Owning or leasing a car has become an expensive proposition, especially when you take into account the climbing cost of gas and vehicle maintenance. There’s also, in many cases, a monthly car payment (or lease payment) to consider, plus the cost of insurance. Sure, you can cut corners when obtaining car insurance, by raising your deductibles and lowering your coverage limits, but these days, even the most minor fender-bender, when no injuries occur, can result in thousands of dollars in repair bills, which could become an out-of-pocket expense if you’re not properly insured.
According to the United States Department of Transportation’s National Highway Traffic Safety Administration, there were nearly 6.5 million auto accidents in the United States in 2005. The financial cost of these crashes was more than $230 billion. Thus, if you’re trying to reestablish your financial independence after a divorce, chances are you have little money available to afford unexpected automotive expenses, medical bills or potential lawsuits resulting from an auto accident. The expenses associated with a moderate to serious car accident, plus the loss of your vehicle while it’s being repaired, could potentially result in financial devastation unless you have adequate automotive insurance in place to protect you.
TYPES OF AUTOMOTIVE INSURANCE WORTH HAVING
In general, automotive insurance protects against losses involving motor vehicles. A comprehensive auto insurance policy will include several types of coverage. These basic types of coverage (some of which are optional) include:
- Bodily injury liability: This coverage pays your legal defense costs and claims against you if your vehicle is involved in an accident that causes injury or death.
- Property damage liability: If your vehicle damages someone else’s property, this coverage pays your legal defense costs and claims against you. It does not, however, cover damage to your own property or vehicle.
- Medical payments and personal injury protection: This type of coverage pays medical expenses (as well as related expenses) for you and any passengers in your vehicle if an accident occurs that results in injuries.
- Collision: If your vehicle is involved in an accident, this type of coverage pays for damages to your vehicle.
- Comprehensive physical damage: Damage to your vehicle as a result of theft, fire, hail, wind, flood, vandalism, falling objects and various other causes (excluding collisions) are covered by this type of insurance.
- Uninsured and underinsured motorist: If you’re involved in an accident and the other motorist is uninsured or under-insured, or if you’re involved in a hit-and-run collision that results in injuries or property damage, this type of insurance pays for any resulting costs.
It’s important to understand that all auto insurance policies are different. The policy will specifically state what coverage is included, plus list deductibles for each type of coverage, as well as maximum benefits. A deductible is the amount of money the holder of the insurance policy must pay out-of-pocket, before the insurance company pays the remainder of a covered loss, up to the specified coverage limits. A deductible can be anywhere from zero to $1,500 or higher. The higher your deductible, the lower your annual premium (the amount of money you’ll pay for your insurance coverage) will be. The maximum benefit is a pre-determined dollar amount that represents the highest amount the insurance company will pay per incident. The higher your maximum benefits, the higher your premium will be. The types and levels of coverage you’re required to maintain for your automobile vary by state. If you’re leasing a vehicle, the leasing company will also dictate the minimum levels of insurance you must maintain, which are often higher than state levels.
HOW YOUR INSURANCE PREMIUMS ARE CALCULATED
Every auto insurance policy is different and many factors go into determining the cost of your annual premium. Especially if you’re on a tight budget, you’ll want to shop around for the best insurance deals, but at the same time, not compromise the level of coverage you need to protect yourself and your finances. Some of the criteria taken into account when calculating your annual premium include:
- How much you drive
- Your past driving record (Speeding tickets, past accidents, and other violations will increase your insurance premiums)
- The make, model, and year of your vehicle
- Where you live
- Your age, sex, and marital status
- Your desired deductibles
- Your occupation
- The types of coverage and the level of coverage
- The optional coverage and benefits you select (such as rental car coverage, umbrella liability coverage, and emergency road service)
- Discounts offered by the insurance company
“Once you’ve met your state’s requirements for minimum coverages, sit down with your insurance provider to determine if higher coverage limits are important to you, based on your personal financial situation. I recommend sitting down with a licensed insurance agent who will be able to go over your personal needs,” said Chris Cunnif, vice president and product manager of automotive insurance at Liberty Mutual Insurance Company.
“When choosing your deductibles,” Cunnif added, “It depends on a consumer’s financial situation and their ability to cover out-of-pocket expenses in the event of an accident. Given that most people are involved in an auto accident only once every 10 years, you might not want to pay $200 or so extra per year for a $250 deductible and settle for a less costly $500 deductible, for example. If you want to keep your insurance costs down, maintain a favorable driving record, meaning no accidents or moving violations. This is the number one factor that causes someone’s annual auto insurance premiums to go up.”
Often, auto insurance companies offer discounts for a multitude of reasons, but you sometimes have to ask for them. If you’re insuring multiple vehicles under the same policy, you’re entitled to a multi-vehicle discount. If your vehicle has an alarm system, this too will save you money on insurance. A good driving record, maintaining good grades in school (if you’re a student), if you drive less than a specific number of miles per year, non-smokers, and carpoolers are also often entitled to discounts.
SHOPPING FOR THE BEST AUTO INSURANCE RATES
To find the best auto insurance deals, contact several insurance providers or brokers. Obtain a referral from a friend or co-worker, or check with companies like Amica Mutual, American International Group (AIG) Insurance, Allstate Insurance, GEICO Car Insurance, Liberty Mutual Insurance, MetLife, Nationwide Insurance, Progressive Auto Insurance, or State Farm Insurance.
Obtaining an accurate and reliable quote will typically require you to spend between 15 and 20 minutes on the phone or in-person with each insurance provider. However, by completing a short, online-based questionnaire, you can compare policies offered by multiple insurance companies at once by visiting one of the following websites: Esurance.com, InsureOne.com, LowerMyBills.com, or NetQuote.com.
Cunnif explained, “There are a number of factors to consider when choosing which insurance company to do business with, including the price, coverage, and options being offered. The ease of doing business with the insurance company is also worth considering. Can you interact with the company in-person, over the telephone, and/or via the Internet? Can you reach the customer service department or file a claim only during business hours or 24 hours per day, seven days per week? I recommend looking at an insurance company’s overall customer satisfaction rating and the financial strength of the company.”
You can research specific insurance companies and see how they rate in a variety of categories by visiting the J.D. Power and Associates website.
