Four Keys to Driving the Best Bargain on Car Insurance

According to Insurance.com, the average U.S. car insurance premium was $2,259 last year. Depending upon the state, the average could have be anywhere from a low of $1,587 in Maine to a high of $3,165 in New York.

Regardless of where you live, chances are very good that you could pay less for identical coverage … a lot less. According to various insurance sites, you can save up to 50% on your car insurance – and they’re right! Here are the keys to saving a bundle on car insurance:

1. Get competitive quotes.
2. Go for the highest deductible you can afford.
3. Drop coverage you don't need.
4. Ask for all possible discounts.

If you invest a bit of time and effort, it’s very likely that you can save hundreds of dollars per year on car insurance. It’s really worth it to comparison shop, because over time, those savings really mount up – to much more than you probably realize. Not convinced?

Would you do it for $50,832?

Although I've personally seen savings of over $1,000 a year, let's be conservative. We’ll assume you can save $500 a year by visiting a few Web sites or making a few phone calls. If you overpay by that amount every year for the next 30 years, you will have spent $17,500. But look what happens if we assume that instead of sending it to some insurer, you’d invest that $500 a year: At 7%, you'd have $50,832.

Now that I have your attention, you’ll be happy to learn that comparing prices on auto insurance is a lot easier than it used to be, thanks to the Internet.

Get Competitive Quotes

Start by finding out whether your state insurance department has made it simple for you, by offering a comparison pricing guide for car insurance. While you're there, see what “complaint ratios” your state offers. While you want a great price, you want it from an insurer that will be easy to deal with if you have an accident.

Then get a variety of quotes from:

• Nearby independent agents. Ask friends and co-workers for leads.
• Look online for free auto insurance quotes that offer the rates from several competitors
• Direct writers such as GEICO and Amica.
• Large companies with their own agents, for example, State Farm and Allstate.

The quotes will depend on:

• How old you are. Drivers under the age of 25 have the highest accident rates, followed by people 75 and over.
• Where you live. The state you live in matters, but if you live in a city, you might pay 30% or more than your cousin in the country.
• How much you drive. Pile on lots of miles every year? You’ll pay more than folks who drive under 7,500 miles a year.
• What your car is primarily used for, business or pleasure. Insurers prefer pleasure to business travel.
• What your gender is. Young women traditionally have had fewer accidents than young men (though they're starting to gain equality in this area as well).
• How good your driving record is. If you have a clean record, you’ll qualify for safe driver discounts. Had an accident, a DWI arrest, or traffic tickets? Expect your premium to shoot up -- or your insurer might not to renew your policy.
• What your marital status is. If you’re ”settled down,” you pay lower rates.
• How good your credit report is. Insurers have found a correlation between credit problems and claims experience. If your credit is less than stellar, you may be turned down or charged more.
• How many other drivers are in your family. While a larger family means more IRS deductions, the more drivers you have, the more you'll pay for car insurance.
• Whether you smoke or not. Since nonsmokers get into fewer accidents, they pay less.

Better Safe than Sorry

Before you pick an insurance company, check its safety rating. Several companies give insurance companies grades for overall financial strength, for example, A.M. Best and Standard & Poor’s

Tell the Truth!

Insurers will pull your driving record and your claims history. If you lie, you could be turned down for coverage. And if you're misleading about how your car is used, who drives it, and where it’s garaged, and the company finds out, it could reject your claim and/or refuse to renew your policy.

Important: Since even garden variety clerical errors could cause you to over-pay or to not have the coverage you wanted, look over quotes (which should be made in writing) and your policy carefully.

Go for the Highest Deductible You Can Afford

The deductible is the amount of any loss that you're responsible for, before the insurance kicks in. Most experts agree that it's wise to go for the highest deductible you can manage. Over the years, your savings on premiums will probably more than cover the deductible, if you ever make a claim.

The Insurance Information Institute reports that increasing your deductible from $200 to $500 could reduce your collision and comprehensive coverage cost by 15-30%. Going to a $1,000 deductible can save you 40% or more. (Collision covers the repair or replacement of your car, no matter who caused the damage. Comprehensive covers the repair or replacement if your car is stolen or damaged by fire, flood, or wind.)

Important: While raising the deductible can be a big money saver, be sure not to raise it beyond what you could comfortably come up with, should you be in an accident.

Drop Coverage You Don’t Need

When your car is well past its prime, you might want to save some money by dropping the collision and comprehensive portion of your policy. Some experts say to drop it when a car is 5-7 years old, or if the premium represents more than 10% of the value of the car.

Important: It's the Kelley's Blue Book Value that the insurer will pay, which may be much less than what you think you car is worth. Your bank's loan department or your insurance broker can help you come up with an accurate quote for the current value of your car.

For example, let's assume that Kelley's Blue Book lists the value of my old clunker at $3,500, and I’m currently paying $300 a year for collision/comprehensive, with a deductible of $500. Every year that I don't total the car, I’m saving $800. I dropped the expensive coverage a few years back, and continue to drive as safely as I can.

Keep in mind that insurance is designed to protect us from unaffordable losses - not all losses. And while I’m taking a small risk, it’s not a bank-breaking one, especially since the car's value will continue to drop every year. (I do plan to get a car from this century in the not too distant future.)

If you have roadside assistance through an auto club or a warranty, you might want to drop coverage for towing. Similarly, if you have alternatives, it may not pay to have coverage for a rental car if yours ends up needing repairs.

In the Market for a New Car?

Buying the safest car you can afford is one of the best investments you can make in your family’s future. Not only may your choice save your life or the life of a loved one, but you may also get better insurance rates.

Read Shopping for a Safer Car from the Insurance Institute for Highway Safety (IIHA), which can also tell you how the new cars rate – as well as how 371 older model cars –fare, in terms of injury, collision, and theft losses.

Discounts Galore

Don't wait for your agent or insurer to tell you about them. Many don't. Yet you may be eligible for:

• Car model discounts (and surcharges). Insurance companies rate cars based upon their safety, repairability, and claims history for theft, fire, and vandalism.
• Safe driver discounts can cut your premium by as much as 15%.
• Multi-policy discounts (when your cars and home are insured by the same carrier). Ask your current insurer, and ask others what their multi-deal would be.
• Automatic seat belt and airbag discounts.
• Anti-lock brakes discounts.
• Theft control device discounts.
• Carpooling discounts.
• Low mileage discounts.
• Nonsmoker discounts.
• Group discounts (e.g. AAA)
• Mature driver (from 50 to 65) discounts.
• Defensive driving course discounts, which are often offered through local adult education programs, can be life as well as money savers.
• And last but not least, young driver discounts. Yes, there are actually ways to get discounts on those expensive-to-insure teens!

Five Ways to Save on Car Insurance for Young Drivers

1. Have them drive your car as an "occasional" driver.
2. Keep them on your policy, even after they have their own wheels.
3. Get a "good student" discount, if your child's grade average is B or better.
4. Ask for a discount if your child goes away to school (more than 100 miles away) and doesn't have a car.
5. Make sure your teens take Driver's Ed.

See? Everyone can save money on car insurance!
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Nancy Castleman has spent the last twenty-two years teaching people how to save money, get out of debt, and live better on less. Her Good Advice Press site includes many free articles as well as information about her books and free e-letter.