Originally Posted: Jun 3, 2012
Last Updated: Aug 13, 2019
Looking for some ways to save some money? Your car insurance can be an easy way to save money with little effect on your everyday life. Find out how.
If you’re a car owner, then you’ve probably dealt with car insurance. It can be a lifesaver in the event of an accident, but for cash-strapped recent college graduates it’s yet another extra cost. Ethan Ewing, a national personal finance expert and President of Bills.com, says a little planning can go a long way towards saving you money when looking car insurance.
“Plan your auto purchase—consider insurance before choosing a vehicle,” he says. “You will save right out of the gate if you opt for a car without a lot of bells and whistles. Turbo features, for instance, often raises premiums because insurers tend to think if you choose turbo, you are more likely to speed.” Cars with the highest theft rates cost more to cover, while parking in a garage can lower premiums—all things to consider before buying a car.
Insurers take credit scores into account when determining rates, so be sure to tune up your credit. “Pay your bills on time and pay overdue debts,” says Ewing. “Individuals can raise their scores as much as 20 points in a month just by paying on time.”
Sandy Praeger, National Association of Insurance Commissioners (NAIC) president and Kansas Insurance Commissioner, says that insurance companies can use a credit score in two ways: to underwrite and to rate a policy.
“For underwriting, your credit score is used to determine whether to issue you a new policy or to renew your existing policy,” she says. “For rating, the premium you’re paying for insurance coverage was partly determined by your credit score. Some companies may use your credit score for both underwriting and rating.”
While most young students won’t have to worry about credit scores when they get their first insurance policy, it can become an issue as their credit history grows.
“Remember, an insurance company can check your credit history when you renew a policy,” says Praeger. “And a change in your credit score could affect your premium, or even lead to a non-renewal of your policy.”
The best way to find the right car insurance is by shopping around based on your needs. When you’re shopping, Praeger says before you commit to any contract to “stop, call, and confirm.”
“Before signing—stop,” she says. “Call your state insurance department to check that the company is licensed to do business in your state. The insurance department can also tell you if the company has had many complaints filed against it in your state.”
Be sure to keep a record of your research and paperwork as you consider your options. “Get all of the quotes in writing, especially when you're shopping on the Internet,” says Praeger. “When you decide to purchase insurance, keep a copy of the paperwork you complete and sign. You should receive an original copy of your policy and identification cards within 30–60 days of purchase. If not, contact your state insurance department.”
Another thing to keep in mind during this process is the amount of liability coverage you want. “Basic liability covers damage to property or injury to other people as well as court costs,” says Ewing. “Each state sets minimum limits. Liability coverage is expressed in three numbers, generally noted in thousands of dollars. The first is liability for one person hurt in an accident. The second number is a maximum for all injuries in one accident. The third covers property damage. So, 25/50/15 covers $25,000 for one person's injuries; $50,000 for all injuries; and $15,000 in property damage.”
Other coverages to consider according to Ewing:
Determine amount of collision coverage: This insures a vehicle against damage from an accident.
Determine amount of comprehensive coverage: This covers damage to a vehicle from something other than an accident.
Choose medical coverage wisely: Auto medical coverage pays medical expenses from an accident. Compare with what is covered by health insurance policies. If you do not have health insurance, definitely opt for medical insurance on your auto policy.
Uninsured/underinsured motorist: This coverage pays for damage to a car if an uninsured driver (or someone without enough insurance) causes an accident.
Consider gap coverage: Gap insurance covers the "gap" between the value of a car and the amount of a loan on a car. It offers peace of mind in the first year or two of a new car loan, when the vehicle has depreciated in value, but the loan amount is still high. In this situation, if you totaled your car, an insurance reimbursement might not be as much as you owe the bank. Remove this coverage when the loan amount falls below the vehicle’s value.
Evaluate other coverage: Adding optional coverages increases peace of mind, as well as cost. They might include coverage for rental car or roadside assistance (towing, or help for flat tires or other problems).
Another way to save money on car insurance is to have multiple policies, such as renters insurance and auto insurance. Steve Zogby of the Independent Insurance Agents and Brokers of New York says some insurance companies offer package policies.
“Package policies provide a discount on both auto and renters policy and also the convenience of one policy and one bill,” says Zogby. “Renters insurance should be around $200–$300 per year, a wise choice for those renting.”
Combining renters and auto insurance is great for recent college graduates who find themselves living in apartments after graduation. Mario Morales, Director of Corporate underwriting at MetLife Auto & Home, says that according to the Department of Justice, rented households are burglarized at rates 40% higher than property owned by residents.
“A solid renters insurance policy typically costs only a few hundred dollars a year or less, and will protect the renter for property valued at up to $75,000,” says Morales. “Often, insurance companies provide a discount when a person has multiple policies, such as renters insurance and car insurance. At MetLife Auto & Home, you can secure a discount on your renters insurance by having an auto policy with MetLife, although the discount and its availability does vary from state to state.”