Are You Paying More Than Necessary for Car Insurance? Understand How Pricing Works
- Mr. Organic
- Jun 25, 2019
- 4 min read
Updated: Jun 26, 2019
Are You Paying To Much For Your Car Insurance?
This title is a broken record due to the amount of advertising surrounding car insurance! With that in mind, this article is not to get you to move to from "x" company to "y" to hopefully save "$x.99/month on your car insurance."
The goal of today's text is to make sure you are aware (in general) of how car insurance pricing works and if you may be overpaying for your specific situation. I do hope though this will help you to save you some money you didn't know was there!
Specifically we will review premiums, deductibles, discounts, and other important pricing mechanisms to be aware of.
What Is Most Important to Understand?
The most important concept to understand here is that auto insurance is a mandatory requirement in all states (except for New Hampshire, but the state still requires you to be financially responsible).
If you are required to purchase anything you better learn how it works and how to only pay for what you need. To understand this more you must examine your driving habits (amount of incidents), and personal savings (ability to cover the deductible).
Keeping It Simple - Deductible and Premium
Like I've mentioned before one of my motto's is KISS (keep it simple, stupid). I plan to do just that!
We will start with a quick overview of the premium (whats paid on a monthly, quarterly, semi-annual, or annual basis) and deductible (which is whats paid in the event of an incident).
Bad Drivers
I know every out there is the, "the best damn driver on the road!" But lets get real, if you're the type of person always being distracted while driving, have a hard time focusing, and are always close to (or have been in) a wreck. Keep your deductible low, and pay a higher monthly premium.
Good Drivers
If you don't have a blemish on your driving record, max out your delectable and pay as little as possible for your monthly premium! Keep in mind though you want to have enough liquidity in the rare chance an accident does happen. Most car insurance companies will let you go up to a $2,000 deductible maximum.
Discounts
Discounts are imperative to getting good rates. Like I mentioned in my article,
How The Wealthy Budget and Why You Should Too | The Millionaire Mindset every wealthy individual knows how to ask for discounts, and you should too!
Here are a few examples of discounts on my current policy with Allstate:
EasyPay Plan - For enrolling in auto pay.
Multiple Policy - Bundled my Home and Auto together for the best deal.
Early Signing - Not sure what this is, but I'm always asking, "How can you help me by make the premium lower?" This is something they added after that question.
Anti-lock Brakes - Always ask about specific car-by-car discounts. For example, a car with the technology to detect someone stopped in front of you and stop automatically, offers a discount.
Safe Driving Club - More discounts for not being in an incident for a period of time.
Responsible Payer, Allstate eSmart, Drivewise are some other discounts. These are from using certain apps in real time while driving, and paying on time.
Other Pricing Mechanisms
This will vary company to company, but in general (for the time being) most car insurance companies use the same pricing models.
Here is what you should be aware of that can save you money:
Removing unnecessary addons - typically policies will come built in with things like towing and labor costs. Make sure you are aware of each of there addons and if they will actually bring value to your situation.
Actual Miles Driving - The farther you are located from work the more miles you will commute, thus increases your overall risk. Vice versa if you live 3 miles work be sure that you tell your agent you drive very few miles, and to lower your usage as low as possible. This will decrease your overall premium, and is often not discussed by the auto agent.
Are you a student, senior, retired, military, etc.? Be sure to compare specific discounts by company depending on your status. You may find discounts available with one company that is only specific to that company. One that comes to mind right away is USAA for military.
Auto Liability Limits and Uninsured Motorist. These limits will change the pricing on your policy and it is a no brainier that you need to have enough medical and property coverage in the event of an accident. Many states have minimums set, but I personally believe these required minimums are very low. I hold $250,000 each person/$500,000 each incident for Bodily Injury. $500,000 for property each incident. The same Bodily Injury limits for 'uninsured motorist' as well but only $25,000 for property damage for uninsured motorist.
Work with a Trusted Agent
Finding a good property and casualty agent (or asking for a referral) may be the best way to reduce your rates. They will be able to guide you specifically through your current policy, and show you other options that are less expensive and bring the same benefits.
I hope this helps, and ideally puts a little more change in your pocket when it comes time to pay that premium!
Thanks for your time
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