In an all-out effort to trim expenses, some car owners cut auto insurance coverage in ways that can come back to haunt them. But know these two things:
1) Yes, many of us overspend on auto insurance and could be saving money.
2) There are smart ways to save — and some not so smart.
As local insurance agents will tell you, the impact can be huge on your wallet, both immediately in the premium paid and later when you need to file a claim and find out how good or bad your coverage really is.
“Deciding on the right type and amount of auto insurance coverage is crucial,” says Jeanne Salvatore, senior vice president with the Insurance Information Institute (III), one of the nation’s leading insurance authorities. “If you are shopping for new insurance, or haven’t changed or updated your policy in the past year or two, you might be surprised by some of the available discounts you’ve been missing.”
Here are six of Salvatore’s best ways to save on auto insurance coverage:
Cover what counts the most
Even if your car is totaled in an accident, the cost of a car is nothing compared to the legal liability costs you could face for any damage you do to others, including bodily injury and property damage. “That’s why liability coverage is not only mandatory, but crucial,” says Salvatore. Other types of coverage are flexible, but make sure your liability component is rock solid.
Pare coverage on aging vehicles
Many Americans are holding on to their cars longer and driving only locally. So as the value of the vehicle drops, you might be overpaying for insurance. “Consider dropping collision and/or comprehensive coverage on older cars,” says Salvatore. “ It may not be cost-effective to continue insuring cars with less than 10 times the amount you would pay for coverage. Any claim payment you receive would not substantially exceed your premiums minus the deductible.”
Bundle your coverage
“Many local insurance firms will offer you a discount if you buy two or more types of insurance from them,” says Salvatore. “And you may get a reduction if you have more than one vehicle insured with the same company.” But also recognize this: If you’ve been with your current insurance firm a long time, you might be getting a long-time customer discount that could make it worthwhile to stay put.
Calculate your deductible “breaking point”
Insurance companies hate to pay out small claims because the filing process is expensive. As a result, they charge higher rates on policies with low deductibles. That’s the amount you pay out-of-pocket before your policy kicks in. First, keep in mind this insurance industry statistic: The average driver only submits a claim once every 11 or 12 years. By requesting a higher deductible through your local auto insurance agent, you can lower your annual premium cost dramatically, says Salvatore. For example, increasing your deductible from $250 to $1,000 could reduce your collision and comprehensive coverage cost by 30 percent, depending on the car you drive and annual mileage.
Go for more discounts
Discounts can save you hundreds of dollars on your premiums. Ask your local agent for a list of available discounts. Some to look for, according to Salvatore, are:
- Discounts to policyholders who have not had any accidents or moving violations for a number of years.
- A reduction if you have recently taken a defensive driving course.
- Discounts to motorists who drive a lower than average number of miles per year (especially important for a second or third vehicle).
- Low mileage discounts can also apply to drivers who carpool to work.
- Good student discounts for young people who take drivers education and/or get good grades.
Maintain a good credit record
This is a shocker to most people who don’t know that many insurance companies now consider credit information when setting your premium. To them it’s simple math: Research shows that people with good credit make fewer claims. So keep an eye on your credit record and correct any mistakes quickly.