You wouldn’t want to start driving your car without your seatbelt in place, checking your mirrors, turning on your lights, and putting down your phone. Likewise, it’s just as important to have the proper protection in place in the form of an automobile insurance policy. In fact, almost every state in the country requires that you carry a minimum level of auto insurance coverage.
But having necessary coverage intact doesn’t mean you will pay an arm and a leg in premiums. By doing your homework, getting quotes from several different carriers, determining the coverages and coverage limits you need, and qualifying for discounts, you can pay a lot less for car insurance than you’d expect.
Why it’s worth it to shop around carefully for automobile insurance
Fact is, you’re going to need auto insurance. That’s because nearly every state nowadays mandates drivers to have a policy that at least provides bodily injury liability and property liability coverage.
“For example, in Massachusetts, car owners must have a 20/40/5 plan – that means coverage up to $20,000 per individual injured, $40,000 for all persons injured, and $5,000 for property damage, along with $8,000 in personal injury protection,” explains David Griffin Jr., senior vice president for The Dowd Agencies in Holyoke, Massachusetts.
But by doing your proper due diligence, you can save big money on premiums without sacrificing insurance protection.
“Auto insurance is the most competitive insurance product in the marketplace. That’s why you see more television ads for car insurance than any other consumer product,” says Mark Friedlander, director of Corporate Communications for the Insurance Information Institute in St. Johns, Florida. “Comparison-shopping when seeking insurance coverage is time well spent, as premiums can vary by hundreds of dollars between carriers – depending on numerous factors.”
What’s more, having adequate auto insurance coverage is prudent to ensure you and your family are financially protected from a catastrophic loss.
“We have seen many drivers and their families financially ruined following an at-fault accident because they did not have enough car insurance coverage,” Friedlander adds.
Bryon Bromley, a former insurance adjuster and owner of AdjustYourDrive.com, agrees that consumer due diligence pays off.
“Insurance rates are highly individualized and depend on your driving history, vehicle, location, and other factors. Really the only way to know if you are getting a good price is to get premium quotes from several companies and compare apples-to-apples coverage,” Bromley says.
Types of coverage
At the very least, you will likely be required to have two critical coverages in place on your automobile insurance policy: bodily injury liability and property liability coverage. Of course, these aren’t the only protections that can be included in a policy. Take the time to learn about different recommended coverages.
Bodily injury liability coverage
Bodily injury liability coverage protects against costs associated with injuries or death that you or another driver causes while driving your vehicle.
Property damage liability coverage
Property damage liability coverage reimburses other people for damage that you or another driver operating your vehicle causes to another automobile or other property, including a building, utility pole, or fence.
Collision coverage safeguards against damage to your car resulting from a collision with an object – such as a mailbox, guardrail, or telephone pole – or due to flipping over. It reimburses you for the costs of repairing your car minus your deductible.
Comprehensive coverage kicks in when damage to your vehicle occurs that is caused by losses other than collisions, such as vandalism, falling trees, fire, floods, theft, or severe weather events. “It also covers cracked windshields and if you strike an animal on the road,” Friedlander notes.
Uninsured motorist bodily injury (UMBI) coverage
UMBI coverage helps pay for medical bills if you and your passengers are involved in an accident caused by an uninsured motorist.
“Additionally, UMBI coverage will reimburse you and your passengers for lost wages or if, as a pedestrian, you are hit by an uninsured driver or are the victim of a hit-and-run accident,” continues Friedlander.
Uninsured motorist property damage (UMPD) coverage
Bodily injuries are covered by UMBI coverage, but it will not protect against damage to your car or property. For this peace of mind, you need UMPD coverage. It will pay for damages to your automobile caused by an uninsured driver as well as damage to other personal property like your house or your fence (although UMPD is not offered in every state).
Underinsured motorist (UIM) coverage
UIM coverage will take care of a shortfall if the other at-fault driver’s liability insurance does not cover the full extent of damage to your vehicle.
Personal injury protection/medical payments coverage
Personal injury protection coverage provides reimbursement for medical expenses when you or your passengers are injured; lost wages and other related expenses are also covered.
Recommended auto insurance coverage levels
Every state has different rules for minimum auto insurance coverages required. But for best financial protection, the Insurance Information Institute recommends carrying at least $100,000 of bodily injury liability per person, $300,000 of bodily injury liability coverage per accident, and $50,000 of property damage liability per accident, as well as optional comprehensive and collision coverage (approximately four in five American drivers carry comprehensive and collision coverage). Many full-coverage policies also include uninsured/underinsured coverage.
If in doubt about which standard coverages you need, consult closely with an automobile insurance agent and ask questions about anything you don’t understand.
Optional car insurance coverages
These aren’t the only coverages available to policyholders. Your insurer may also offer optional protections worth considering.
Roadside assistance coverage
If offered, roadside assistance can provide an array of valuable services in an emergency, such as flat tire change, dead battery charge, towing your vehicle home or to a repair shop, fuel fill-up, dead key fob battery replacement, and lockout service. Some carriers include roadside assistance at no extra cost, while others charge extra for this perk.
Gap insurance coverage
If you are leasing your vehicle or financing it with a long-term loan, gap insurance is a worthy consideration. “This covers the gap between what you owe on your vehicle and what it is worth at the time of a loss,” says Griffin.
Non-owner car insurance coverage
Say you drive but don’t own a vehicle. In this case, a non-owner insurance policy provides liability coverage for bodily injury and property damage you caused. However, it won’t cover damages to your car or your own injuries incurred after an accident.
“The biggest thing people don’t realize about non-owner policies is that they rarely take precedent over a policy in place by the vehicle owner,” notes Bromley.
Accident forgiveness coverage
Many national and regional carriers offer accident forgiveness, which prevents your insurance premium from increasing after an initial at-fault accident.
Umbrella insurance coverage
An umbrella policy is initiated when you reach the limit on the underlying liability coverage of your auto, homeowners, renters, or co-op/condo policy. In other words, it usually covers the gap between the cost of a claim and what your carrier will pay. Umbrella policies typically start at $1 million in coverage.
Rental reimbursement coverage
Rental reimbursement coverage helps you cover transportation expenses, like a rental car or public transportation fare, if your automobile is being fixed after a covered insurance claim. “It also covers you regardless of who was at fault in the accident,” Friedlander points out.
It’s common to suffer windshield damage after a collision, which is where optional glass coverage comes in handy. “Some auto policies provide no-deductible glass coverage, which also includes side windows, rear windows, and glass sunroofs,” adds Friedlander. “Or, you can purchase supplemental glass coverage.”
Don’t drive that many miles to work or elsewhere? Want to get credit for following safe driving habits? Consider usage-based coverage to reap significant savings on your auto policy.
“Many national and regional carriers offer pay-as-you-drive programs, which can generate premium discounts by allowing the insurer to monitor how much you drive as well as your driving habits through a mobile app or a device installed in your vehicle,” Friedlander continues.
Recommended deductibles for auto insurance
It’s essential to choose the right level of deductible for your needs. The lower your deductible, the higher your premium; the higher your deductible, the lower your premium.
The Insurance Information Institute recommends a deductible of either $250 or $500 for collision and comprehensive coverages.
“But if you can afford to pay more out of pocket after suffering a loss, you can increase these deductibles to $1,000 or more, which will significantly reduce your premium on these two optional coverages,” Friedlander suggests. “There is no deductible on your liability coverages.”
How to choose am insurance carrier for your automobile
When shopping around for auto insurance, it’s essential to vet each company you consider. You’ll want to ensure that the carrier is financially stable by checking for ratings with companies like AM Best and Standard & Poor’s. The Insurance Information Institute advises choosing an insurer with a financial strength rating of either A+ or A++ (superior) or A or A- (excellent).
“Try to get quotes from different insurance companies,” recommends Friedlander. “Some insurers sell through their own exclusive agents, and these agencies have the same name as the insurance company. Others sell through independent agents who offer policies from several different national and regional carriers. Then there are some that sell directly to consumers over the phone or online, such as Progressive and Geico. There are also numerous auto insurance quoting websites where you can easily comparison-shop and get referrals to local agents in your area.”
Avoid shopping by price alone. Get referrals from friends and family, and contact your state’s Department of insurance to learn if they provide details on consumer complaints by company.
How to lower your car insurance costs
You can pay less out-of-pocket for insurance coverage by qualifying for specific discounts and following best practices. Here’s what the experts recommend:
- Crunch insurance costs prior to buying a car. Learn what you can expect to pay in insurance premiums before committing to a new or used vehicle purchase.
- Bundle policies. By purchasing two or more types of insurance from the same carrier, like auto and home, you may be charged less for each policy – up to 25% less, per Friedlander.
- Increase your deductible. “By upping your deductible from $250 to $500, you can reduce your collision and comprehensive coverage cost by 15% to 30%, while increasing to a $1,000 deductible can save you 40% or more,” Friedlander points out.
- Decrease coverage on older automobiles. Ponder eliminating collision and/or comprehensive coverages on older cars. If your vehicle is worth less than 10 times the premium, purchasing optional coverages may not be cost-effective.
- Maintain a good credit rating. “Many people don’t realize that bad credit impacts car insurance rates,” says Andrea Woroch, a personal finance expert. “Drivers with very poor credit scores – under 580 – pay an average of $2,895 a year for car insurance on a national level, while drivers with exceptional credit scores – between 800 and 850 – pay just $1,349 per year, on average, even if they have the same driving record.”
- Choose a preferred payment option. “For instance, opting for an electronic funds transfer or upfront payments can reduce your premium,” says Griffin.
- Ask about low mileage discounts and usage-based/telematics programs you may be eligible for.
- Maintain a safe and clean driving record, with no accidents or moving violations for the past three years.
- Equip your vehicle with antitheft devices, and park in a garage.
Erik J. Martin is a freelance personal finance contributor for CompareOffers.com. His articles have been featured in AARP, Reader's Digest, The Chicago Tribune, The Los Angeles Time and many other publications. He frequently writes on topics related to real estate, business, insurance and personal finance.