The single biggest reason you’re paying too much for car insurance: Insurance companies know you hate even thinking about it, much less shopping for it.
Result? They raise your rates, in the belief that the hassle of switching means you’ll stay where you are and pay what you’re quoted.
Not cool. Solution? Take control by shopping around your insurance periodically to make sure you’re getting the best deal.
In this article, you will learn everything you need to know about the different components of car insurance. But if you really want to know how to get the lowest cost policy, you can do it right now, with no further work required.
It’s easy to compare insurance companies these days. Simply click on one (or both) of these two comparison tools. Both are unbiased, independent services that compare rates from lots of companies in one place, without a lot of work on your part and annoying phone calls.
Neither service costs a penny, and both will top up your existing coverage in minutes.
Do you want to know more about what is covered under a normal car insurance policy? You are in the right place. This step-by-step guide is all about paying as little as possible for car insurance while maintaining adequate coverage. Many of the things you learn here will also apply to other insurance policies you come across, from home and health to life.
I promise I won’t bore you to death when we go through this. let’s get started!
to organize
If you don’t know how much you’re paying for car insurance, it’s time to find out. Create a spreadsheet so you can see not only the total, but also what components you are paying for in your policy.
Don’t make it a big deal: It’s not. You can do this during commercial breaks while watching TV.
Take out your policy and record relevant information: what’s covered, deductible amount, phone number, policy due dates, etc. Then, save this information in the cloud. Having it all in one place will give you everything you need to know at a glance and make it easier to shop for the best rates.
You can use Microsoft Excel, Google Sheets or almost any program that will allow you to write stuff down and keep it straight away.
As an example, here’s one of my old spreadsheets. (My insurance is now more than double this price!) I got this information by logging into my insurance company’s website, but I could also get it from the paper policy I receive by snail mail every six months when I pay the bill.
liability
The liability portion of your policy pays for damage you cause to other people and their belongings. This is generally required by law and is always required by common sense. This is one area of your car policy where you don’t want to skimp.
As you can see, I can cover losses up to $1 million per person and event, with a $100,000 limit on property. You may also notice that I made a note to remind myself what this coverage actually does.
When deciding how much liability to buy, consider your situation and net worth, not mine. Although you don’t want to pay for more coverage than you need, it’s important not to skimp on your insurance in this important area.
If you think you don’t have enough, do what I did: Call your company, see how much excess liability will cost, and weigh that cost against the benefit of the additional coverage. Although liability coverage isn’t cheap, you’ll find that adding more doesn’t have to be that expensive either.
comprehensive and confrontational
Liability coverage pays for other people and their stuff. Comprehensive and collision coverage pays for damage caused to your car.
If someone else hits you and it’s their fault, their liability insurance should pay to repair or replace your car. However, if you break down and your car is damaged, this is where your collision coverage comes in.
Comprehensive coverage also pays if your car is stolen, vandalized or otherwise damaged, such as by hail.
When I wrote about this topic more than 20 years ago for a book called “”.money made simple“I did not have comprehensive or collision coverage on my car.
At the time, I was driving a car worth only $3,000. So, worst case scenario, I’d be out three grand to replace it. This was a risk I was willing to take rather than pay hundreds in extra premiums every year.
So, here we have an example of less being more: Pay cash for a cheaper car and you’ll have less car to insure, and less time spent shopping for coverage and working to pay for the insurance.
But if you get rid of comp and collision, remember that you won’t get coverage for cars you lease, either. So, unless you get free rental coverage in the form of a credit card benefit, you may have to purchase one of the biggest frauds of the modern age: rental car insurance, better known as a collision damage waiver.
General rule in case of compensation and collision: If the premium is more than 10% of your car’s value, you may consider dropping the coverage.
Today, the car I drive costs over $3,000, so now I’m paying for components and collisions.
If you have a car loan, your lender will require comp and collision from you.
deductions
The deductible is the portion of the loss you are expected to cover.
My $1,000 is too much. Because losing a grand wouldn’t be a pleasant experience, but it wouldn’t send me to McDonald’s for another job. Remember, I’m preventing disaster, not inconvenience.
Many people have a deductible of $250, yet they would never think of filing a claim for less than $1,000 because they would be justifiably afraid of a rate increase. This is crazy. If you’re willing to lose $1,000 if you make a mistake, increase your deductible by $1,000. You’ll save 10% to 20% on your bill because a higher deductible generally means lower premiums.
This is the simplest and fastest way to save on car insurance.
personal injury protection
Personal injury protection covers you and your passengers if you or they are injured in an accident.
This coverage is required in my state, but I am only purchasing the minimum $10,000 value. Feeling crazy? Well, keep in mind that no matter how I get injured – by airplane, train or automobile – I’ve got medical insurance that will pay for my physical reintegration.
I don’t carry passengers often, but the ones I carry also have health insurance. If the accident is my fault, my passengers will be covered by my liability and/or their health insurance.
If the accident is not my fault, we will all be covered by the other driver’s liability insurance and/or our health insurance. If the other driver doesn’t have insurance, I have uninsured motorist coverage to pay for all of our medical bills.
uninsured motorist
As the name suggests, uninsured motorist coverage pays for damages caused by people driving illegally without liability insurance.
Uninsured motorist coverage is not required in my state, but I have it anyway.
shopping for policy
Although I’m sure you thought my insurance bill was strange, most of it would be meaningless to you unless you drive a car like me, have a driving record like I do, and don’t live where I do. What did you mean by explaining this? So you’ll see how I manage my car insurance and you’ll learn a little about how to manage your insurance.
Maybe you think I knew all this stuff because I’m a personal finance writer. No. I know all this because I called the toll-free number on my insurance policy and sat on the phone with a somewhat hapless customer service representative until I understood what I was paying for.
Once I understood my policy – including how much I would pay to increase coverages and how much I would save by reducing them – I was in a position to decide how to customize my policy to meet my individual needs.
For example, maybe I should drop rental car coverage, since I’ve been driving for decades and have never used it. Perhaps I should increase my liability coverage as my net worth increases.
In addition to being able to match my coverage to my needs, having the facts at hand also allows me to purchase this policy easily and virtually instantly. I just need to add a few columns to my spreadsheet to accommodate quotes from other companies.
The best way to get competitive quotes is to shop online. You can either visit websites that compare quotes from different insurers, or go directly to individual insurer sites. You’ll obviously have to enter some information, but now that you have your spreadsheet, it shouldn’t be too challenging.
Even better, there are now free services available such as:
They will work for you and prepare a report showing what rates different insurers will give you.
The last time I did this, it took exactly 10 minutes and 42 seconds to input the necessary information to get a competitive quote.
As far as how often you should shop for your insurance policy, here’s what I do: I shop for home and car one year, health and life the next. I usually do this during the holidays, when I have a little more free time and sometimes need an excuse to get away from the family for a while.