The Complete and Comprehensive Auto Insurance Buyers Guide
You are tired of finding articles online that dabble in the subject of car insurance and provide little more than super obvious tips that you could have thought of yourself. You want a complete and comprehensive auto insurance buyers guide to walk you through the fundamentals and to help you figure out how to apply theory to practice.
In short, you don’t want just another summary of tips or “tricks and traps.” You want a clear and clean methodological approach to getting the right insurance for the right price — and making sure that you stay on track once you figured out your “best policy” scenario.
This article obviously can’t delve too deep into all aspects of insurance, as you would literally need a 300 to 500 page manual to answer all of the questions floating about in your head. But hopefully it can be a solid primer to get you thinking in a strategic and smart way — and be able to cut through the noise and nonsense that constitutes most of the web content on this subject.
Auto Insurance Buyers Guide Part I: The Basics
According to theorists, auto insurance consists of five critical components. Each can play a critical role in your protection, and each can be optimized (made best) using different tactics.
1. Liability — Bodily Injury and Property Damage (BI/PD)
Bodily injury and property damage liability protects you if you are at-fault in an accident that damages property or hurts another person. Property damage might include damage to vehicles as well as damage to things like a mailbox or a prized rosebush. Injury to other people includes everything from whiplash to traumatic brain injury. Almost all states have mandatory minimum BI/PD coverage. And almost all of these mandatory minimum requirements are considered by experts to be way too low to be useful. You really need to get enough liability coverage to protect yourself. After all, say you get in a terrible collision and you cause serious injury to someone — something on the order of $200,000 or $300,000 worth of medical bills — no state’s minimum requirements would be enough, and you would have to pay a lot of that money out of pocket. (A bonus to getting extra BI/PD coverage: you can potentially qualify for what’s known as a better coverage discount, which can net you savings of around 5%).
2. Collision Coverage
This coverage pays for damage to your car caused by a collision. This could be a collision with another car or a piece of property such as a telephone pole or a sign. This coverage includes a deductible, and your lender or financer may actually require you that you get it. Collision protects you from hit and runs and from encounters with uninsured motorists.
3. Comprehensive (Also Referred to as Other Than Collision or “OTC”)
Beyond collisions, windstorms, vandalism, fire, theft, and dozens of other things can impact your car. Together with collision, OTC and collision coverage together are known as “physical damage” coverage, and both coverages usually include a deductible.
4. Uninsured Motorist Coverage (UM)
In an ideal world, everyone on the road would have insurance. But we do not live in an ideal world. If you take a look at Insurance Research Council statistics, which measures state by state uninsurance rates, the numbers will make your jaw drop. In some states, the rate of uninsured drivers out there approaches 25% — one out of every four cars on the road! To protect yourself, get uninsured motorist (UM) and/or underinsured motorist (UIM) coverage, so that if an uninsured or underinsured driver hits you, you will have money to pay for the damages.
5. Medical Payments Coverage
This coverage pays reasonable medical expenses incurred by you or a passenger in an accident. There is a per person limit expressed in a dollar amount (e.g. $5,000). Your insurance agent can help you figure out the specifics on this coverage.
After you get into an accident, these five coverages work together to help restore you and make you whole. Depending on where you live, many of the five coverages above may be mandatory. Others — especially UM and UIM coverage — should almost certainly be considered.
Auto Insurance Buyers Guide Part II: The “Who” Factor
Your auto insurance needs will be determined in large part by the answer to this question: Who needs to be covered by my policy? Specifically:
Who in your household may drive your car? Who in your household will drive another car? Will people who are not in your household drive your car?
This cannot be overstated: Your coverage needs to apply to everyone who may need it. In other words, people are in some sense “more important” than cars. The reason why you get high liability limits, uninsured motorist coverage, and medical payments coverage is that these coverages help people. They protect you financially in the event of bad and worse case scenarios.
Auto Insurance Buyers Guide Part III: What About your Car?
Most would agree that the loss of an auto would cause a major burden. But without comprehensive or collision, you would be solely responsible for repairing/replacing your vehicle. Should you get these coverages or not?
The answer is actually pretty easy to calculate. Just ask yourself — if I got into a car accident and lost the use of my vehicle, would I be able to pay out of pocket for a replacement? Most people can’t simply buy another car if their car becomes unusable. Thus, some form of collision or comprehensive should be included. These coverages give you funds to replace or repair your car, and they may also include coverage for rentals, towing, and “gap coverage.”
Auto Insurance Buyers Guide Part IV: What Drives Cost?
Insurance is about risk management. To that end, the less “risky” you can make yourself appear, the better deal you are likely to get. Factors that can influence your perceived risk include:
- Your driving record and the driving records of other people in your household
- The make, model, and type of the vehicles you drive
- Where you drive and garage your vehicles
- The amount of mileage you drive annually on average
- Your credit score
- The age and marital status of the drivers
- The coverage limits and the deductibles you choose
- Your claims history
Some of these factors may be way beyond your control. Others — if you address them property — can help you lower your premium and get more tailored coverage.
Auto Insurance Buyers Guide Part V: How Can I Save Money?
Obviously, ideally you want to get the best coverage for the least amount of money. This is common sense — basic economics. And you might be surprised at the options out there that can help you really cut down on the amount of money you spend. Consider:
- Take a defensive drivers course. In some areas, this can save you as much as 10% on your premium.
- Look for discounts through associations or groups that you belong to.
- If you are a good student (A or B average) at a high school or college, you can get a good student discount that can be worth 10% savings.
- Monitor your credit report. Check it for errors, contest errors if you see them, and vigorously and methodically work to keep that score high. Your premiums will be tied to it, and the higher your credit score, the lower your premiums will be, at least in theory.
- Strive to be a claims and accident free driver — if you haven’t gotten a citation or gotten into an accident in three years, you may qualify for a discount.
- Raise your deductible — higher deductibles can lower your premiums, sometimes significantly. Just make sure you have the funds available to pay out of pocket for your deductible.
- Look for “multiline discounts” — if you purchase auto and homeowners insurance from the same carrier, for instance, this can qualify you for a significant discount — somewhere from 25% to 50%, depending on circumstances.
This guide obviously only scratches the surface. The factors discussed above will dynamically change over time as you buy, sell, and lease vehicles, add teenage drivers to your policy, move, get into accidents, change your credit score, and so forth.
The ultimate solution here is to think of this as a process and not a one-time obligation. This isn’t to say you should spend every week trying to hunt down ways to maximize your coverage. But make the optimizing of your coverage an ongoing project. Remind yourself at least once a year to thoroughly review your coverage with your agent’s help. This may all sound like a lot of work, but it really is worth it. Remember, the savings you can net from a regular purging and cleaning of your coverages can add up to hundreds (if not thousands) of dollars a year.
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