive and collision, so you should opt for your state’s minimum required coverage.
Often insurance companies will try to sell protection rates higher than state minimum requirements for coverage. Generally speaking, for a young person without many assets, state minimums are the best option. The fear that causes people to opt for higher levels of protection is that they could lose their house, savings and investments to pay for medical costs in the event of a serious accident. This rarely happens, and for someone without much to lose, it should be even less of a concern.
On the flipside, if you’re worried about being the one with medical or repair bills that exceed the state minimums, coupled with the misfortune of being in an accident with someone who only carries the state minimums, there is uninsured/underinsured motorist coverage which takes care of anything the other guy’s insurance (or lack thereof) didn’t.
One extra coverage that does seem to make good sense is roadside assistance. Don’t double cover yourself if you have this already with your car’s warranty, but if not, it usually only adds a few dollars to the premium and will pay for itself the first time you have a flat, lock yourself out of the car, or break down on the side of the road. Do cost compare with AAA, however, as the latter also offers good travel discounts.
2. Shop Around
Once you know what you need and understand the lingo, you can start shopping around. This can be a little time-consuming, but when you consider that you may be able to save hundreds of dollars by spending an afternoon requesting quotes, it can be a good time investment. Most companies have an online form that you can fill out to generate a quote. Be prepared to answer all kinds of questions about your car, your past/current insurance plan and other personal information. Be aware that these companies will likely contact you after you request a quote, so expect to receive phone calls or e-mails.
If you don’t want to do the work yourself, consider going through an insurance broker, an independent agent who has relationships with many insurance companies. Because they have several companies within their scope, they can do the hard work and provide you with the best available rate among the companies they do business with. When I was shopping for insurance, I used a local broker and they were very easy to work with and got me a great rate. Even if you opt for the broker, call at least three of them, as often the big companies like Progressive, Nationwide, and Geico won’t use the same broker.
3. Ask About Discounts
Be sure to ask about discounts for a good driving record, good grades, and bundling insurance coverage with your home, renter’s or other insurance. Discounts may also apply for paying the entire premium up-front, instead of by the month, or for signing up for an auto-payment system. Some companies may be hesitant to just offer you the discount, so make sure you research the company to know what they offer and don’t be afraid to ask and press the issue.
4. Play with the Numbers
A good way to get insurance costs down is to raise your deductible, the amount of money that will be your responsibility in the event of a claim. A $1000 deductible plan will be less expensive than a $500 deductible plan. Although there is an element of gamble involved, assess your risk with the same type of factors an insurance company would, and if, for example, you don’t drive that much and you have a great record – no accidents – a higher deductible may be a better bet. However, you must have a way to meet that deductible should an accident happen, so higher deductibles are smartest when paired with an emergency fund savings account.
5. Long Term Insurance Planning
Done all this and still not happy with the rate you got? There are steps you can take now to help your insurance rates in the future. First, as you age (and get married), rates usually decrease. After you turn 25, shop out your coverage again, particularly if you’ve been ticket- and accident-free for the last three years. Secondly, maintain good driving habits and those rates will continue to drop as good driver benefits will kick in. Obey all traffic laws, go the speed limit (no tickets!) and practice defensive driving. Also, your credit score can affect your insurance rates (and a whole bunch of others things!), so be sure to maintain good credit. Another thing to consider for future insurance rates is the type of car that you drive. If you are buying a new car, make sure that you factor in the insurance when figuring the long-term costs of the car. Insweb.com provides a list of the most and least expensive cars to insure.
While I found the experience quite frustrating at times, in the end it was worth the time, research and aggravation to be insured to my satisfaction and at a cost I could afford. And until my circumstances change or I want to see if I can get a better deal (you should comparison shop every few years), I can sit back, relax, and enjoy the drive.