How much you pay for auto insurance depends on several factors, including your age and marital status, where you live, and what you drive. You can’t do anything about your age, and few people will move just to lower their insurance premium. You can, however, choose a vehicle that costs less to insure.
In this article, we’ll give you all of the helpful tips you need when getting car insurance.
Know Your Coverage Types
Your Vehicle Affects Your Premium
Who You Are Affects Your Premium
Decide How Much Coverage You Need
You Can Reduce Your Premiums
- Know Your Coverage Types
What is your car insurance actually insuring? Although you’re buying a single insurance policy covering a specific vehicle, a number of components make up the final cost:
Bodily injury liability: Covers injury and death claims against you, and legal costs, if your car injures or kills someone.
Property damage liability: Covers claims for property that your car damages in an accident. Because liability coverage protects the other party, it is required in all but three states.
Medical payments: Pays for injuries to yourself and to occupants of your car. This is optional in some states. In “no-fault” states, personal injury protection replaces medical payments as part of the basic coverage.
Uninsured motorist protection: Covers injuries caused to you or the occupants of your car by uninsured or hit-and-run drivers. “Under-insured” coverage also is available, to cover claims you may make against a driver who has inadequate insurance. In some states, as many as 30 percent of drivers are uninsured.
Collision coverage: Covers damage to your car up to its book value. Collision coverage carries a deductible, which is the amount per claim you have to pay before the insurance takes effect. The lower the deductible, the higher the premium. While it is legally optional, a lending institution or leasing company usually requires collision coverage.
Comprehensive (physical damage): Covers damage to your car from theft, vandalism, fire, wind, flood, and other non-accident causes. Comprehensive also carries a deductible.
- Your Vehicle Affects Your Premium
You might want a sports car or a fancy SUV, but your insurance company may charge you more to protect you while driving it.
Insurance premiums are based partly on the price of the vehicle, which affects the replacement cost if it is stolen or “totaled” in an accident. How expensive the vehicle is to repair — including parts and labor — can also affect the cost. In addition, surcharges may apply to vehicles that are frequently stolen or involved in accidents.
Industry-wide information on injury claims, collision repair costs, and theft rates by vehicle model is available from the Highway Loss Data Institute (HLDI). You can write them at 1005 North Glebe Road, Arlington, VA 22201. HLDI is affiliated with the Insurance Institute for Highway Safety (IIHS).
According to HLDI, the lowest injury claims are from large vehicles — cars, pickup trucks, and sport-utility vehicles. Small 2- and 4-door cars have the highest injury claims. Small cars also are among the highest in collision costs, along with sports cars.
If you have your heart set on a sporty vehicle, you’ll probably pay dearly. Insuring a high-performance car can easily cost two or three times the insurance amount for an ordinary model.
Sport-utility vehicles, the hottest market segment, often have higher insurance rates than mid- and full-size cars, but some SUV models are relatively cheap to insure. SUVs are “hot” for other reasons: They are among the most frequently stolen vehicles, and they are more expensive than most cars. Cadillac’s Escalade is currently the most popular model sought by thieves, but it’s followed by the Nissan Maxima sedan. SUVs also can cost more to fix after an accident if the 4-wheel-drive system is damaged.
However, insurance companies set rates based on their own experience. If Company A has more collision and theft claims for a particular vehicle than Company B, then A will charge more for the same coverage. It all boils down to a company’s actual experience with a particular vehicle or category of drivers. That is why it pays to shop around for insurance.
- Who You Are Affects Your Premium
Factors that you can least control may have the greatest impact on your insurance costs. Your age, gender, and driving record are key factors that affect your insurance premium.
Single males under the age of 25 pay the highest rates. Statistics show they are involved in the most accidents, so insurance companies charge young men higher premiums than women of the same age. Married men, who statistically have fewer accidents, pay less than single men. A handful of states do not allow rates based on sex or age, but that prohibition has tended to result in higher rates for women, not lower rates for men.
If you are convicted of moving traffic violations or of causing an accident, your premiums will likely go up, no matter what your age. Drivers with clean records — no tickets, no accidents — pay the lowest rates.
Where you live also plays a big role in how much you pay. Urban areas, with their greater population densities and heavier traffic, get higher rates than rural areas. According to the Insurance Information Institute, the average insurance expenditure in mainly urban New Jersey — traditionally the most expensive state — in 2002 was more than double that of North Dakota, a rural state with the lowest average premiums. High costs in states such as Florida, Massachusetts and New York are attributed to growth in fraud and theft.
In most states, too, insurers set rates by zip codes. If you live in a major city like Chicago or Los Angeles, you will probably pay more than if you lived in a nearby suburb.
- Decide How Much Coverage You Need
While it is dangerous to be underinsured, having too much insurance can be an expensive mistake as well. Without insurance, your property is put at risk in an accident that is your fault. The minimum amount of insurance required in your state is seldom enough.
State law may require as little liability coverage as $15,000 per person, $30,000 per accident, and $5000 property damage. About half of the states require $25,000 per person and $50,000 per accident. Half of them require $10,000 in property damage coverage. If you can afford it, buy more than the minimum. After all, $10,000 for property damage may not be enough if you hit a $100,000 Mercedes-Benz.
The more assets and income you have, the more insurance you need. Most insurers recommend liability coverage of at least $100,000 per person, $300,000 per accident, and $50,000 property damage if you have assets to protect, such as a house. Some insurers also recommend a $1 million “personal liability umbrella” policy issued in conjunction with homeowner’s coverage. State Farm reports that such coverage averages $270 a year, but the amount varies significantly depending on location and other factors. An “umbrella” policy could protect a family from financial ruin in a major lawsuit.
Like buying a car, there is no single best solution when it comes to buying insurance. Rates vary widely. Surveys suggest that you could pay anywhere from $500 to $2000 annually for the same coverage from different companies. Shop for insurance by consulting two or three of the largest insurers, such as State Farm and Allstate. Then, contact one or two independent agents who can quote premiums from more than one company. In addition, there are direct-marketing companies, such as GEICO and Progressive, which do business over the phone rather than through agents and offer some of the lowest rates. Ask for an itemized list of coverages and costs.
“We’re price-competitive,” said spokesperson Dick Luedke of State Farm, whose rates dropped somewhat during 2004. But with so many factors involved in setting rates, it’s wise to check several prospects.
In 2004, the average price of auto insurance nationwide was $871, according to the Insurance Information Institute. They expected that the cost of auto insurance would rise by 3.5 percent in 2004, which would be the smallest increase in four years.
Don’t forget the Internet. Many companies now offer online quotes, and insurance shopping on the Web allows you to compare rates from multiple providers in the comfort of your own home.
- You Can Reduce Your Premiums
The biggest difference you can make is to buy a vehicle that qualifies for a discount or at least doesn’t carry a surcharge. Ask your insurance agent about the cost of insuring vehicles you are interested in before you make your purchase decision. Here are several other ways that you can save money on your car insurance:
Most companies give a break to those who drive less than 7500 miles a year. If you take public transportation instead of driving to work, your premium will go down. Out of the question? Try carpooling.
Make sure you get all the discounts you are entitled to. You might qualify if your vehicle has an alarm, for example. Discounts used to be given for such safety features as airbags, but they’re fading away as those items become more commonplace. Discounts might also be available if you insure your vehicles and your home with the same company. People who pass a defensive-driving course or don’t smoke or drink often get discounts.
Review the status of all the drivers in your family with your agent. Most discounts apply only to one portion of the policy, so don’t expect dramatic savings.
Increase your deductible for collision and comprehensive. Switching from a $100 deductible to $1000 can reduce the collision portion of your premium by 30 percent, said Luedke. You’ll still be covered for catastrophes, but you foot the bill for fender-benders. Also, think twice about filing small claims with your insurance: Why risk a premium increase?
Shop around. Instead of just renewing, study the fine print of your policy to see if its terms — or your situation — have changed. Another company might have better rates, but you won’t know unless you shop. Most insurers give rates over the phone and many via online computer services, making it easy to compare premiums.
Drop collision coverage on older cars. Claims are limited to “book” value, so you’re not likely to get much anyway if you car is more than seven years old. A good rule of thumb is to drop collision when the annual premium reaches 10 percent of your car’s value.
Be a good driver. Avoid accidents and traffic violations and you will be rewarded with good-driver discounts. Bad driving is expensive. The “safer you can be” on the road, Luedke said, “the lower your premiums.”
Drop coverage for such extras as towing costs or the expense of renting a car while yours is in the shop. The savings are probably small, but your new-car warranty’s roadside assistance provision may provide them at no cost.
Have your teenager share the family car instead of owning his or her own. Be sure to tell your agent if your son or daughter makes the honor roll or moves away to college. Both qualify for discounts with most companies.
If your group health insurance provides generous coverage, consider dropping the medical-payments portion of your policy.
Keep your credit rating healthy. A growing number of insurers are considering a person’s credit score when setting rates.
How Car Insurance Works
If you own your own car, you probably already know a little about car insurance. You may have heard the words deductible or premium. But, do you truly understand the different parts of an auto insurance policy and do you know how to choose the best coverage?
Forty-seven states require that you have at least some kind of car insurance, so it’s a good idea to know what the law requires you to have and what additional or optional coverage will help to protect you in the event of an accident.
Before purchasing auto insurance, you must consider a variety of factors including what kind of car you have, your driving record and the amount of money you are willing to pay. Understanding the simple basics of auto insurance will make you confident that the car insurance policy you choose will take care of your needs in the event of an accident.
In this article, we will walk you through the types of coverage that insurance companies offer and discuss possible insurance needs. Additionally we will look at what affects the price of auto insurance, how to bring the costs down and how to understand the components of your policy.
We’ll start with the different types of coverage you can choose from on the next page.
Types of Auto Coverage
Understanding Your Auto Insurance Needs
The Price of Auto Insurance
Car Insurance Deductibles
Types of Auto Coverage
Everyone who drives needs car insurance. In fact, most states require it by law. When you buy car insurance, you are buying what is called a policy. Your policy is based on a variety of factors including what kind of car you drive as well as what kind of insurance you want. Auto insurance policies are actually a package of different types of insurance coverage.
The first step in understanding an auto insurance policy is to learn the various types of coverage insurance companies offer. Some of this coverage may be required by your state and some of the coverage may be optional.
Liability – This coverage pays for accidental bodily injury and property damages to others. Injury damages include medical expenses, pain and suffering and lost wages. Property damage includes damaged property and automobiles. This coverage also pays defense and court costs. State laws determine how much liability coverage you must purchase, but you can always get more coverage than your state requires.
Collision – This coverage pays for damages to your vehicle caused by collision with another vehicle or object.
Comprehensive – This coverage pays for loss or damage to the insured vehicle that doesn’t occur in an auto accident. The types of damages comprehensive insurance covers include loss caused by fire, wind, hail, flood, vandalism or theft.
Medical Coverage – Pays medical expenses regardless of fault when the expenses are caused by an auto accident.
PIP – Personal Injury Protection (PIP) is required in some states. This coverage pays medical expenses for the insured driver, regardless of fault, for treatment due to an auto accident.
Uninsured Motorist – Pays your car’s damages when an auto accident is caused by a driver who doesn’t have liability insurance.
Underinsured Motorist – Pays your car’s damages when an auto accident is caused by someone who has insufficient liability insurance.
Rental Reimbursement – This type of coverage will pay for a rental car if your car is damaged due to an auto accident. Often this coverage has a daily allowance for a rental car.
Many insurance policies combine a number of these types of coverage. The first step in choosing the insurance you want for your car is to know the laws in your state. This will tell you the minimum insurance you need for your car. It’s good to keep in mind that, just because your state may not require extensive insurance, extra coverage may be worth the expense. After all, no one wants to be stuck with thousands of dollars worth of bills because of an auto accident.
Now, let’s take a look at how to determine your insurance needs.
Understanding Your Auto Insurance Needs
Just because your state requires a minimum amount of insurance doesn’t mean that’s exactly what you should purchase. In fact, most motorists purchase more coverage than their state requires so that they are covered for a variety of problems — not simply a fender bender. In order to better determine your auto insurance needs, consider these five guidelines:
Know Your State Laws
Remember that forty-seven states require that you purchase liability insurance. Liability insurance is what pays for bodily injury and property damage that you cause another driver. Fifteen states including Florida, Maryland, Michigan, Massachusetts, New York and New Jersey also require that you buy Personal Injury Protection (PIP). This coverage pays for your medical expenses and lost wages in the event of an auto accident. Your insurance minimum will most likely be determined by state law, but many people are encouraged to purchase more than is required.
Know Your Options
There are a lot of car insurance options; but knowing what you most likely will need is the key to making sure you are appropriately covered. Do you want coverage for a rental car if your car is damaged? Do you want an extended warranty to pay for parts and labor if your car breaks down? If your car is leased, you will probably need gap insurance which pays for the difference between what your insurer pays and what you owe on your lease if the car is completely totaled.
Know How Much Money You Want to Spend
If you know your state laws and have examined your personal needs, now you can put together the different pieces of auto insurance coverage in one total policy. The first piece of the policy is almost always liability insurance. If you only have minimum liability coverage and you injure someone, their attorney can go after your personal assets. So, you need to know your assets and what you can afford to lose in the event of an accident. Many insurers feel that minimum liability is a gamble. In fact, that is why it is often only a little more money for more protection. After all, if you do get into an accident, it is much better for the insurance company to be responsible than for you to be personally responsible. Remember to run through various scenarios such as if I totaled someone else’s car, will my insurance cover it? How much will I have to pay out of my own pocket? The answers to these types of questions will determine what coverage makes you feel most confident should an accident happen.
Know Your Vehicle
If your car was totaled, would you be able to afford to replace it? If not, you will want comprehensive and collision coverage. The decision to buy this coverage is usually based on the value of your car. Guidelines usually suggest that if your car is worth less than $2,000, it won’t be worth it to buy comprehensive and collision. If you own a $50,000 car though, it would most certainly be worth it to pay an extra $200 annually or so to insure that your car will be replaced if you get in a serious accident.
Know About Your Other Insurance
Many people don’t realize that other types of insurance including health insurance and homeowners insurance may pay for damages due to an auto accident. For instance, if you have comprehensive health coverage, you probably won’t need more than the minimum required Personal Injury Protection (PIP). Make sure you know what insurance coverage you already have so that you don’t purchase unnecessary coverage.
The best way to figure out your own auto insurance needs is to examine potential policies and know how much you are willing to gamble. For instance, it may not be worth it to you to purchase collision insurance if your car is not incredibly valuable and would therefore cost less to fix than to keep insured. Auto insurance is simply about how much you are willing to pay out of your own pocket versus how much you want the insurance company to cover. Once you decide this, you’re all set to purchase your auto insurance policy.
The Price of Auto Insurance
There are several factors that affect the price of auto insurance. Of course, prices vary by company and you should compare prices thoroughly before you purchase a policy. The first thing that affects your policy’s price is, of course, what kind of car you drive. For instance, a sports car costs more to insure than a family sedan. If you purchase a vehicle that has a high theft rate, your coverage will probably be more expensive. Essentially, though, your coverage will be based on the value of your car.
Another factor that affects auto insurance costs is where you live. If you live in an area where there is a high occurrence of accidents or vandalism, insurance will cost more money. For instance, since more cars are damaged in urban areas than in rural areas, you will probably pay more for insurance if you live in a city.
How often you drive will also affect your insurance costs. The more you drive, the higher the chances you will be an accident. Drivers who have long-distance commutes will pay more than people who live near their workplace. Meanwhile, if you only use your car on weekends, your insurance rates should be lower than someone who commutes to work daily.
The final factors that affect the price of auto insurance have to do with who you are. Your age, sex, marital status and driving record are all taken into account when you buy an insurance policy. Accident rates are higher for drivers under the age of 25, so if you are young, expect to pay a little more. Also, accident rates are higher for young males and single males. It doesn’t seem fair, but if you are an unmarried 19-year-old male, your insurance rates will definitely be affected. If your driving record is impeccable, though, your rates will be lower. Obviously, drivers who are prone to traffic violations or accidents will have to pay more for insurance than safe drivers.
If these cost factors are beginning to scare you, don’t worry. There are several ways to keep your insurance rates down.
There are four main factors that can keep auto insurance rates down. See if you fall into any of the following categories. If you do, you may be able to save money on your car insurance regardless of the value of your automobile.
If you are looking to buy a car, consider buying a car that “looks good” to insurance companies. For instance, insurance companies know what kinds of cars are prone to problems. They also know what kinds of cars are most often stolen. If you haven’t purchased your car yet, find out what cars make this “good list” among auto insurers.
Most insurance companies offer discounts for a variety of reasons – for example, good students, having more than one car insured and accident-free driving are all worth a discount. Ask insurance companies about specific discounts that may be available to you.
Consider carpooling or using public transportation to get to work. The less you use your car, the less your insurance will cost you.
Finally, drive carefully! Insurance companies are not happy to insure accident-prone drivers, so the safer you drive, the less you will have to pay for auto insurance.
Remember, don’t be afraid to ask your insurance company about any discounts they offer – it could save you a little cash.
Car Insurance Deductibles
Purchasing auto insurance is not simply about the value of your car or how often you get into accidents, it is also about how much money you are willing to pay for your coverage. All auto insurance policies have a deductible. The deductible is the part of your policy that you are responsible for paying. Auto insurance policies don’t simply take care of all necessary expenses. You are required to pay for some of the damages, but the amount depends on your policy. Deductibles vary by state, but are most often in amounts of $100, $250, $500 or $1,000. For example, if you are in an accident that causes $2,500 worth of damage and your deductible is $500, you are required to pay the $500 and the insurance company will take care of the remaining $2,000.
When deciding what insurance policy you want to purchase, choosing a deductible is an important step. After all, you will have to pay the deductible for each and every situation in which you require your insurance company to cover damages. Deciding how much you are willing to pay and how often you think you will need to make an insurance claim will help you decide what deductible amount is right for you. In addition, the premium you pay, or the price of your total coverage annually, can be lowered by choosing a higher deductible. In other words, if you are willing to pay higher out-of-pocket costs, you can lower the total cost of your insurance.