Personal Finance Essentials
Auto Insurance
Property and Casualty Insurance > Auto Insurance
If you own a car, you have auto insurance.
Each time your policy renews, your insurer sends you a declaration page – the most important document in that packet. The declaration page identifies the coverage you have and how much you pay for it. Understanding what it contains and what each type of coverage actually does is essential to making sure you have the right protection.
Your Declaration Page
The declaration page contains the core details of your policy. It lists the insured – the person named on the policy – and coverage is typically extended to family members who are members of the household. It also includes the driver’s license number of each driver listed, since insurance companies will investigate the driving record of each driver before quoting rates. Additional items on the declaration page include the name of the insurance company, the type of vehicle, the vehicle identification number (VIN), the policy number, and the contact information for both the agent and the agency.
If a teenage driver who is not listed as one of the insureds has an accident, in most states the insurance company is likely to rebill the insured for the extra costs associated with the teenage driver, settle the claim and then cancel the policy. This is why it’s critical to list all drivers in the household, even occasional ones.
Understanding Your Coverage Options
Auto insurance policies include several different types of coverage, and understanding each one helps you decide what to keep, what to adjust and what may be unnecessary given your other policies.
Liability coverage is the maximum amount the policy will pay to cover medical bills for people you hurt with your vehicle. It is quoted three ways: the maximum payable to any one person, the maximum payable for all medical claims combined and the maximum payable for property damage claims. Note that liability protection does not cover the medical claims of your own immediate family members if they are hurt in an accident.
Collision coverage pays for damage to your car when it is moving.
Comprehensive coverage – also known as Other Than Collision – pays for damage to your vehicle when the car is stationary. Common causes covered under comprehensive include vandalism, theft, earthquake, water, hail and windstorm.
Medical coverage under an auto policy covers only expenses associated with auto accidents. Most policies offer less than $10,000 in medical coverage. If you already have an excellent health insurance policy, this coverage may be unnecessary. Dropping it can lower your premium or allow you to put that money toward more important coverage elsewhere.
Personal Injury Protection, or PIP, includes both disability coverage and the medical coverage described above. If you already have strong disability and health insurance, you may be able to drop PIP, though some states require that you carry it. Check your state’s requirements before making any changes.
Uninsured motorist coverage pays your medical bills if an uninsured driver injures you or a passenger in your car. It also pays for damage to your vehicle. While your health insurance would cover your medical bills and your collision coverage would pay for vehicle damage, uninsured motorist coverage goes a step further: it also compensates you for pain and suffering, which neither health insurance nor collision coverage provides.
Ways to Lower Your Auto Insurance Premium
There are a number of strategies that can meaningfully reduce what you pay for auto insurance each year. Before dropping any coverage, talk to your agent and explain your reasoning. A good agent will tell you if there’s a valid concern and may be able to offer alternatives you haven’t considered.
If your car is worth less than $3,000 and is paid off, consider dropping both collision and comprehensive coverage. If the car is worth only a couple of thousand dollars, it may not be worth paying $100 or more per year to protect against the chance it gets totaled.
Increase your deductibles. Paying the first $500 or $1,000 of any loss instead of $100 or $250 can cut your premiums by 10% to 20% per year.
When shopping for your next car, consider the cost to insure it. Sports cars and convertibles are more expensive to insure. Cars with anti-lock brakes, airbags, anti-theft devices and automatic seat belts cost less. Vehicles that are cheaper to repair are also cheaper to insure.
Drive safely. Each traffic ticket or accident will increase your premiums for five years.
Ask your insurance company if they offer a discount for completing a defensive driving class. If they do, take the class.
The number of miles you drive each year affects your premium, and insurers note the distance between your home and your office. Living close to work – or not driving to work at all – can lower your rate.
If your family insures more than one car, use one insurance company to get a multi-car discount.
Insuring your cars with the same company that covers your home can earn you an additional discount.
Insuring your cars with the same company that covers your home can earn you an additional discount.
Pay your premium with one annual payment instead of monthly, quarterly or semi-annual installments. Paying in full can save you a meaningful amount.
Comparison shop. Rates for identical coverage can vary by more than 300%. Get quotes from at least three different companies. Companies use dozens of variables to calculate your rate, and some will even reduce it if you don’t smoke or drink.
Visiting an agent’s office in person – rather than getting a quote online or by phone – can sometimes result in a more competitive rate. Before the appointment, wash the car and dress professionally.
If you change where you garage your car, tell your insurance company. This can affect your rate and failing to report the change could result in your policy being cancelled.