Getting a good deal on auto insurance and keeping your
premium from rising is hard. Here are a dozen ways the
industry works, with tips to help you save:
1. If you have good credit, you'll pay less. Almost all
insurers pull your credit report. Studies show a direct
correlation between your credit score and the likelihood
that you'll file a claim. Insurers know that if you pay
your bills on time and have the same credit accounts for a
long time, you're more stable than someone who pays late
and frequently opens/closes accounts. This information is
used to create your "insurance risk score," a factor that
determines your auto-insurance rate.
Tip: If you have unusual credit activity, wait a month for
it to return to normal before buying auto insurance.
2. Your car model affects your premium. The auto insurers
have a rating system for every car make and model. Most use
a system devised by the Insurance Services Office, which
starts with the vehicle cost, then factors in safety and
theft data. Cars are rated from 1 to 27. Higher number
means higher premium. If you're buying a new car, ask your
insurer about the difference in premiums for cars you're
considering. Search online for the latest top 10 lists on
the most and least expensive cars to insure.
3. Pay in full to avoid installment fees. Payments usually
are offered on a six-month, quarterly or monthly basis, but
most insurers charge an administrative fee for breaking up
the payments. The more you break it down, the more those
fees add up.
Tip: Remember that insurance companies can cancel your
policy for late payment, sometimes with minimal
notification, so make sure you don't miss an installment.
If you can pay the premium up front it may save you a few
dollars.
4. That Beethoven CD in your car isn't covered. Stolen or
damaged personal items aren't covered by your auto
insurance.
Tip: You can file a claim on your home insurance. Most
home-insurance policies will cover smaller, less expensive
items such as compact discs. But if you carry expensive
items such as computer equipment, ask about a rider to your
home-insurance policy. It's wise to take photos or video of
any expensive personal items before they go missing.
5. You'll pay for your bad driving. The industry standard
is to increase your premium by 40% of the insurer's base
rate after your first at-fault accident. For example, if
the company's base rate is $400, your premium will go up by
$160. Not all auto insurers play by this rule, though, and
some may increase your individual rate by 40%. Regardless
of what formula they use, most of the time, your rates will
increase.
Tip: Some insurance companies have a "forgive the first
accident" policy. The qualifying variables are
wide-ranging, so ask your company if it has a forgiveness
policy and how to qualify.
6. You'll pay for your friend's bad driving, too. If your
friend borrows your car and crashes it, you'll have to file
a claim with your insurance company. You'll have to pay any
deductible that applies, and your rates will probably go up
as a result of your claim.
Tip: If your friend didn't have permission to take your
car, in most cases you won't be held liable for the damage.
But if your friend is uninsured and causes damage that
exceeds your policy limits, the injured party can come
after you for medical and property-damage expenses. Best
bet? Don't lend out your car.
7. Your car's real worth. The value of your "totaled" car
may surprise you. Auto-insurance companies don't use the
standard Kelley Blue Book or National Association of
Automobile Dealers value. Instead, each company has its own
proprietary list of car values, and most have specialized
software for valuing cars in each region. They take into
consideration the car's mileage and pre-accident condition.
The insurance company may also ask local dealers what
they'd charge for a similar replacement car. However, the
insurer will consider quotes from suburban towns as
reasonable estimates. You might have to drive several hours
to reach the cheapest dealer, just to save the insurance
company money. And they might be quoted a better deal than
you could get if you walked onto the lot.
Tip: If you disagree with your insurance company's value
determination, there are several things you can do:
Next time, get "gap" insurance. It will pay the difference
between what an insurer will cover and what you owe, which
can be several thousand dollars.
If you have maintenance records that show you've had the
oil changed every 3,000 miles and you've had the car
checked routinely by a mechanic, present copies to the
insurance company to show the car was maintained. If you've
been paying premiums on any special parts or upgrades, make
sure those are included in the insurance company's
evaluation.
Get price quotes on replacement cars from three dealers
within a reasonable driving distance and submit these to
your insurance company. Ask the insurance company for a
list of dealers within a specific distance who can sell you
an equivalent car for the value the company is claiming. If
you still aren't satisfied, you can step up the process and
go to mediation or arbitration. Mediation involves
presenting your case to a neutral party for help in
reaching a compromise; arbitration is a binding decision.
You can also, of course, take the issue to court.
8. Check into "diminished value." Say your car has been in
an accident, but repaired. Is it worth less than the exact
same car that hasn't been in an accident? It's a hot topic,
but some say yes. In 14 states, you're allowed to file a
claim with your insurance company for that lost value.
Tip: Thirty-six states and Washington, D.C., allow insurers
to exclude payments for diminished value, so if you live in
one of those states, you can't claim the loss. But in
Florida, Georgia, Hawaii, Kansas, Louisiana, Maine,
Maryland, Massachusetts, North Carolina, South Dakota,
Texas, Virginia, Washington and West Virginia, you have a
chance of getting a diminished-value payment. If you
weren't at fault in the accident, you often can make a
successful case against the insurance company of the
at-fault driver.
9. You may not owe sales tax on your replacement car.
Twenty-eight states require auto insurers to pay for the
sales tax when you replace your totaled vehicle with a new
or used car: Alaska, Arizona, Arkansas, California,
Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana,
Kansas, Kentucky, Maryland, Minnesota, Missouri, Nebraska,
Nevada, New Jersey, New York, North Dakota, Ohio, Oklahoma,
Oregon, South Dakota, Vermont, Washington, West Virginia
and Wisconsin.
Tip: Make the request; don't expect the insurer to offer to
pay upfront. Even in states that do not require sales-tax
reimbursement, you should request it. Many auto insurers
will not deny the request because the policy requires that
they make you "whole," returning you to where you were
before the accident at no cost to you.
10. The tax will be calculated based on the pre-accident
value of your car. If the insurance company values your car
at $10,000, and you purchase a new car for $20,000, the tax
will be calculated on $10,000.
11. You can wait to add your teenager to your policy until
he or she is licensed. You're not required to add your
teenager to your policy just because he/she has reached
driving age. Usually you can wait until he/she has a
license or, if you're in a high-risk insurance pool, a
permit.
Tip: Don't forget to tell your insurance company that you
have a licensed teen. If you have to file a claim on
his/her behalf, your insurer is entitled to charge you back
premiums from the date your teen received a license.
12. You must officially cancel your insurance policy when
you switch insurers. Your policy likely states that you can
cancel by notifying the company in writing of the date of
termination. Don't assume that you can terminate the policy
at the end of the coverage period by simply ignoring the
bill. The insurers won't see it that way. They'll send you
another bill for the next premium payment, and when you
don't pay it, you'll be cancelled for nonpayment. That goes
on your credit record.
Tip: Call your insurance agent or company and state that
you're canceling your policy. Give a specific date, or you
may end up uninsured for a period of time. The company will
send you a cancellation request. Often, the form is already
filled out and just requires your signature. Read it to
check for errors. You may have to provide proof of new
coverage to your former insurer. And if you've financed
through a dealership, give the dealer your new insurance
information, because purchase contracts often require proof
of coverage.
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