There are two reasons Americans own car insurance; to protect assets and to help pay for repairs in the event of an accident. Structuring your automobile insurance policy can ensure that you don’t pay too much for the coverage you receive.
Follow these 5 tips the next time you’re in the market for car insurance or when reviewing your policy.
Step 1: Don’t buy more insurance than you need
Understand the components of car insurance policies and don’t buy more than you need. Review your policy annually for errors and to make sure that it is still suitable for your aging vehicle.
The three main components of your insurance policy are liability, collision and comprehensive coverage.
Liability
Liability coverage is the part of your policy that pays out a benefit to someone else if you are at fault in a car accident. It is typically quoted in the format 25/50/25 with the first number referring to the limit payable to one injured claimant, the second number referring to the total liability limit for multiple claimants and the third number referring to the maximum amount payable for property damage. You can find the minimums required by each state here.
In most cases the legal minimums are not enough to protect your home and savings in the event you are sued after an accident. However, if you have no assets to protect you can save a little bit of money by keeping liability coverage on the low end.
Collision
Collision coverage pays to repair your car if you are in an accident or you run into a stationary object like a utility pole, tree or fence. This coverage is almost always required by banks and other lending institutions as long as there is a loan balance on your vehicle.
While you can save money on car insurance premiums by discontinuing collision coverage once your loan is cancelled, if you don’t have the cash to repair your car in the event of an accident you should maintain the coverage. You can save on your premiums by raising the deductible.
Comprehensive
Comprehensive coverage takes care of your vehicle in the event of flood or fire. It also pays to repair or replace your windshield if damaged as well as any car repairs necessary if you hit a deer or other animal.
Step 2: Protect your assets
Saving a couple hundred dollars a year isn’t going to seem so important when you lose your child’s college fund, your retirement savings or your home in a lawsuit if you are sued after an accident where you did not carry enough liability insurance. A full service insurance professional will look at your entire financial picture and should be able to suggest appropriate coverage.
Step 3: Bundle your insurance and check for available discounts
When possible bundle your homeowners, automobile and personal liability insurance policies with one company to get the best discounts on all policies. You also should ask your agent about discounts offered for accident free driving, good grades, multiple cars or for reduced mileage if your driving routine has changed.
Step 4: Shop rates and research each company
It is extremely important to get auto insurance quotes from a wide variety of insurance providers before making a decision. Rates vary widely between pared down online firms and full service firms. Don’t base your decision on rates alone. Investigate the customer service and payout record of each firm. Some companies may make you wait longer for payment or require that you jump through more hoops. Saving a few hundred dollars won’t matter much if the company you choose won’t pay out a benefit.
Some of your rate shopping will be done online and some will be completed over the phone. Have your current policy, driver license number and VIN or vehicle identification number handy. Gather monthly and annual payment and make sure you gather rates on the exact same coverage so you are comparing apples to apples.
Step 5: Protect both your driving record and your credit record
Insurance companies use both your driving record and your credit record to determine your rates. For the lowest possible rate, keep both clean.
Insurance companies do not check your credit unless you change your policy in some way. If your credit record has suffered since you last purchased insurance, you can expect higher rates if you purchase new insurance or modify an existing policy. To keep your credit score high pay bills on time, don’t borrow more than you can afford to pay and check your record for any errors by inspecting your file with each of the three credit reporting companies. You can find out more about that here.
To keep your driving record clean make sure you learn and obey traffic laws. Slow down, don’t drive while distracted by cell phones, don’t eat and drink behind the wheel, and burn your headlights for both day and night driving.