Car Insurance: How to Reduce Your Payments
As an insurance agent, one of the most common questions I get is clients wondering how they can reduce their monthly car insurance payment. As a matter of fact, the most common reason people CHANGE insurance companies is to get a better rate. (The 2nd most common reason is Dissatisfaction with their agent/insurance company — and if your agent isn’t actively looking to keep your prices down, you’d be dissatisfied too!)
Here are some things you can do to reduce how much you pay for insurance:
— Increase your deductible. The most expensive parts of your policy are the coverage for physical damage to your vehicle (Collision and Comprehensive) and the physical damage you may cause to someone else’s property (Property Damage), i.e., their car, a building, sign, guard rail, etc. Generally speaking, the higher your deductible, the lower your premium. Increase your deductible as high as you can bear — keeping in mind that if you do have a loss, you’ll need to come up with that money.
— Consider Liability Only*. Depending on the value of your car, you may want to consider not putting Collision and/or Comprehensive on it. If your vehicle is only worth $2500, and you’re paying $1000 every six months for a $500 deductible, you are wasting your money. You’d be better off putting that money aside so that if something happened, you could just pay for a replacement vehicle in cash. *If you have a loan on your car, this will probably not be an option.
— Skip the Rental Car Coverage. Do you really need a rental car, or can you make do borrowing a friend’s car or using Uber/Lyft? After an accident, most cars are repaired within 2 weeks, and if it’s a total loss, you’ll usually know in a couple of days. Once the claim is settled, the rental car reimbursement stops, so in a total loss situation, you may still have no car to drive between the time they determine it’s a total loss and when you actually get your check. If you have access to other transportation, you can probably skip the rental car coverage.
— Get rid of some of the “perks”. If you have a life insurance policy, you probably do not need Accidental Death coverage on your auto policy. If your car is older than 3 years, you probably don’t need OEM coverage. If you owe less on your car than it’s worth, get rid of your GAP coverage. Just because the coverage is available doesn’t mean you have to get it. A good example is Earthquake coverage in Iowa — do we have earthquakes? Yes, occasionally. Is it worth the money to get Earthquake coverage? Probably not. Look closely at the “extras” on your policy and decide what you REALLY need to pay for versus what you are better off self-insuring (paying out of your pocket if you end up with the expense).
— Make your payments on time. Inconsistent payments (frequent late payments) will affect your credit score — and credit score can account for up to 60% of your pricing (in all states except California). Insurance companies want to know that they are making a safe bet by insuring you — and they want to know you will pay them as promised.
— Do not let your policy lapse! Many standard carriers require continuous liability for 6 months; otherwise, you will need to be placed with a “non-standard” carrier. No prior insurance or a lapse greater than 30 days will force you to a non-standard carrier, and you will pay for that difference. Likewise, if you sell your car, don’t CANCEL your policy — ask your agent about a Non-Owners policy. This allows you to keep your liability coverage continuous even when you don’t currently own a vehicle.
— Don’t have any accidents! An accident can increase your premium by 60%, even if it wasn’t your fault. (Violations, point system AAF/NAF; you may not be able to avoid all accidents, but there are some behaviors you can modify to reduce your risk. Some carriers will non-renew you after # of accidents/violations)
— Drive a less expensive or older car. The newer or higher end your car is, including sports cars, the more you will pay for it. Always get an insurance quote before buying so you know how much to expect to pay. If you can’t afford the car payment AND the insurance payment, you can’t afford the car.
— Drive a car that is less likely to be stolen. Certain makes and models are higher targets of theft, and the insurance companies know it — so they charge more for those cars. According to National Insurance Crime Bureau, the Top 5 vehicles most likely to be stolen in 2018, by make & model: Honda Civic, Honda Accord, Ford Pickup, Chevrolet Pickup, Toyota Camry.
— As a last resort, consider reducing your liability limits. In Iowa, the minimum state limit is 20/40/15. If you’re currently carrying 250/500/250, it won’t save you much, but consider reducing it to the next lower tier, 100/300/100. Be CAREFUL though — if you don’t understand what these numbers mean, talk to your agent (or call me!) to help understand your risks and exposures. Many standard carriers require above state minimums if you don’t have good credit. For that reason, I usually try to write a minimum of 25/50/25, so that in 6 months, I can move them to a better carrier for a better price.
Make sure to read to my follow up post: Car Insurance: Liability Limits Explained
Kim El-Baroudi is the owner of The El-Baroudi Agency, a Farmers Insurance Agent serving the Greater Des Moines area. She is happy to answer your questions and can be reached at kelbaroudi@farmersagent.com, or you can schedule a call to discuss your insurance needs: https://calendly.com/your-neighbor-kim
