Car Insurance for the Savvy Consumer

We Americans love our cars. And in return for unlimited mobility, many of us are willing to spend thousands of dollars buying them and keeping them going. As for insuring them, many of us spend as little time thinking about that as possible. But without the right car insurance, you could be devastated financially if you get in a bad accident. A good policy guarantees you can replace your car, cover what could be staggering medical bills and legal costs and even make up for lost wages.

"If you don't have insurance and cause an accident, it can put you in financial ruin if you are taken to court," says Carole Walker, executive director of the Rocky Mountain Insurance Information Institute. "Think of it as a small investment to cover this large risk."

What kind of insurance policy should you get?

Auto insurance is far from a one-size-fits-all product. Individual policies will vary greatly, and you can mix and match coverage, deductibles and limits to meet your needs.

There are several different types of auto insurance. Auto liability insurance, which is required in all but one state, covers damages you cause to other people and property. Uninsured motorist coverage provides protection if your vehicle is hit by motorists who don't have enough coverage to pay for the full extent of the damage they caused. Collision coverage will pay for repair or replacement of your vehicle if you're in an accident.

Comprehensive coverage provides protection against loss or damage to your vehicle that is caused by something other than a car collision, such as theft, fire, storms, hitting a deer and natural disasters. Many insurers bundle comprehensive coverage with collision coverage.

Liability coverage will be expressed as three numbers, such as 100/300/50. That means the maximum amount the policy will pay for an injury to an individual is $100,000. The second number means the policy will pay a maximum of $300,000 for the total of all injuries in an accident. The third number means the policy will pay a maximum of $50,000 for property damage. Remember, liability coverage pays for damage you do to people and property other than your own. It does not cover you, your passengers or your vehicle.

Most experts recommend getting liability coverage of at least $100,000 per injury and $300,000 per accident, according to the Insurance Information Institute. Sometimes the cost of getting an extra $100,000 in coverage can be less than $30 a month. "The minimum required by law is usually bare bones, and is very low if you look at the costs you could potentially face in a claim settlement," Walker says. "You should strongly consider more coverage if you can afford it."

If you choose to get collision and comprehensive coverage, the value of your car should determine how much you buy. If your car is worth $1,000 or less, and you'd be paying $1,000 a year with a deductible, it wouldn't be worth the money to insure it.

Besides the major types of coverage, you might want to add other options to your insurance policy. For a small additional fee to your policy, emergency roadside service will cover the cost of towing. Consider this coverage if you don't already have it from your automaker, credit card company or membership in an automobile club.

Mechanical breakdown coverage is available when insuring a new car. You might want to consider this as an alternative to an extended warranty. It may provide broader coverage than a manufacturer's extended warranty, but won't cover routine maintenance, such as oil changes, tune-ups and brake pads. Do a price comparison if you're considering a manufacturer's extended warranty and make sure you understand what's included and what's not.

Before you buy car insurance, take time to compare car insurance quotes. Prices will vary between carriers, and a little effort can save you hundreds of dollars a year. "The positive thing for consumers is there are more ways to buy insurance than ever before," Walker says. "Savvy shoppers go online and arm themselves with information, then they compare rates." Walker recommends getting at least three quotes before buying a policy.

Lowering your insurance costs

Here are some tips for saving money on car insurance:

Do some networking. Check with friends and relatives for recommendations. Also check with your state department of insurance, which may offer price comparisons and track consumer complaints. You may also want to check social media review sites, such as Yelp, to see whether customers seem satisfied.

Comparison shop once a year. Once you have a policy, don't plan on keeping it forever. Make sure you shop around every few years to see whether you can save elsewhere. In a special report on car insurance, Consumer Reports found more than half of their subscribers remained with the same auto insurance for at least 15 years. While some reward such loyalty with discounts, many don't and some even raise rates because they feel confident you won't look elsewhere. Check out MoneyGeek's state-by-state study that compares insurance costs for two-car families and take a look at insurers in your own state -- the cost can vary by hundreds and even thousands of dollars.

Consider raising your deductible. A basic rule of thumb: The higher the deductible, the lower the premium, according to the Insurance Information Institute. The deductible is the amount you will pay in the event of a claim before your insurance company puts up any money. This will cut your costs, but just be sure you have enough money to pay the deductible if you have to.

Buy a sturdy, slightly older vehicle. A minivan will cost hundreds of dollars less in insurance than a sports car or SUV. It's especially important to get your teen or college student a car that insurance companies don't associate with crashes, or you can expect your insurance costs to go through the roof.

Adjust your coverage as needed. As your car gets older and its value depreciates, be sure to review your policy. The Insurance Information Institute suggests that if your car is worth less than 10 times the monthly premiums, it may be worth dropping collision or comprehensive coverage. You can check the value of your car online at websites such as kbb.com.

Check your credit reports. Though your credit history may not have anything to do with your risk behind the wheel, insurance companies think otherwise. The Insurance Information Institute asserts that people with good credit file fewer claims. Make sure your credit information is correct and take steps to raise your credit score if you have problems.

Look for discounts. You can save more money by taking advantage of the many different discounts in the marketplace. These include discounted premiums for seniors, long-term customers, safe drivers or in the case of teens and college students good students.

Specific discounts and the savings they produce will vary from company to company. Even though a company offers a slew of discounts, it may not have the lowest prices. Consider the total cost of insurance after discounts when you compare prices.

In the big picture, safe driving is the best protection of all. "A good driving record is ultimately something you have control over," Walker says. "By driving safely, you can keep your premiums down and also make us all safer."

References

How Can I Save Money on Auto Insurance? The Insurance Information Institute (III). http://www.iii.org/article/how-can-i-save-money-auto-insurance

Types of Auto Coverage. The Insurance Information Institute (III). http://www.iii.org/article/infographic-types-of-auto-coverage

Saving Money on Auto Insurance. Rocky Mountain Insurance Information Association (RMIIA). http://www.rmiia.org/auto/steering_through_your_auto_policy/Saving_Money_Auto_Insurance.asp

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