Writing checks to pay for your auto premium on car insurance can seem like an unnecessary expense, but there are many reasons why it’s a worthwhile investment.
According to information gathered by Kelley Blue Book, the average transaction price for light vehicles in the United States in 2015 was around $33,543. An auto insurance policy will reimburse you if your pricey new car is stolen or damaged.
There’s also the matter of accident protection. Data published by the National Highway Traffic Safety Administration reports that there were just over 6 million police-reported crashes in 2014. Car insurance will assist you in covering expenses after an accident, even if you’re at fault.
But perhaps the most compelling argument in favor of purchasing a policy is this: Car insurance is required by law in most states.
Car insurance is essential, but you shouldn’t have to wipe out your finances to pay for it. Here are some steps to follow that will help you save money when procuring insurance for your daily driver.
1: Plan ahead
The best time to start thinking about car insurance is before you’ve purchased or leased your car. The year, make and model of your ride will impact your premium, so it’s something to keep in mind when deciding which car you want to take home from the dealership.
One factor to consider is safety. Insurance provider State Farm reports that insurance companies offer lower rates and discounts to policyholders who drive vehicles widely deemed as being safe. On the other hand, if a car has a record of being easily damaged or of providing poor crash protection to occupants, this will often be reflected in higher insurance premiums.
Another factor that impacts insurance rates is susceptibility to theft. Some vehicles are unusually popular with car thieves, and this makes them more expensive to insure.
Repair cost also plays a role in how high or low your insurance premium will be. If a vehicle is expensive to repair, the insurance provider will transfer some of the cost to the policyholder by charging higher-than-normal premiums. For this reason, an expensive luxury model by BMW will likely command a higher premium than a bargain-priced Hyundai subcompact.
To make sure you get the lowest rates, do some research before leasing or purchasing a car. Ideally, you’ll want to choose a model that rates highly for safety and has average to low repair costs. You’ll also save the most on insurance by selecting a model that doesn’t have a high risk of theft. Insurance provider Esurance provides yearly lists of the top 10 most commonly stolen vehicles in the U.S., and you can use this data to guide your choices.
2: Know the rules of the game
Insurance providers look at various aspects of your personal history and living situation to determine your rates, and it can be helpful to know which factors will be taken under consideration. According to State Farm, the following variables play a big role in determining your car insurance premiums:
Driving record. A clean driving record will help you get lower car insurance rates. If you’ve caused an accident, this will result in increased rates. Recent accidents will raise your rates the most, while an accident that took place years ago will have less of an impact.
Age, sex and marital status. Single male drivers under the age of 25 tend to have the highest accident risk, and as a result, they pay the steepest rates for car insurance.
Your address. Certain neighborhoods have a higher incidence of theft and accidents, and if you live in such a community, your car insurance rates will be higher. Generally, urban areas have higher rates than rural communities.
Your mileage. The more mileage you put on your car, the more you can expect to pay in auto insurance. If you have a long commute to work or frequently take road trips, you’ll likely find yourself facing steeper-than-average car insurance premiums.
Your credit history. Believe it or not, certain credit data can be useful in predicting insurance claims. Those with excellent credit are less likely to lodge claims, and for this reason, these policyholders tend to get the best rates. It’s a good idea to obtain a copy of your credit report before purchasing car insurance so you can clean up errors, and know where you stand.
3: Determine how much coverage you need
According to 21st Century Insurance, there are five primary types of car insurance. Below is a list detailing these insurance categories. We’ve also included some considerations to keep in mind when deciding how much coverage you want to purchase.
Liability insurance. If you cause an accident, liability insurance covers property damage and medical bills. It’s required by law in most states that drivers carry liability insurance, and various states have various minimums. Make sure your coverage meets the minimum required by your state, and this information is available on the website of your state’s insurance commission. It’s a good idea to get more coverage than just the bare minimum, since this will give you extra accident protection.
Collision coverage. Collision coverage pays for damage to your car if there’s an accident, and it will reimburse you for your car’s value if the vehicle is totaled. If you have a lease or a car loan, your lessor or lender will require collision coverage. If you own your car outright and it’s older and of low value, it might be in your best interest to skip collision coverage.
Comprehensive coverage. Comprehensive coverage springs for vehicle damage or loss that isn’t caused by a collision with another vehicle. If your car suffers theft, weather damage or is damaged as a result of a run-in with an animal, comprehensive coverage will foot the bill. Comprehensive insurance is required if you owe money on your car loan or if you have a lease, but if you own an older car that’s not worth very much, consider foregoing this coverage.
Personal injury protection. This coverage pays your medical bills and those of your passengers if you’re injured in an accident. Medical expenses can quickly add up, so this is useful coverage to have.
Uninsured/underinsured motorist protection. Even though liability insurance coverage is required by law, a recent study by the Insurance Research Council indicates that in 2012, as many as 12.6 percent of all U.S. drivers were uninsured. If you get in an accident that’s caused by a driver who has no insurance or not enough coverage to cover the damage, uninsured/underinsured motorist protection will assist with your expenses. This coverage is worth getting, and it’s usually fairly inexpensive.
4. Set your deductible
According to Progressive Insurance, your deductible is the amount you’ll have to pay out of pocket if you file a car insurance claim. The higher your deductible is, the lower your premium will be. Figure out how much damage you can afford to pay for in an accident, and set your deductible accordingly.
5. Consider usage-based insurance
If your yearly mileage is lower than average, usage-based insurance might be a good bet. With traditional insurance, your rate is based on risk factors and actuarial studies regarding your demographic. With usage-based insurance, a smartphone app or device connected to your car’s diagnostic port is used to monitor your driving habits.
Laws in some states allow only mileage to be monitored, while other states allow the tracking of speed and braking habits. Data regarding your driving habits is used to determine your rates. Insurance rates are calculated based on a minimum mileage of 12,000 miles a year, and if your yearly mileage is less than this figure, you could save money by tapping usage-based insurance.
Still, there are privacy issues to consider, and some drivers may not be comfortable with the Big-Brother aspect of this approach.
6. Shop around
Next, you’ll need to pick an insurance provider. Here are some factors to consider:
Cost. Cost will obviously play a role in deciding which provider you choose, and rates can vary quite dramatically from company to company. You can get a sense of premium rates by requesting insurance quotes online. Keep in mind that cost shouldn’t be your only consideration. You want an insurance company you can count on to cover your losses, so client care should play a part in your decision.
Complaint ratio. An insurance provider’s complaint ratio will tell you how effective the company is at providing solid client care. A provider’s complaint ratio indicates how many complaints it has received per 1,000 claims filed. The lower the ratio, the better the company is at serving the needs of its clients. You can research insurance company complaint ratios by visiting your state’s department of insurance website.
J.D. Power rating. J.D. Power is perhaps best known for surveying car owners regarding the performance of their vehicles, but the company also surveys policyholders each year regarding their experiences with their car insurance providers.
The company conducts customer satisfaction studies across various regions in the U.S., looking at elements such as overall satisfaction, policy offerings, price, billing and payment, interaction and claims. An award is given to the insurance company with the highest score in each region. Use J.D. Power insurance company ratings to make an informed choice.
Bundling. You may qualify for lower rates if you get more than one type of insurance from the same provider. For example, if you get your home insurance and car insurance from the same company, this may enable you to benefit from lower rates. If you have existing coverage with a provider, find out if you will get a reduced rate by bundling auto insurance in with your coverage.
7. Claim your discounts
Various discounts are available to drivers who meet certain requirements. If you have a clean driving record, you’ll qualify for a good driver discount. Students with good grades and vehicle owners whose cars are equipped with certain safety devices also qualify for discounts. Ask your insurance provider for a full list of all available discounts, and peruse this list with your eligibility in mind.
8. Take a fresh look at your coverage each year
Your circumstances will likely change from year to year, and you may be able to exploit this to improve your insurance rates. For example, if you have a shorter commute to work than you did when you first bought your policy, you may qualify for lower rates when your policy is renewed.
Affordable insurance is possible
Car insurance can be a godsend if catastrophe strikes, so instead of resenting the purchase, view it as an opportunity to obtain a level of protection that will help you rest easy at night. With proper research, most drivers can purchase coverage that’s both dependable and affordable.
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