Savings on Car Insurance Risk Assumption Risk Reduction Payment Options

The average American driver pays $800 a year for car insurance. Fortunately, insurance is a highly competitive business, which is good news for costumers as it provides them with many different options to choose from to find the most affordable and beneficial insurance product.

To maximize savings, customers need to understand the basics of car insurance premiums. Insurance companies set premiums to ensure the the rate that specific clients pay on average covers the expected claims and operating expenses. Expected claims are a function of the coverage sought by the customer and the risk of the specific customer filing a claim. Insurance companies use a number of factors to estimate this risk and the premium they offer is a result of combining these factors with the coverage levels requested by the client.

While most risk factors are objective and cannot be changed easily, understanding them better can help customers save on insurance. In general, drivers can expect to save on car insurance by assuming a higher level of risk by careful coverage option and level selections and higher deductible choices. These tend to have the biggest impact on premiums.

Clients can also realize savings from understanding the available discounts that insurance companies offer for certain driver and vehicle attributes that they view to be less risky Some of these attributes, such as occupation or car features are objective and clients simply need to identify the companies that may offer discounts that are relevant for them. Others, such as a good driving record can be achieved over time only, but can provide recurring, long-term savings.

Financing choices can also have a positive impact on overall car insurance costs as insurance companies value quick, reliable, preferably upfront payments and multiple sources of revenue.

Finally, new types of products and plans may offer significant benefits to certain types of drivers as drivers’ insurance needs keep evolving and changing over time, as well. Customers should continuously monitor the offers of their existing insurance provider, as well as periodically evaluate competing insurers and insurance products. Reviewing a short checklist of items for ongoing consideration can help ensure that drivers do not pay more for car insurance than they have to.

1. Shop for car insurance regularly

Although insurance companies use similar factors to set premiums, they have different models for combining the factors. As their models change – due to new data, better models or changing business strategies – and as specific client’s circumstances change, clients often find that what used to be the best available premium 6 months ago may not be the most optimal insurance any more. Prudent drivers shop for car insurance regularly.

2. Review selected coverage options and levels

Insurance companies offer a wide selection of coverage options and levels. Drivers should continuously re-evaluate their choices. More coverage always means high premiums. Drivers sometimes choose unnecessarily high coverage levels: selected $20,000 collision coverage for a vehicle with a retail value of $10,000 is not optimal. In addition, initially selected coverage levels should be revisited: an aging car needs less coverage than a new one. It is important, however, that customers understand that by lowering coverage levels, they assume more risk.

3. Eliminate unnecessary coverage

Insurance companies offer additional coverage choices such as rental car coverage or roadside assistance. Drivers can save by eliminating these coverage options from their insurance, especially if alternatives are available to them such as a second car in the family in the case of repairs on one vehicle or AAA or other auto club membership that covers towing .

4. Optimize deductibles

Deductibles are out-of-pocket expenses that the insured driver has to pay to cover damages before being allowed to file a claim to the insurance company to cover the remaining balances. Drivers can choose the deductible amount that they feel comfortable with: the more out-of-pocket expense they commit to, the lower their premium is. Generally, increasing the deductible from $500 to $1,000 can drop the premium by 15%. By opting for a higher deductible, drivers assume more risk, as well.

5. Identify potential discount options

Most insurance companies offer a variety of discounts for various driver and car attributes. Discounts may be available for occupations perceived to be ‘safer’ such as teacher or engineer. Young drivers are sometimes offered ‘good student’ discounts, while senior discounts are available for mature drivers with excellent driving records. Many insurers also offer small premium deductions for select car safety features such as anti-lock brakes, automatic seat belts or advances alarm systems. Drivers should identify insurance companies offering discounts relevant for their profiles to save on car insurance. Some insurers offer discounts for long-term customers as these clients partially as sophisticated clients understand the importance of rate shopping and can be tempted easily and partially because long-term clients have well-established histories and relatively well-understood risk profiles and tend to be safer and cheaper for the companies to insure.

6. Maintain and improve your driving record

A driver’s driving record is a key factor used by insurance companies to understand how risky a client he or she will be. Maintaining and improving one’s driving record is the single most important thing that can be done to reduce and maintain insurance costs in the long run. All moving violations and reported accidents show up on the driving record. Typically, most recent incidents are weighted higher and some insurance companies reward drivers for improving their records. Overall, the more impeccable the driving records are, the lower the cost of insurance will be.

7. Be careful with filing insurance claims

Insurance claim records – along with driving records – are used to asses clients’ riskiness and propensity to file a claim. Drivers with multiple or higher value insurance claims are typically charged higher premiums. In some cases, it may be more beneficial for a driver to forgo the option to file a smaller claim and cover the expenses without insurance as the impact of an additional claim on their claim history may result in significantly higher ongoing premiums for many years to come.

8. Opt for upfront payment and if possible pay through direct paycheck deductions

Almost all insurance companies provide various installment payment options. However, these almost always come at a slightly higher cost as additional service or processing charges are added to the total premium.

Some insurance companies offer significant discounts for payment via direct paycheck deductions. Such programs may be available for large employers and can result in a 10-15% discount in premiums.

9. Bundle home and car insurance

Most people’s insurance needs go beyond cars as they need home insurance and general liability insurance, as well. Many insurance companies are willing to give significant discounts on bundled insurance packages. It is difficult to clearly understand whether the car insurance or the home insurance benefits from the premium reduction, however as long as the combined insurances cost less than the individually purchased ones, the option is worth pursuing.

10. Explore new insurance options

The car insurance industry is continuously pursuing new insurance product ideas to increase customer satisfaction and corporate profits. Insurers have been experimenting with ‘pay-as-you-drive’ car insurance products for several years. The new plans monitor customers’ driving habits with devices installed in the vehicles and provide significant discounts for ‘good’ driving behavior such as driving fewer miles, at moderate speeds with few risky maneuvers. Drivers are offered significant discounts just for switching to the new plans as it is more beneficial for insurance companies to have actual information about driving habits. Solid and conservative drivers stand to reap additional savings. Although not yet available everywhere, the new plans are increasingly popular as they give more control for customers in positively impacting their premiums by demonstrating consistently good driving practices.