Savvy shopping for insurance requires a little more effort than many people tend to give it. Too many consumers simply grab the first price they come across or accept routine rate increases without returning to the market to shop for a better deal. It is important to compare not only the price but the coverage and exclusions among carriers. You don't want to find out after you file a claim that the new policy you purchased with the excellent premium does not include a type of coverage that you had with your previous carrier.
"It really pays to shop around," Dick Luedke, spokesperson for State Farm Insurance, told MSN Autos. "Premiums for exactly the same coverage can vary substantially from carrier to carrier."
Studies performed by Progressive Insurance between 1999 and 2004 reveal that six-month auto insurance rates vary significantly between companies, from an average low of $481 to an average high of $586 across the country.This means the same driver could receive a quote of $1,256 for a six-month auto insurance policy from one company and a quote of $775 for the identical policy from another company. Another Progressive study reveals that only 20 percent of survey respondents said they had shopped around for better insurance rates in the last six months.
"Call around a lot," suggested Scot McCartney, spokesperson for Independent Insurance Agents of America. "Don't always grab the first quote you get. Make several calls, ask the same questions and be sure to get quotes on exactly the same coverage from each carrier."
It Pays to Mix it Up
Call a couple of the larger carriers (State Farm, Allstate, Nationwide, SAFECO, etc.) and then check with a couple independent agents and phone-based carriers, such as GEICO or Amica, just to make sure you've covered your bases.
If you prefer to shop on the Internet, a number of services offer online price quotes. Web sites give you quick access to a number of quotes without ever picking up the phone. However, as convenient as they are, it's still advisable to consult other more traditional sources as well.
What to Look For
When buying auto insurance, it's important to consider not only the price, but also the carrier and the coverage. As with any product, the value of a low price is quickly forgotten when you find out that the service or the quality of the product is not what you expected.
The old saying, "It's too good to be true" applies for insurance premiums as well. If the premium seems too low, be sure that you are getting all the coverage you need.
Check out the agent you'll be working with, advises the California Department of Insurance. Do you know and trust them? Also look into the insurance carrier itself. Is it a well-known and established company? Does it have the financial strength to pay its claims?
You can obtain background and financial information on an insurance carrier from your state's department of insurance.
When talking with insurance agents, don't hesitate to ask a lot of questions. In addition to learning what coverage is offered and how much it costs, also ask about how claims are processed. Too often, people don't learn about the process until they have to make a claim. Knowing beforehand ensures you choose a carrier whose claim process is most convenient and appealing to you.
Don't forget to ask friends, neighbors and family who they are insured with and whether they like the service they receive. Often, they can provide personal examples of what went wrong and what went well when they had to file a claim.
Factors Influencing Rates
If your current rates seem particularly high (or low), you might want to know why. Indeed, if your rates (or quotes) are high, altering your lifestyle or vehicle choice can have a big effect on the rates you pay.
While criteria may vary slightly from carrier to carrier, according to State Farm's Luedke, the major determining factors fall into four basic areas:
- You. Your age, gender, marital status, driving record, and record of prior claims play a major role in determining your risk level and therefore the premium you will pay. Traditionally, males under 25 years of age represent the highest risk, while married, middle-aged, non-smoking mothers represent the lowest.
- Where you live. Living in an urban area typically triggers higher rates due to increased incidence of theft and accident claims—both of which are statistically higher in and around cities.
- Your vehicle. The type of vehicle you drive greatly affects the rates you pay. Vehicles that have a high frequency of claims (sports cars) or are expensive to repair (luxury cars, SUVs) are prone to higher premiums. However, larger vehicles tend to be safer in collisions, which sometimes offsets costs.
- How you use your vehicle. Statistically, the more miles you drive, the greater chance you have of being involved in a crash. High annual mileage will result in higher premiums.
Another way to reduce your premium is to increase the amount you self-insure by increasing the deductible amounts on the property damage coverage for your own vehicle. These deductible amounts on your comprehensive and collision coverages may be limited if you have the vehicle leased or financed, so check your financing contract before raising your deductibles too high.
Deciphering the Code
Once you've begun researching insurance coverage, it won't be long before you come across liability limits displayed in an X/Y/Z form. These are the maximum limits of coverage for bodily injury or property damage that you become legally responsible for.
For example, 100/300/50 means you're covered for a maximum of $100,000 bodily injury per person, $300,000 bodily injury per incident, and $50,000 property damage per incident.
You may also see the liability limit stated as a single amount, called a combined single limit. This limit is the total amount available for a single occurrence, without per person or property damage sub-limits. The advantage of a combined single limit is that if there are only minor injuries but considerable property damage, the total liability limit, not just the sub-limit amount, is available to satisfy a property damage claim. Conversely, if one person is injured severely, the entire liability limit is available to satisfy a claim by that one person, rather than just the per-person limit.
When setting your limits, make sure to set them high enough to protect yourself against possible lawsuits. The more assets and income you have, or the more earning potential you have, the higher liability limits you should consider. If you become legally responsible for bodily injuries or property damage in excess of the liability limits of your policy, your personal assets or future earnings may be required to satisfy your obligation.
Types of Coverage
Shopping for auto insurance involves more than simply calling an agent and asking for a quote. To get the most out of your insurance requires that you first fully understand what risk you want to protect against and how best to shift that risk using the various types of insurance coverage.
Here are some major types of insurance coverage you should be familiar with. This section is intended as a general description of the definitions typically used in a personal auto policy. For specific definitions and coverages, you should always refer to your current policy or the policy that you are considering.
Collision—The portion of the policy that pays for the damage to your car caused by a crash, regardless of responsibility. If another party is responsible for the damage to your car, the insurance carrier will pursue the other party on your behalf and collect payment for the repairs from the other party's insurance carrier or the party directly. The maximum amount of collision protection is usually limited by the depreciated value of your car (which is not the same as the replacement cost). Collision insurance is usually required by a lending institution if the vehicle is financed or leased.
Comprehensive—The portion of the policy that pays for damage to the vehicle caused by non-crash events such as theft, vandalism, acts of God, striking an animal, storms, etc.
Medical — This coverage pays the initial medical bills for you, members of your family and passengers in your car. If the cost of medical treatment exceeds the medical coverage limit, non-family passengers in your car can obtain compensation from your liability coverage, but you or your family members would not be covered by your own liability coverage. You or family members could look to other medical insurance for additional coverage. It also covers you and those in your household if you're a passenger in a car involved in a crash, or if you're a pedestrian struck by a car.
Liability — This coverage pays for bodily injury or property damage that you become legally responsible for as a result of driving your vehicle. Family members living with you who are listed with the insurance company as drivers on your policy and anyone driving your car with your permission will be covered by the liability coverage for injuries or property damage that you or they become legally responsible for while driving your vehicle. Your liability coverage will not pay for injuries to your own family members in the car, which will be covered by medical coverage described above.
Uninsured Motorist — This covers your property damage and personal injury in the event you're hit by an uninsured motorist. It also covers hit-and-run crashes and is required by many states.
Underinsured Motorist — This covers your property damage and personal injury caused by another party, when the amount of damage exceeds the other party's liability limits. This coverage will pick up after the other party's liability limit is exhausted.
Umbrella — If you also have homeowner's liability coverage, you may want to consider a personal liability umbrella. The umbrella will pick up bodily injury or property damage amounts that you become legally responsible for, above the policy limit of the underlying personal auto policy, up to the umbrella limit. The premium for this additional coverage is typically only a fraction of the cost of the personal auto policy and also provides additional liability coverage above the liability limits of the underlying homeowner's policy.
Gap Insurance — This coverage provides for the difference between the amount paid under collision or comprehensive coverage to cover a total loss and the amount to pay off the lease or finance contract balance on the vehicle. Many lease or finance contracts include this coverage, but if yours does not you should consider including the coverage on your auto policy. If the payoff amount on the vehicle is more than the payout under your comprehensive or collision coverage and you don't have gap coverage, you will be responsible for the difference.
Other Optional Coverage—This can include emergency towing or repairs while on the road and rental car reimbursement when your car is being repaired.
A number of states have no-fault insurance provisions. In no-fault states, the insurance company covers a client's personal injury claims regardless of who was at fault in the crash. However, victims can still sue the other party under certain conditions.
No-fault programs are intended to reduce the costs of auto insurance by reducing claims and litigation.
Not everyone has a squeaky clean driving record. A history of too many tickets, crashes, or insurance claims can make it difficult to obtain coverage. In some cases, major carriers may actually refuse coverage, having determined that such drivers represent too great an insurance risk.
However, this does not mean coverage is not available. On the contrary, most states require personal liability coverage, so high-risk drivers are actually guaranteed coverage. Even if a larger carrier may refuse them coverage, select high-risk insurers must accept them.
When obtaining your insurance through a non-standard insurer, look into factors such as customer service, time to process claims, and payment of claims. Just because you're a high-risk client doesn't mean you should accept poor service.
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