It was a sunny Saturday afternoon in January. Steve was driving back from baseball practice with Joseph (age 12). As they approached an intersection, the traffic light turned yellow. It was impossible to stop our one-ton van in that short distance. Steve hit the horn as he proceeded through the intersection on the yellow light.
The Accident
A young driver in a 2005 Chevy Malibu inched forward and proceeded to make his turn directly into the path of our vehicle. In that split second, tires screeched, metal twisted, buckled and crunched, glass flew in a hundred different directions and our insurance coverage started to be tested.
Thankfully, many witnesses stayed to report to the police, and Steve was the only driver who didn’t receive a citation. Fortunately, everyone involved in this accident walked away physically. But fiscally, it’s quite a different story. One under-protected split second can change the course of your emotional and financial life forever.
Photo Caption: Car accidents can hurt more than your physical body. Without adequate insurance coverage, your fiscal well-being is liable to get pretty beat-up too!
When was the last time you reviewed your auto insurance? Yes, we know, the prospect of spending a couple of days making phone calls to review liability, deductibles and other details is about as much fun as getting a splinter in your finger. But the protection and cost savings it provides is well worth the investment of time.
Insured and Uninsured Motorists
Of the three vehicles involved in our accident, two were totaled. That’s enough to ruin your day right there, but it gets worse. Our van was the only vehicle with any type of auto insurance! Fortunately for us, we have uninsured motorist coverage, but the story for the other drivers wasn’t nearly as rosy.
The driver who caused the accident had been covered by his mother’s insurance policy until she dropped the coverage a few months prior to the accident. We don’t know why—perhaps because her 20-year-old son had two prior accidents and the insurance premiums were too high.
Unfortunately, she had no coverage for her financed, 2005 car. When we spoke to her, she said that her finance company charged her a premium each month for insurance — she thought she was covered. It turns out that finance companies, especially those that finance high-risk borrowers, always take out a policy to cover the value of their loan with the vehicle as collateral.
The borrower is responsible for all damages caused by the vehicle and to repay the outstanding balance on the loan even if the car is totaled.
Bottom line: If you have a car, you’ve got to have insurance. If you can’t afford, at the very least, liability insurance, then sell or park your car and find another means of transportation. We know this sounds harsh, but the ramifications of driving uninsured are just too great. Loss of all assets, garnisheed wages, lawsuits, and bankruptcy are all very real possibilities.
In our state, auto insurance is mandatory; however, many people purchase insurance to register their car, then promptly drop the coverage. Both of the other drivers were ticketed for not having insurance.
ChoicePoint is Monitoring Your Insurance Claims
In recent years, insurance companies have started gathering more data on their clients, beyond driving records. A company called ChoicePoint is a clearinghouse of information for the insurance industry. They track and report on the number of claims you make, accidents, tickets, vehicle history and a world of other data that might make you think Big Brother is watching your every move. Most insurance companies subscribe to their services.
However, when Steve recently spoke with ChoicePoint representatives, he was told that every insurance company requests different information and weighs it according to their own standards. For instance, some companies look at speeding tickets as a major problem and won’t provide coverage if you have a couple of them in recent years. Others weigh more heavily on your claims history and credit report. The key is to shop many different insurance companies, especially if you have some claims in the past three years or a few blemishes on your driving record.
How To Research Insurance Companies
There is a Department of Insurance in every state in the U.S. You should be able to receive, either in printed form or via the Internet, a complete listing of companies who are licensed to sell automobile insurance in your area. (Visit www.ican2000.com/state.html for a complete listing of insurance departments in every state in the U.S.) Some states go so far as to provide a price comparison guideline and a report on the number of complaints registered against each company.
When you call for quotes, be prepared to give information on claims and tickets you’ve had in the last three to five years. We encourage readers to quote their auto insurance every three to five years. Of course, if you have a close relationship with your insurance broker, you must weigh this against any savings you might achieve by switching companies. Calculate your savings, and if you save more than 20 percent every six months, it might be worth switching.
Just make sure you get every detail — coverage and premiums — in writing before you make a change. Also check the information carefully to be sure that they provided the coverage you requested.
Ask Around
Another source is to ask friends and relatives whom they use for insurance. Just be aware that about 75 percent of people renew their insurance without ever shopping around. That makes for happy agents, but expensive bills.
Question Your Premiums
When we added Becky (age 19) to our insurance policy, we were quoted a rate from our insurance agent. Later when we received the bill, it was about 4 percent higher. Steve called the agent and received a rather lame excuse from a young assistant. When he called the insurance company to complain and told them that we had also received a quote from GEICO that was considerably lower, things started changing.
Our premium didn’t just go down, it plummeted about 27 percent. The reason given was that they had quoted Becky as the principal driver on one of our two cars. It didn’t make sense. When we told our agent the story, she was shocked and thought that the price change was a result of the competitive “GEICO factor.”
We regularly quote our auto insurance with a local broker and on InsureMe.com. Using InsureMe we found a highly rated company (new to Arizona) and were able to reduce our monthly insurance costs considerably.
Discounts Most insurance companies allow you to pay your premiums monthly. But if you can scrape together the cash and pay semi-annually, you can save big bucks. You may be thinking, how can I come up with $1000 or $2300 dollars for a six-month payment?
Read our Budgeting articles and start paying yourself your monthly premium until you have six months’ worth saved. Progressive gives a discount of approximately 14 percent, while Allstate’s semi-annual discount is about one percent. Factor in a little interest you earn in your checking account and the fact that you don’t have to mail or electronically transfer money each month and your savings is even greater.
Other discounts include:
- Multi-car, safe driver
- No accidents
- Good student
- Insuring your home with the same company as your car
- Anti-lock brakes
- Anti-theft devices
- Air bags
- Living in a retirement community
- Affinity Memberships – various group memberships, and affinity groups — teachers, firefighters, police officers, etc.
Quote Before you Buy
If you’re thinking of purchasing a new or used car, call your insurance agent. A few years back, when we were trying to decide between a Honda Accord or a Civic the insurance price swayed us to go with the larger car. Believe it or not, the Civic was about 10 percent more to insure.
Liability Coverage
In our recent accident, the damage to all vehicles combined was about $35,000. This is the amount that the uninsured motorist who caused the accident was responsible for before both totaled cars were sold at auction.
Your most expensive and most important portion of insurance coverage is Liability — covering the damage your car could do to another person’s property and body. In today’s economy, carrying the bare minimum of $15,000 Property Damage Liability coverage just doesn’t make sense—especially if you have other assets that might be confiscated if your insurance doesn’t cover all of the property damaged. We recommend carrying at least $100,000 per person / $300,000 per accident Bodily Injury Liability and $100,000 Property Damage Liability. We know this can be very expensive, but given the cost of cars and the ease with which lawsuits can come your way, this is just prudent thinking.
For about 12 percent more in premiums, we also have the same coverage for uninsured and underinsured motorist coverage. This is the very coverage that provided an almost brand new van for us as a result of this accident.
Comprehensive Coverage
This covers your car in case it is stolen, hit in a parking lot, catches fire, gets vandalized or if it is involved in an accident all by itself. In the past 20 years, we’ve experienced three items on the previous list: We had a car fire, but that’s another story for another time; our cars have been hit in parking lots when we weren’t in them, and one car was burglarized. Oh, the wonders of living in a large metropolitan area!
You can keep this rate low by raising your deductible — the amount you are willing to pay if any of these things should happen. If you’ve got the money set aside, then raise your deductible, if not, then go with the lowest you can afford. Many people recommend dropping this coverage once your annual premium for the comprehensive portion of your insurance reaches 10 percent of the value of the vehicle. You’ll have to decide that one based on what you are most comfortable with. We’ve always carried full comprehensive even when our cars are old.
Collision Coverage
Many people advocate keeping your insurance bill lower by raising your collision deductible. Remember that usually more than one-half of the cost of your full coverage auto insurance premium is the liability portion, which has no deductible associated with it. The difference in cost between having a collision deductible of $100 or $500 for two cars is about $14 per month. Not much in our opinion. But if the budget is tight and you need to cut, beef up your savings and get out your scissors.
Towing
If you have a AAA membership, you can drop your towing coverage and save a little. Plus, the maps alone are worth the membership fee.
Medical
If you have a decent medical insurance policy and don’t normally carry other people in your car, then you can drop this coverage.
Rental Car
If you have an extra car available or can make use of public transportation in a pinch, this coverage can be dropped. But if you’ve got a family and need to be mobile, this is a must. Car repairs always take longer than expected and never happen at a convenient time.
Be sure you understand your insurance policy and your needs. Be very careful who advises you. Many agents would love to sell you more insurance based on fear or just to increase their commissions. Look at it this way: You only have to become an insurance expert every few years when you are collecting quotes—other than that, you can rest easy knowing you are covered for sure!