I know, it’s not very likely you check out auto insurance policies on a Saturday morning for fun. In fact, you might struggle to come up with any topic that’s less interesting.
But, interesting or not, if you drive a car, you have to have insurance. And you want to know the ins and outs of getting the best coverage (for the best price). So before you pick your next plan, check this breakdown of what you need to know.
Pick Your Coverage, Then Your Cost
Of course you know it’s illegal to drive without insurance, but many people don’t realize that it’s dangerous (and costly!) to drive with bad auto insurance, too. Companies that throw around the cheapest rates may be quoting you a bare bones policy that won’t help you when you need it most. They also aren’t likely to settle your claim with the attention you need after an accident.
While it might seem counterintuitive to your savings goals, don’t go with the cheapest policy out there. Instead, shop your rates with a local broker or large agency like Nationwide or State Farm, and go with the one that gives you great customer service along with the right price.
Liability or Full Coverage?
Before you compare rates, make sure you know what type of coverage you want: liability or full. Liability, the cheapest policy type, won’t repair your car if it’s damaged or totaled—it only covers the driver and property you hit. But, if your car is more than 10 years old (or has over 100,000 miles) or you’ve paid it off in full (or you can afford to buy a new one if it’s totaled), liability coverage is your best bet. You can put the money you save on lower premiums into a high-interest savings account for the next car you’ll want or need.
If your car is newer, you’re still making payments on it (or leasing), or you wouldn’t be able to afford a new car were something to happen, then you need full coverage. There are two types of full coverage: collision and comprehensive. Collision coverage will have your covered to repair your car if you hit someone or something—like another vehicle, garage door, or tree. Comprehensive coverage will cover you no matter what, which means you’re also insured if something hits you, like an animal, tree limb, or flying debris.
Your Liability Limits
When you’re comparing quotes, you’ll also want to check that they all have the same liability limits. The liability limit is the maximum amount your insurance will pay out in damages. First, find out from your local DMV what the minimum liability limits are for your state. Then, even if the limits are lower than $100K for bodily injury per person ($300K for all persons) and $100K for property damage, I recommend you set these numbers as the minimum limits on your policy. Choosing a limit that’s too low can leave you vulnerable to lawsuits and large payouts if you’re at fault in an accident, or even personal bankruptcy (I’ve seen it happen).
Check Your Deductibles
Your deductible is the flat amount you pay if you get into an accident (or file a claim for any other reason, such as having your car hit by a deer), which you pay out before your insurance kicks in. Having a high deductible will lower your premiums, but be careful not to raise it too high if you don’t have an emergency fund on hand. Most people are comfortable with a $500 deductible, but you can have one as low as $0 or $100 depending on the carrier and what you can afford.
Also, a note for future reference: It’s not a good idea to file a claim for something that costs very close to your deductible, because you’ll end up with a mark on your record and you still won’t waive much. For instance, if your passenger door gets scratched and needs a $600 paint job, and you have a $500 deductible—don’t file a claim. You’ll still have to cough up the $500 anyway when you file the claim, and if another, larger one comes in soon after, you could be subject to higher rates at your next renewal.
Lastly, always check with your insurance company for accident forgiveness programs or accident-free good driver discounts before filing a claim. If you can live with the damage or pay for it out-of-pocket, it might be worth not filing that claim to keep from losing those discounts!
Things like towing and rental car reimbursement might seem like unnecessary extras, but they’re actually pretty inexpensive (typically around $20 every six months), and they’re excellent resources when your car breaks down and you need a ride to work or the repair shop.
That said, this insurance may only cover a rental car or towing up to a certain dollar amount. Ask your provider about their preferred vendors, who might be able to give you a deal and reduce the amount you pay out of pocket.
Finally, keep in mind that most companies want all of your insurance business and often offer discounts if you bundle your auto insurance with home, renter’s, or life insurance. Check back soon for more tips on how to save on these other important insurance policy must-haves!
Photo courtesy of Meghan.
TopicsMoney , Personal Finance , Tools & Skills , Smart Money Moves by Kristen Cox , Commuting , Insurance , Negotiation & Money
Kristen is a budgeting guru who loves to save money more than she loves to spend money! Her friends call her thrifty, but she knows she has all the right money moves. After studying abroad and seeing how little others live on and taking a job working with poor communities’ financial needs, she realized how important financial decisions are for young people to start making now. Tune in to her column to see how you too can be a money maker!More from this Author