7 Ways to Save Money on Car Insurance
by Christy Perry
It seems to be a law of nature that your rate is greater than you want to pay. Here's a secret: Companies have widely varying rates for the same risk. In one typical rate comparison for a thirty-five-year-old married couple with a 2003 Toyota Camry in Columbus, Ohio, companies reported their rates ranging from less than $400 to over $1,800, depending on the company!
Why is there so much variation between companies? Rating plans are far more complex than they were twenty years ago, and sometimes the result of combining so many different factors causes the rates to get out of line. Also, some companies give discounts that others don't give, such as an EFT discount or a new car discount. Some companies using rating variables that others ignore, such as your credit score.
With all these things going on, what can you do about it?
Following are seven very smart ways to save money on car insurance.
1. Go Shopping!
(But do you want the lowest price, or the best value?)
Who doesn't want to pay the lowest prices? Bargains are great!
But that old line about "You get what you pay for" applies to insurance, too. The Best Value is the company that offers you the right balance between best service, best coverage, best financial security, and best price.
Which parts are most important to you? Think about these things, and see how your company scores:
- What are they doing for you? Think about how they treat you during the quote and application. That's the best indication of how they'll treat you when you have an accident.
- Are they offering the right amount of coverage? The time to find out what is covered is up front, when you buy the insurance, not after you have a claim.
- Is the company going to be around when you need them? A.M. Best is a company that rates insurance carriers on their financial stability, their assets, and their ability to pay claims in the future. What is your company rated?
2. What's Your Agent Style?
(Do you prefer to buy things online, at a discount store, or at a full-service store?)
For most of us, it depends on what we're buying. Some people buy airline tickets from an airline they trust, buy shoes from a discount department store where they can try them on, but buy financial products from someone they trust to give good advice. What's your style?
Whether or not you go through an agent is up to you, but a good agent can save you money, both today and in the future. For starters, he or she should help you get all the discounts that you deserve. Also, he or she should make sure you buy the coverage you need. The most expensive way to buy insurance is to buy the cheapest and just assume you have the right coverage. And the most expensive way to find that out is when you claims adjuster says, "No, you didn't buy that coverage."
If your agent isn't doing the job, or if you bought insurance online, you might be paying too much for car insurance.
3. Should You Pay Agent or Policy Fees?
In Ohio, agents are not allowed to charge customers a separate fee for a personal auto application. However, some agents charge a "file setup fee" of $20 to $50 or more the first time you do business with that agent. The law requires them to disclose any such fee if they charge it. It is a good idea to ask clearly whether an agent charges any agent fees. And some companies charge a policy fee of up to $40 or more.
Most agents do not charge fees. In a few cases, certain customers have such unique needs--such as an all-day inspection of a farm or business--that an agent can't afford to help them without a fee. In most cases, however, the company pays enough commission to cover the agent's costs without any extra fees.
Before you do business with an agent who does, just ask yourself, "What is he doing for me to justify the fee? Is it worth it to me to get his services?" If it is, then pay the fee and be grateful. If not, go to another agent and save your money.
4. Paying Every Month Is Cheaper than Letting It Lapse
(12 Months are cheaper than 9 months? How can that be?)
It's because people who keep their coverage in force all year long are less likely to have accidents. Most insurance companies will reward that responsibility by charging lower rates.
On the other hand, someone who does not keep their coverage in force all year will most likely be rejected by the "standard$quot; and "preferred" companies, and will have to get coverage through a "specialty" or "nonstandard" company. The rates for these companies might be 50% higher or more.
Let's take an example. If you pay all year long with a standard company, your rate might be $50 per month. For 12 months, the total cost is $600.
But if you let it lapse and go to a nonstandard company, it might cost $75 per month. 9 months at $75/month would cost you $675--more than a full year at standard rates--and you would have three months without coverage!
We know it isn't easy. Insurance is expensive. But if you can bite the bullet for six months, then you could pay much lower rates for the rest of your life.
5. Pay the Full Six Months at Once, and Save Twice
(Being rewarded twice for the same thing is like having your cake and eating it, too!)
First, most companies give a substantial discount for paying the full six- or twelve-month premium at once, instead of paying in monthly installments.
Second, most companies charge extra fees for monthly payment plans.
This might mean the difference between $540 if you pay a full year, or $660 in monthly payments.
Can't afford a full year at once? Most of us can't! Here's a hint: Sign up for automatic drafts from your checking account. Most companies will reduce the monthly fees for EFT, or even waive the fees entirely, and some companies will give you a discount, too.
6. Get the Coverage You Need, the Discounts You Deserve
(Don't settle for the coverage you agent wants you to have. Find an agent who will help you with your own needs.)
One way to reduce costs is to remove unnecessary coverages. Do you have AAA or another motor club? Then you might not need Towing & Labor or Roadside Assistance on your auto policy. Do you have an extra car, such as a pickup truck that you use occasionally, or a sports car that you drive on weekends? If you do, then if your car is in the shop because of an accident, would you want to rent a car, or would you drive your extra car? If you would drive the extra car, then you might not need Rental Reimbursement.
Another way to reduce costs is to remove Comprehensive and Collision from older cars that are paid off. This is the coverage that will pay to repair or replace your car if you have an accident or if it is damaged by a falling tree, flood, or something else. So why remove the coverage? You might be paying more for the coverage than the car is worth. If you have an older car that's only worth, say, $1,000, and you pay $1,500 over three years, you would have been better off without the coverage.
If you can't afford to remove the coverage, try raising your deductible. It can reduce the cost, but still provide coverage for severe accidents. As a general rule, the higher the deductible, the lower the rate. Your deductible should be as high as you can afford to pay if you have an accident, without putting yourself in a financial hardship position.
And be sure your agent tells you all the discounts you might qualify for, such as multi-policy discounts if you insure your home with the same company as your cars.
7. Be Safe Out There!
Finally, the one we all know: Drive safely, and your rates will go down. Drive dangerously, and your rates could go up 40% or more when you have an accident. Insurance companies charge more for people who have accidents. And that's the way it should be, right? After all, if you drive carefully, don't you think you should pay less than someone who drives more recklessly?
