Anyone who has ever owned a vehicle knows that automobile insurance is expensive, and that the yearly costs of auto insurance only seems to be rising. In fact, a survey conducted by the National Association of Insurance Commissioners, found that in 2014 the average consumer spent $982 a year towards car insurance (that includes liability, collision, and comprehensive coverages). This was an increase of 2.93% over the previous year. Understanding the ins and outs of auto insurance is the first step towards ensuring that you have the right coverage at the best price.
The cost of your individual coverage depends on many factors — factors that the insurance company calls risks. The lower risk you represent to the insurer, the lower your insurance will cost. The cost of your insurance will be impacted significantly by the type of car or truck you buy as well as other factors that you may have not considered. A few of the factors that impact your risk include:
- Safety features on your auto
- Crash test results for your auto
- Average repair cost for your auto
- The amount of miles you drive each month
- If in school, your grades may impact your cost
- Your age (younger drivers statistically have more accidents)
- Your gender (males typically have more accidents than females)
- Your geographic location
- Your driving record
- Your marital status
- How you use your vehicle
- The make and model of your vehicle
- Your claim history
Reducing the Cost of Your Auto Insurance
You may be able to significantly reduce your auto insurance coverage costs by taking advantage of discounts offered by insurers. Discounts are available to drivers who seem like better risks to insurance companies. Look for the following types of discounts when pricing your insurance needs:
- Insure all your vehicles with the same insurer
- Insure your home and car with the same insurer
- Consider purchasing your life insurance coverage and car insurance from the same company
- Take a driver’s education course
- If you’re a student, good grades can earn you a discount
- Buy a car with safety equipment like air bags, automatic seat belts, and antilock brakes
- Invest in anti-theft devices
- Keep your mileage low. The less you drive, the less risk you have of being in an accident
- Drive safely. A good driving record is your most valuable cost cutting opportunity
Finally, if you notice a steady increase or a significant jump in your payment, don’t be afraid to shop around. Sometimes the only way to reduce your premium is to find a different insurance company.
Because individual states set minimum insurance coverage requirements, some features of your auto insurance coverage will be based on your state of residence, but many features are the same across state lines. Here are a few coverage options you will have to consider:
- Liability Insurance: This coverage protects the owner against losses from legal liability arising from bodily injury or property damages caused by an accident. This coverage can be in one single amount for each accident, or it can be broken down and “split” such as $50,000/$100,000 /$25,000 (per person/per accident /per property damage.
- Medical Payment Coverage (MedPay): This provision covers medical and/or funeral expenses incurred though bodily injury to you, your family, or others riding in your or someone else’s vehicle, resulting from an auto accident. Although this coverage is not required by most states, looking at the coverage of your health insurance regarding accidents is helpful in identifying your needs. The coverage is generally $5,000 to $10,000 per person per accident, but can be as high as $25,000 depending on what coverage you are willing to pay for.
- Physical Damage Coverage: Unlike liability insurance which covers damage to another’s vehicle from the result of an accident, collision insurance covers damage that occurred to your vehicle through the result of an accident. This coverage will help you repair, or if needed, replace your vehicle. Comprehensive insurance covers losses from non-collision incidents. Some examples of this would be theft or storm damage. Policy limits for physical damage are generally based on the value of the insured automobile and are typically limited to the lesser of repair cost or actual cash value. Both collision and comprehensive insurance may be subject to a deductible.
- Uninsured/Underinsured Motorist: Although most states require car owners to have insurance, some motorists do not. Uninsured motorist coverage pays for injuries sustained in an accident with an uninsured, or hit and run driver. Uninsured motorist insurance covers the difference between actual losses sustained and what an insured can collect from an at-fault driver, up to policy limits.
Insurance endorsements are written additions or amendments to the policy that limits or expands the benefits of the policy. For example, if your financial circumstances change, you may choose to raise or lower your current deductible, or add or take away coverage from your policy. Three common endorsements that broaden your automobile insurance coverage are:
- Extended Non-Owned Coverage: This insurance is used to cover automobiles that are not legally owned by the insured, such as an auto owned by the employer but furnished for the use of the insured, which would not generally be insured.
- Miscellaneous Type Vehicle Endorsement: This insurance allows other vehicles to be covered such as motorcycles, campers, golf carts, snowmobiles, etc.
- Roadside Assistance: If a road trip is in your near future, you may choose to add roadside assistance to your existing policy. This insurance provides assistance in case your car breaks down or you need other emergency road service.
Because life is always changing, it is common for your auto insurance needs to change as well. Endorsements can allow for change at any time, however, that change will also be reflected in your premium. Balancing your needs with your finances will be the key in tailoring your policy with your current circumstances.
When purchasing auto insurance or in reviewing your existing policies, there are some general considerations you will want to be aware of. Make sure the policy provides as much protection as is necessary. Know the maximum dollar amount the insurance company will pay if or when the need arises. Be aware of your deductible amount, which is the amount you must pay before your insurance company will pay anything. Know your responsibilities in the event of an accident.