How to Save Money on Car Insurance

Insurance price factors you can control

Comparison Shopping

Comparing auto insurance quotes is usually the best way to get the lowest rate since there are dozens of auto insurance companies on the market, each with their own formula to determine how much you’re going to pay every month. Every company will offer their own discounts for various situations (being a good student, having no accidents, etc.) making it impossible to point-blank tell somebody “Geico is always going to have the best rates” or “State Farm is going to cost you a fortune don’t go with them”.

One common misconception about doing this is that it’s going to hurt your credit. This is not correct. Unlike shopping around for rates for a loan, which may slightly hurt your credit for a few months, shopping around for auto insurance does not. Most auto insurance companies will pull your claim history (if you have any) from a third party provider similar to a credit reporting bureau. Most major insurance companies get this from the CLUE database provided by LexisNexis. Just like with your credit report, LexisNexis is required by law to give you a free report of your insurance claims every year.

Driving a Safer Vehicle

Auto insurance companies don’t like it when you drive a vehicle with a low safety rating, even if you have a clean driving record. Their concern is that if you do get into an accident (and it is a “When” not “If” – about 98% of Americans are involved in an accident at some point in their lives) and if the accident is serious, your injuries are going to be much worse than they would have been in a safer vehicle.

Minimum limits of medical insurance vary from state to state but auto insurance companies aren’t always concerned with the nominal limits. They may only be on the hook for as little as $50,000 in a bad accident that injures several people since that’s the minimum limit (also part of what’s known as Minimum Coverage) allowed in many states. What worries them is another driver hitting you and either not having insurance or not having enough insurance to cover your medical bills, while you carry uninsured/underinsured driver coverage. All of a sudden, they might be on the hook for $1 million if you or other passengers require long-term care.

This is why you’ll often see insurance premiums come out to about the same price for a new(er) vehicle and an older, less safe vehicle, even if the newer vehicle is worth five times as much as the older one. Similarly, a coupe is almost always going to have a higher premium compared to a sedan. This is mostly because people tend to drive coupes in a more reckless manner and if you need to get out of the car fast (flipped car, fire) it’s going to be much easier for those in the back to egress from a sedan.

Car Value

While I explained that driving a safer car will result in a lower rate as compared to a cheaper, less safe car, the value of a vehicle does play a part in how much you will pay. An Aston Martin is going to cost more to insure than a Cadillac specifically because of how much it would cost to replace it. Going back to the uninsured/underinsured coverage issue, your insurance provider knows that it only takes a $1000 beater to total a $100,000 vehicle. The person who is driving the cheaper car likely cannot afford to pay the difference between their property damage limit and the actual value of a car that costs 6 figures. Even if you’re a safe driver, exotic cars and anything over about $70,000 is going to receive an upcharge from your insurance provider.

Driving History

The fewer claims you submit (or are submitted against you), the better rate you’re going to receive. Speeding tickets and previous accidents will affect how much you’re going to pay in monthly premiums.

Many states have defensive driving programs you can take once every year or two to remove a speeding ticket from your driving record. Some insurance companies even encourage you to take these programs without a speeding ticket and will give you a discount on your premiums.

How accidents affect your auto insurance is dependent on where you live. Some states do not allow insurance companies to charge you more because of accidents where you are not found at-fault, while others basically let the insurance companies charge you whatever they want. In general, an accident that clearly is not your fault, as evidenced by a police report or judge, will not cause your rates to go up. A history of accidents may be frowned upon by other insurance providers if you want to change insurance companies.

You can’t avoid every accident but you can be attentive to the road and avoid accidents that are clearly your fault. At-fault accidents will cause your auto insurance rates to jump faster than just about anything else. This holds even more true if your insurance company sees a pattern emerging of multiple accidents, which points to the fact that you probably are not a safe driver. In those cases, you’ll be lucky if they just jack up your price and not dump you completely.

Keeping your claims, tickets and accidents down though should get you a better deal on insurance than those who have recorded driving issues.

Limits, Deductibles and Coverage

Lowering your insurance limits is one way to reduce the amount you’ll pay in monthly premiums, but it isn’t always the smartest choice. Just about any vehicle you are still paying off will need full coverage insurance, which covers at least your state’s minimum liability limits, as well as collision coverage (for damage to your vehicle in an accident) and comprehensive coverage (weather, theft, vandalism).

Even if you don’t have a loan out on your vehicle, full coverage may still be a good idea if your car is worth more than a few thousand dollars and/or you wouldn’t easily be able to pay for a replacement if your car was totaled.

Your deductible is the amount of money that your insurance will not cover if you submit a claim to them. The standard is around $500 but you can increase the deductible to $1000 or even $2000 with some insurance providers. A higher deductible will give you a lower rate, which is more than worth it if you never submit a claim. If you are insuring a vehicle worth a lot of money, you can probably get away with a higher deductible since a repair, or an event that totals your vehicle, will cost far more than your deductible.

A quick overview of the types of coverage you can get through most insurance providers would include –

  • Liability coverage (required) – This is often split into $X/$X/$X format, which stands for the bodily injury limit for one person, bodily injury limit for an entire accident, and property damage limit. EDIT As u/macmaverickkposted in the comments, your state’s minimum limits are the bare minimum requirement for driving legally. Some states (California as per his example) have very low limits that would likely expose you to lawsuits for even a relatively minor accident. Getting higher limits will cost you a little more each month, but if you get into just one serious accident in your lifetime, it will have likely more than paid for itself.
  • Collision coverage (required if you have an auto loan) – This is how much coverage you have to replace your own vehicle if you damage or destroy it in an accident where you are found at-fault.
  • Comprehensive coverage (required if you have an auto loan) – Non-driving events that cause damage to your vehicle are covered under this. Weather damage, vandalism and theft are by far the three biggest claims under this type of coverage.
  • Uninsured/Underinsured driver coverage (sometimes required if you have an auto loan) – If you have this, your insurance will pick up the tab for injuries or damage to your vehicle in cases where the other driver in an accident that isn’t your fault has no insurance or too little insurance to cover everything.
  • Gap coverage (sometimes required if you have an auto loan) – In the event your car is totaled and you owe more on your loan than what the insurance company determines the value happens to be at that point in time, this coverage pays the difference to your loan provider.

Extra types of coverage will cost a little more, but it may be worth the peace of mind if you aren’t completely financially secure.

 

Insurance price factors you can’t control

Even though you really can’t control these factors, I’m going to touch on them so you know what to expect.

  • Age – 16-24 year olds will usually see higher insurance premiums than older drivers, who presumably have more experience behind the wheel. This gap is especially prevalent with 16 and 17 year olds who will have almost no experience and likely still be in high school. Good student discounts can kick in even at this point, since insurance companies know that better grades usually points to an individual being more responsible. After about 45 years, rates start rising once you hit about 70 since your eyesight generally gets worse and your reaction time isn’t quite as fast.
  • Gender – Health insurance companies cannot factor your gender into their premium calculations but auto insurance companies absolutely can (except in Colorado and Montana ). Males are going to be charged higher premiums than females if everything else is equal. The difference may not be a lot, but there seems to be little push to change it, mainly because either the rates for men would go down or the rates for women would go up. Take a guess at which choice the insurance companies would pick.
  • Zip Code – While you can technically control where you live, it is impractical to base your housing decisions on saving a few dollars a month on auto insurance. Areas with a higher crime or accident rate will see higher premiums as opposed to areas with lower crime rates and safer streets.
  • Marital Status – Married couples and those in civil unions usually see a slight drop in insurance rates after they tie the knot. Insurance companies figure those who are single might be prone to being a tad more reckless.

Lowering Healthcare Costs Tips

Healthcare expenses can be quite high, with deductibles of several thousand dollars and out-of-pocket maximums over ten thousand dollars. Luckily, the IRS allows people to sometimes lower the actual cost of healthcare expenses by paying for them pre-tax.

 

Using Healthcare Flexible Spending Account (HCFSA) to Lower Healthcare Costs

Some employers grant access to a Healthcare Flexible Spending Account (HCFSA, sometimes called FSA), where money is taken out of the employee’s paycheck pre-tax. Then, as the healthcare expenses are incurred, the employee submits the receipts to the HCFSA program, which then reimburses the expenses from the pre-tax allotment. Some HCFSA programs also supply a debit card which can be used to pay for eligible expenses.

One of the biggest issues with HCFSAs is that the money allocated for them is “use-it or lose it”, meaning that only expenses incurred during the calendar year can be reimbursed from the HCFSAs. Any money left in HCFSA cannot be used in the following calendar year. While some companies allow carrying over up to $500, you’ll need to check your companies exact policy to determine what amount, if any, can be carried over to the following year.

For example, Joe allocated $2,000 for his HCFSA. Over the course of the year, Joe incurred $1,000 of medical expenses. Joe’s company’s HCFSA does not allow carrying over any funds in his HCFSA, so Joe loses the remaining $1,000 in the HCFSA.

 

Using a Health Savings Account to Lower Healthcare costs

Another option available is called a Health Savings Account (HSA). If someone has an insurance policy classified as a High-Deductible Health Plan (HDHP), they are allowed to open and fund an HSA. An HSA can be funded with pre-tax dollars, and unlike an FSA account, the balance is not forfeited at the end of the year. Any money left in the HSA at age 65 can be withdrawn without penalty, similar to a traditional 401(k).

 

Other Tips to Lower Healthcare Cost

  • Ask About Generics
  • Ask for a Discount
  • Listen to Your Doc
  • Shop Around
  • Compare Costs for Lab Tests
  • Try Mail-Order Medications
  • Read Your Bills
  • Consider a High-Deductible Plan
  • Use a Flexible Spending Account
  • Take a Walk

Preparing for Medical Treatment

There are many stories of people being shocked with a bill for thousands of dollars. Below are the steps you can take to avoid owing (potentially) thousands of dollars.

  1. Choose an in-network practitioner. Verify that they’re in-network by calling your insurance company or checking your insurance company’s online directory. Many people have been told by a secretary that the practice is in-network and then learned otherwise. If you go out-of-network, you’ll likely have to pay the full charge for the service and will likely need to submit the bill to the insurance company yourself for reimbursement.
  2. If a referral or preauthorization is needed, make sure the paperwork is squared away. You may receive an EOB for the upcoming procedures. If you don’t receive an EOB, call your insurance company to verify that all necessary paperwork went through.
  3. After each visit, you should receive an explanation of benefits (EOB) with an itemized list of what the doctor billed for. If there is an unexpected or fraudulent item, contact the doctor’s office to clarify why that line is included on your bill. Health providers are required to provide an itemized bill. If the charge is fraudulent, contact your insurance company.
  4. If you go to an out-of-network practice, keep a copy of the statement from the doctor’s office, in case you need to submit the claim to your insurance company yourself. Even if the secretary says they’ll submit the claim to your insurance for you, they may not – and you’ll be the one who has to foot the bill.
  5. Once you determine how much is owed from a medical visit, submit the expense to your HCFSA for reimbursement.

Understand Your Car Insurance Policy

Your auto policy is broken down into different coverage types. The types are fairly standard company to company and across different states. There is some variation in exclusions and definitions between insurance companies. In addition, different states have different minimum requirements as well as some different coverage options and requirements.

 

What is Collision Car Insurance Coverage?

  • Collision: This is what most people think of when they picture car insurance. It covers damage to your car resulting from an accident (with another car or stationary object). Collision is usually required when you have a car loan. When you don’t have a loan, collision is usually an optional coverage. If you are driving a beater it may not be worth the money to insure, especially if you have an emergency fund to cover a new car in case of an accident. Deciding whether to drop collision is a personal decision. It is recommend talking to an agent. They can break down your quote and tell you what it costs to keep collision on your vehicle. This will help you decide if it’s worth it.

 

What is Comprehensive Car Insurance Coverage?

  • Comprehensive (Comp): Comp is similar to collision but this covers damage to your car caused by an ‘act of god’ (wind, hail, falling trees, deer, cracked windshield, etc.) Everything else said for collision applies here. However, note that you can have separate deductibles for comp and collision. Many people like having a lower comp deductible to cover the less severe cosmetic damage (hail, glass).

 

What is Property Damage Liability Car Insurance?

  • Property Damage Liability or Physical Damage (PDL or PD): If you’re deemed at fault in an accident, this covers the damage to the other car(s) and / or building / property you damage. This is a required coverage with the required limits varying state to state. I’d highly recommend getting at least $25,000 limits (if not more) even if your state requirements are lower. If the damage you cause exceeds your limits you will be legally obligated to pay the difference out of pocket.

What is Bodily Injury Liability  Car Insurance?

  • Bodily Injury Liability (BI): This is similar to Property Damage Liability but it covers the person you injure, not the car. BI pays for medical bills, pain and suffering, wage loss, and funeral service. It is primarily used for people in the car you hit but also covers pedestrians you hit and any passengers in your car. However, note that this coverage does not cover you (the at fault driver). The limits with this coverage get a little more complex. There are two limits. Per person and per occurrence. A common example would be 50/100. This means it will cover up to $100,000 for any given accident but each person is limited to $50,000. Like Property Damage Liability, you could be held liable for additional damages if your limits are insufficient. A minimum of 100/300 is recommended.

What is Medical Expense / Medical Payments Car Insurance?

  • Medical Expense / Medical Payments (Med Pay): This covers your (and your passengers’) medical bills. It is a no fault coverage so it applies regardless of who caused the accident. This is a great coverage, especially if you have no / limited health insurance. Even if you have health insurance this is nice because there are no deductibles / copays. In some PIP states (see below) med pay is not available.

 

What is Personal Injury Protection (PIP) Car Insurance?

  • Personal Injury Protection (PIP): This varies greatly from state to state and is not offered in some states yet required in other states. Like med pay, it’s a no fault coverage. It will cover your medical bills regardless of who is at fault. However, unlike med pay, there is sometimes a threshold; you must reach a certain amount of medical bills before this coverage kicks in. Another difference is that PIP also covers additional expenses such as wage loss.

 

What is Uninsured / Underinsured Motorist (UM/UIM) Car Insurance?

  • Uninsured / Underinsured Motorist (UM/UIM): This is an additional coverage and varies from state to state. It basically covers accidents where you’re not at fault but the other person doesn’t have any / enough insurance. You may be thinking that earlier this page mentioned under BI/PD that if you’re at fault you can be held personally liable if your insurance limits aren’t sufficient. So why would you need this coverage? If the other party is at fault either their insurance would cover it or they would pay out of pocket. But what if it’s a hit and run? Or an unemployed bum? The chances of you ever seeing a penny is slim. This coverage protects you when the liable party is unable to pay. The PD portion covers damage to your car and the BI portion reimburses you for medical bills, pain and suffering, and lost wages. So now you’re probably thinking well I have health insurance plus I already have med pay so why would I need this? Simple. This offers further protection. If you’re in the hospital, unable to work, after the accident this will cover your lost wages. If you require in home care, this will cover it.

 

What are other types of car insurance?

  • Other: Depending on the carrier, there may be other optional coverages such as emergency road side assistance. These are highly variable so they will not be covered here.

 

Ways to save money on car insurance

Here are a few tips on how to save on buying car insurance

 

Shop around for better car insurance.

  • Shop around. Talk to an agent. Get a quote online. There are dozens of factors that go into pricing and each company has a slightly different formula. Find the company whose formula works in your favor.

 

Pay Car Insurance Bill Upfront

  • Pay your bill upfront rather than monthly. Many companies give you a discount for paying right away rather than once a month. Additionally, if you’re able to use a rewards credit card to do this you could get additional cash back (just make sure to pay your statement in full to avoid paying interest).

 

Adjust Car Insurance Deductibles

  • Adjust your deductibles. Sometimes this makes sense, sometimes it doesn’t. It really comes down to how the company prices and how comfortable you are with risk. For example, if some cases, increasing the deductible from $500 to $1,000 would have only saved the driver $8 every 6 months or $1.33/month. In order for this to work out in that person’s favor, they would have to go 375 months without an accident. In this situation it wouldn’t be worth the extra risk and kept the lower deductible. However, if you feel you’re a safe driver and are unlikely to get in an accident, and also have an emergency fund big enough to cover a large deductible, go ahead and increase your deductible and save a few dollars.

 

Bundle Car Insurance with Other Insurance

  • Bundle. Try to get your homeowners / renters through the same company. Most places offer a large discount when you bundle. If you have children / dependents it could also be worth looking into term life as well.

Take a Defensive Driving Course to Lower Car Insurance Rates

  • See if you can get a discount for taking a defensive driving course. Just make sure the discount would offset the cost to complete the course.

Get Usage Based Car Insurance

  • Get usage based insurance (UBI), especially if you do not drive a lot. Many companies offer a discount for installing a device in your car that monitors your driving habits for a few months. On top of the discount offered for installing the device, most companies will then lower your premium further if you have safe driving results.

 

Ways not to save on car insurnace

We all try to save money, but there are some saving tips that could hurt you in the long run.

  • Do not lower your limits to save a few bucks. You can probably safely lower the collision / comprehensive if you have a large emergency fund but it is not advisable to lower any of the other coverages.
  • Make sure to check reviews before choosing a company. Going with a reputable, better rated company is worth a few extra bucks. When your car is totaled and you’re in the hospital, the last thing you want to deal with is an unresponsive insurance company.
  • Don’t lie about anything on your application (such as pre-existing damage, etc.). This is illegal can come back to hurt you.

How to Save Money on Car Insurance and Home Insurance

Renters Insurance Can Save Lots of Money

Getting a renter’s insurance policy can save you money on many different things. Renters insurance covers quite a few things, including:

  • Coverage for your personal content, even if it’s not in your home (eg: items in your car. Certain limits apply for traveling and storage).
  • Coverage if you are temporarily displaced,( eg: you need to stay at a hotel while your house is being repaired for smoke damage, money to replace lost clothes, increased food expenses because you’re eating out every day since you don’t have a stove, etc.)
  • Coverage for liability (eg: someone falls in your apartment and breaks their leg, sues you for negligence). I typically see this at 300k
  • Coverage for your defense costs (eg: lawyer fees, small allowance if you need to miss work to attend court hearings, etc.) This is included.

And how much does this coverage cost (including the numbers I used above)? Usually under $200 annually. Further  if you bundle your renters and auto, sometimes the discount on auto will cover the renters (eg:$200 savings on auto, renters cost 150, net savings: 50.) Call your auto insurance, ask if they have renters insurance as well.

 

Why should you get renters insurance?

Why should you get renters insurance? What would a worst case scenario look like? For the lazy, imagine you accidentally start a small house fire while cooking. It damages a few thousand dollars’ worth of your stuff, plus you have to live in a hotel while it’s being repaired, and your landlord is going after you for damages because he has to pay for the repairs. If you don’t have renters insurance, you’ll be paying all of that out of pocket. Oh, but if you DO have renters insurance? You’re paying the deductible (typically 250 or 500), and then letting your claims adjuster deal with everything else. Have to take time off work to go to court to prove you’re not negligent? They have you covered.

 

Higher Insurance Deductibles Will Save You More Money

General rule: Get at least $500 deductible on your auto insurance, preferably $1k. For homeowners insurance, it’s best to go with at LEAST $1k, preferably 2.5k or even 5k. Renters can get away with 250 or 500, honestly.

The difference is usually several hundred a year, and you pay the deductible before the insurance pays anything. For example, let’s say your insurance is $1,500 a year with a $1k deductible, and $900 a year with a$ 2.5k. After 4 years, with a $1k deductible, you’ve paid $6,000 to the insurance company, and then you’ll have to pay another 1k in the event of a claim. After 4 years with a $2.5k deductible, you’ve paid $3,600 to the insurance company, and put aside $2,400 that would have gone to the insurance company, so basically covered your deductible. One more year, you can use the $600 you’ve saved to cover the deductible with $500 additional savings to do whatever you’d like.

 

Insurance should only be used in an emergency/making claims will increase your rates

This is the one that gets people the most. You pay $1,500 a year for insurance, you’ve been paying the last ten years, so why shouldn’t you make a claim when you’ve already paid then $15k? Because it’s going to raise your rates.

Why do insurance rates go up if you make a claim? If you don’t make any insurance claims, the insurance actuaries put in a group, “unlikely to make a claim”. Because you’re in that group, you get more favorable rates. If you make a claim, you automatically switch to a different group, “likely to make a claim.” Because you’re in this group, you’ll get less favorable rates. On auto, it will last for 3 years; on home, five. It doesn’t matter if you haven’t made a claim in your entire life up until this point; as far as the insurance company can see if, you’ve made a claim and will be much more likely to make another.

For example: Let’s say you have a $1k deductible. Someone breaks into your car, steals your purse worth $1,500. Personal property is covered by your home/renters, so if you make a claim your home will pay out $500 (cost of loss-deductible). They now see you as riskier, so they will increase your rates. Maybe $300 a year for the next 5 years; you’ll pay $1500 over the next five years, plus you’ve already paid the $1000 deductible, so now you’ve paid $2500 for a $1500 purse. In this case, it will cost you less to just buy a new purse out of pocket.On the other hand, if you have a kitchen fire that does $30k in damage? Yeah, make a claim on that one.

 

Most vehicles don’t need full insurance coverage

Unless A) Your vehicle is financed, then it’s required by your financing company, or B) Your vehicle is less than 10 years old, then your vehicle will pay out more.

 

Why don’t you need full insurance coverage?

  • Full coverage isn’t an industry regulated term. Professionally, it means nothing. It usually includes collision and comprehensive coverage; some companies will also throw in towing, glass, and rental. If you ask for full coverage, you could be getting anything.
  • Your policy will typically only pay out collision if you’re at fault. If the other driver is at fault, their insurance will pay out. Comprehensive does cover more, so you can get away with having comprehensive (vandalism, theft, tree falls, hit deer) but no collision (you hit object)
  • We will only pay out what the vehicle is worth. Not what it costs to get a new vehicle of this type, not what it costs to get a used vehicle of this type. Doesn’t matter if you paid $35k for the vehicle 10 years ago, doesn’t matter if it costs $15k ro replace it today, we’re only going to pay out the Actual Cash Value, and it typically isn’t 15/35k on a 10 year old vehicle (Much more common is less than 5k)
  • You actually end up paying the company more than it would pay you in the event of a claim, because “full coverage” costs more than liability only.

 

Example of Getting Less Than Full Coverage on Auto Insurance

Let’s say you have a buy a vehicle in 2001 for $20k. ACV is 3k. Your insurance is 1000 liability only, 1500 with collision and comprehensive, with a 1k deductible. Over the course of 4 years here’s what your insurance totals will look like:

 

Liability only coverageFull insurance coverage
1$1,000$1,500 ($500 extra)
2$2,000$3,000 ($1k extra)
3$3,000$4,500 ($1.5k extra)
4$4,000$7,000 ($2k extra).

 

Liability is what you have to pay anyways, so unfortunately there’s not a lot you can do to get around that. For the collision and comp, you’ve paid out 2k extra over the years. If you have an accident right now, the ACV is 3k, minus deductible (in this case 1k). So the most they’ll pay out is 2k, which is the amount you’ve paid them, so you break even. Ever year after that that you don’t have an accident, you’re paying them money that you will never get.

The exact amounts vary, which is why I have the general rules A and B above. If you’re not entirely sure, find out the rough value of what your vehicle is worth. Price liability only coverage (that’s coverage if you hit someone), and liability+ collision and comprehensive coverage (coverage if you hit someone, and also for your own vehicle). Take the rough value of your vehicle, subtract your deductible, this is X. Then take (the price of your quote with collision and comprehensive) and subtract (the price of your quote with liability only). This is Y. X divided by Y is how long it will take you to “break even” if you were to have an accident (although this is obviously not the goal).