Originally published on dna-drivers.com
Nobody gets excited about paying for car insurance. You pay for it, and all you really see in return is an intangible benefit. If you live in a state that requires liability coverage, or are financing your vehicle, it is a necessary evil. With any bill, you always want to make sure that you are getting the best value for your money. Here, Major Insurance, founder of the Safe Driver Scholarship provide tips on how to do that.
There are two kinds of discounts in auto insurance: those mandated by the state, and those offered by the insurer. If a discount is mandated by the state, every insurer operating in that state has to offer it. These are often things like miles driven per year and the driver’s age. Different insurers may offer discounts for things like paying in full, or going paperless. If you are not sure that you are getting all the discounts available to you, call your insurer and ask.
You have to have it, so make sure you are getting the best value for your premium dollars. Many people paying for insurance have no idea what they are buying, so let’s review a few basic terms.
In terms of liability coverage, a lot of us go for the state minimum, but that may not be the wisest or most valuable option. Most insurers have a threshold where they consider you to be financially responsible, and that comes with a significant discount. It’s usually at the 100/300K bodily injury and 50K property damage range. The rate may be a little higher, but those few dollars are giving you a lot of value and financial protection.
In terms of physical damage coverage (comprehensive and collision), your deductible matters. As a rule, the higher the deductible, the lower your payment. If you have a loan on your car, make sure you don’t exceed the deductible they allow. Usually this is $500 or $1000. Just remember to choose a number you can afford to pay if something happens.
In some states, there are comprehensive deductibles that are separate or even waived for glass damage, but a lot of them require you pay the full deductible. Because it is a not-at-fault coverage, comprehensive is cheap. You may be able to drop your deductible from $500 to $100 for less than $10 per month in a lot of cases. If you hit a deer, or your windshield cracks, you will be glad you did.
Conversely, if your vehicle is over 10 years old, it may be time to think about dropping that expensive collision coverage. If your vehicle is totaled in an accident, the amount you get back after the deductible may not be worth what you are paying in premium. Insurance companies base their payout on “actual cash value” which is the replacement cost minus depreciation. A ballpark on this amount would be the amount a dealer would give you for a trade in on the NADA website.
Did your insurance company raise your rate out of the blue? Often this can happen because discounts on your policy have expired or due to internal cost pressures at the insurer. Every insurer adjusts rates based on a profit margin they consider acceptable. If they claim not to, they are lying. This is necessary, as much as we don’t like it, because there has to be enough fluid cash to pay the claims that come in.
If you like your insurer, the benefits of a long-standing policy outweigh a change of a few dollars. If you simply do not qualify for certain discounts anymore, or your rate changes because of something like your credit score, then it is time to shop around. If you find less expensive coverage and switch, a lot of times even your old insurer will consider you a new applicant again after at least 6 months have passed, giving you fresh access to discounts and new rating.
There are things that can affect your rate that many people don’t expect. Your driving history is a big part of your rate. If you have accidents or violations that you paid any kind of fine for, they can raise your rate for at least 3 years from the date of the incident, or if you went to court, the date of conviction. Make sure you know what is on your driving record by getting a copy from your DMV. That way you have no surprises.
Where you live matters. You can literally see your rate increase by moving across the street if the zip code is different. These differences are based on accident and claim statistics for the zip code, so you will always want to get a quote ahead of time if you are thinking about moving. This is especially true if you are moving from a suburb into a city, or from an area with lower property values to one with higher values.
Another factor is how you use the car. The more miles you drive per year; the more risk exposure you have. A surprising fact is that most accidents happen within 6 miles of your home, so even if you do mostly local driving, your insurer is concerned about quantity not quality. Check with your insurer to see what they have listed for your usage, and make sure it is accurate for your habits.
In summary, when your insurer looks at your policy, they are using a complex equation of weighted values called “underwriting.” The purpose of those underwriting guidelines is to answer a simple question: How likely is this driver to have a claim and how much can we expect it to cost? They have to estimate the answer to that question for every policy and assign it a sort of score that determines the rate. By understanding how this system works, you can make it work for you instead of against you.
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