Shopping for auto insurance can be a time consuming and somewhat frustrating process. This of course can be made worse when you really don’t know what you are actually shopping for. Without knowledge of the product or what impacts your insurance premium it is difficult to determine the best means of lowering your rates. The hope is that with this brief guide, you may better understand what impacts your rates and what you can do to lower them.
First things first
The first thing to realize when shopping for insurance is that every person is going to rate completely different. This is because every person has a different age, driving history, location, personal status, education background, etc.There are so many different factors that go into rating a policy that could mean you could pay considerably more than your best friend, your mom, your sister, etc. The reasoning behind having so many rating factors is to prevent fraud and the “gaming” of the insurance system to obtain better rates.
Proof of prior (POP)
This is the single easiest way to keep your insurance rates low. Do not for any reason have a lapse of insurance coverage unless you absolutely have to. Insurance companies don’t care if you had a lapse because you didn’t have a car, were out of the country, or because you are a first time driver. Not having insurance going into a new insurance policy means higher rates period. This is especially true in states with Personal Injury Protection, as these states typically have higher rates of fraud.
Since there is a correlation between a lapse of insurance and fraud, it has become one of the single biggest factors in determining insurance rates. If you have a lapse, get on a policy with someone else for a period of time so that you can claim prior insurance. Keep in mind, this is something you will have to provide proof of in most companies. The impact here could also mean that you will be limited in your payment options as well. In some states such as Massachusetts, you could be forced to pay your entire premium in full or in just a few payments. In other states such as Florida or New York you may simply have to pay more of a down payment. It can literally make a difference of 25-50% on your premium. (note: not a rating factor in California)
Credit based insurance scores are extremely important. It has been discovered that there is a direct correlation between someone’s financial responsibility and driving record. Maintaining good credit can mean better rates and better terms. If you are car shopping with multiple drivers, try putting the person with the best credit first. (note: not a rating factor in California)
That’s right, there is a rating benefit for being married! Use it to your advantage. Many married couples choose to have separate insurance and claim to be single. This is a horrible idea if you are attempting to have lower costs. This rating factor can be a pretty decent one.
Many insurance companies use education as a rating factor. This is because they have found that the more educated someone is, the more likely they are to be a solid driver. There are numerous tiers, but normally the rating benefits begin at college degree or graduate degree. The rating detriment is often someone without a high school diploma.
If you own a home, there is often a discount associated with this. There is also typically a discount for bundling your home and auto together.
For those that don’t drive as much, one option would be to purchase usage based insurance. This is essentially insurance that has cost based on how you drive. While there is only one company that provides this type of insurance currently (Progressive Insurance) it is something that could start a major trend in the industry. Their current system measures hard braking to determine the likelihood of someone getting into an accident. This then is turned into a discount of up to 25-30% based on the results. If you drive little or drive with good following distance, it could mean huge savings. With Progressive, this is done with a device called the snapshot device or snapshot discount.
Pay in full discounts
If you pay monthly you are doing yourself a huge disservice. Pay in full discounts are often times significant. In some cases it could be as much as 20%. This is a huge reduction of premium and worth finding a means of acquiring it. The more expensive the policy, the more you can save with this discount.
This is an area where many are missing out on savings. When you have more than one vehicle on a policy, you get a substantial savings on vehicles above and beyond the first. This is why it is almost always a good idea to merge policies within a single household into one. If you have a roommate you can trust, merge your policies into one and save money. If you have children, do them a favor and let them pay you.
Young (teen) drivers
Many parents in an attempt to teach their children a lesson on responsibility, make their children get their own insurance policies. Unfortunately, in the process they are costing their teens significantly more for their policy than they have to. This is because there is a huge benefit for them being on a policy with a more experienced primary, someone with better credit, and someone that has current insurance. A teen is going to have little to no credit, no proof of prior insurance, and no driving experience. This creates a perfect storm and will often result in a significantly higher rate than if they were simply added to the parents policy and were to pay the parents directly for their share of the insurance.
Don’t waste money on coverages such as rental car reimbursement (loss of use). This only covers you during a covered event (accident, theft, etc) and most of the time you can get a free rental from the dealership or shop where you get repairs done anyway. While one would assume this is an inexpensive coverage, it is actually quite costly.
Another area to reduce coverage is medical payments. Many companies try to push this coverage, but there’s no good reason for it with people that never have others in their car and have good health insurance. The same can be true with uninsured motorist (UM or UIM) coverages. While uninsured motorist shouldn’t necessarily be removed completely, it could be reduced to the state minimums.
Personal Injury Protection is something available in only some states, but is an easy way to reduce cost, if you have health insurance. With insurance, your health insurance provider will often pay the deductible for personal injury protection. So, if you have good health insurance, choose the highest deductible. This is especially true in Florida, where you could choose a $1,000 deductible here and your health insurance could pick up the tab on it.
Comprehensive/Collision coverages should also be looked at. Once a car is paid off, you need to consider the value of the vehicle. Not your value, but the blue book value. This is a huge area where you could save money by simply going with liability and removing these physical damage coverages. If you have an older car think about the cost of adding this insurance along with the cost for the deductible and if there isn’t much money difference between that and the value of the vehicle, then you should drop these coverages. This is often a good idea when the vehicle is worth less than $3,000.
There are numerous ways to reduce insurance rates beyond simply driving better. By working with some of the above ideas, it is easy to make dramatic reductions to your insurance premium.