How to Confidently Shop for Auto Insurance
By Annmarie Geddes Baribeau
Consumer advocates have been cautioning that some automobile insurance companies are using “price optimization” to collect more money from loyal customers. Whether your insurance company is engaging in price optimization or not, the good news is it does not have to affect you.
By shopping around, you can make sure you are getting the right auto insurance coverage at the most reasonable cost. It’s a good idea because auto insurance prices are increasing just like virtually everything else. According to the Insurance Information Institute (III), the average cost for car insurance is projected to have risen 2.6 percent in 2013 to $836 and 2.9 percent in 2014 to $860.
People should shop around every two years, said J.D. Howard, executive director of Insurance Consumer Advocate Network, LLC. “Every two years it seems the marketplace gets shaken up so shop every two years to verify that you have reason to be happy with the company you already have,” he added.
It is wise to review your coverage at renewal time to make sure your insurance needs haven’t changed, said Robert Hartwig, president of the III, which also publishes a free booklet on buying car insurance at.
Double-checking coverage when you move to a new city or state also ensures your current insurer remains the best choice, said Professor Robert E. Hoyt, Moore Chair and Professor of Risk Management and Insurance at the University of Georgia’s Terry College of Business.
While comparing auto insurance policies and prices might seem intimidating, knowing what kind of coverage you need, being aware of applicable discounts and searching some helpful websites might even make buying auto insurance kind of fun!
When it is time to shop around for car insurance, consider the following steps:
- Figure out how much insurance you legally need. States require different types and minimum levels of auto insurance. To learn your state’s requirements, visit the National Association of Insurance Commissioners’ (NAIC) website and choose your state of residence, Hartwig said.
- Determine how much insurance you need for full protection. The whole point of auto insurance is it covers costs from accidents that most consumers cannot pay themselves. Buy liability limits twice the value of your net worth (assets),” Howard said.
How much? “I typically recommend $100,000 for liability coverage to take care of injuries sustained due to your negligence for one injured person, $300,000 for two or more people and $50,000 for property damage,” he added. For “combined single limit” coverage, he advises adding up those totals, which is $450,000.
If you have higher levels of wealth to protect, Hoyt recommends umbrella coverage of at least $1 million. “Worth noting is the fact that a personal umbrella policy, if in force for $1 million, would pay the additional costs that are not covered under the auto policy,” he said.
- Consider your need for other coverages.
Howard also advises purchasing uninsured motorist coverage, whether it is state required or not, so you are covered if the other driver lacks car insurance or does not have enough insurance. “You need to make sure your uninsured motor coverage equals your liability coverage,” Howard said.
“Uninsured motorist coverage is often overlooked, and the difference in premium is so small it should be a no brainer. Just do it,” he added. He also recommends getting “auto med-pay coverage,” which reimburses medical expenses for treatment of any injuries sustained while in – on – entering – or alighting from the insured vehicle for up to $10,000 of expense. It does not have a deductible.
Also consider your need for collision insurance, which covers vehicle damage and comprehensive coverage, which will address costs from theft, fire, falling objects, explosions or other unexpected problems, Hartwig said.
If you have an outstanding loan, Hoyt said, the lender will require collision and comprehensive coverage because it protects car loan collateral.
However, if you have an older car, consider dropping collision and/or comprehensive coverage, Hartwig said.
“If your car is worth less than 10 times the premium, purchasing the coverage may not be cost effective, Hartwig added. To find the value of your car, ask auto dealers and banks or check out Kelley’s Blue Book (www.kbb.com).
He also recommends purchasing towing coverage if you are not already a member of the American Automobile Association (AAA) and buying rental reimbursement coverage. Check your state insurance department website, which will likely offer price comparisons and insurer consumer complaints, Howard said.
- Figure out the deductible amount you can afford. Two of the most common car insurance purchasing mistakes are purchasing both deductibles and limits that are too low, Hoyt said.
“A consumer would be best served to move their collision deductible from $250 up to $500 or $1,000,” he added. “The premium reduction associated with a higher deductible will often pay for the increased cost of the higher liability limits and will protect the consumer from potential financial ruin,” Hoyt said.
- Prepare to shop. After sorting how exactly how much insurance you need, have your current insurance policy, drivers’ license and vehicle registration on hand, Hartwig said.
- Start shopping. Ask friends and relatives for their recommendations or body shops that work with insurers, Hartwig said. Visit websites or contact insurance companies or insurance agents and get at least three price quotes, he added. You should ask them to quote the same coverage that you currently have,” Hoyt said. “That way you can compare costs on an apples to apples basis.”
- Ask about money-saving discounts. Depending on the insurer, discounts can apply for buying multiple coverages (combining auto coverage with home, renters or umbrella policies); multiple vehicles, low use (mileage); driving record, antitheft devices; defensive driving courses; a good credit record or good grades (for students), Hartwig said.
- Don’t shop by price alone. Make sure your insurer is solid financially. Rates from the A.M. Best Company should be at least B+, Hartwig said. A rating from Standard & Poor’s should be at least BBB, he added.
Check your state insurance department website, which will likely offer price comparisons and insurer consumer complaints, Howard said. Saving a few bucks, Hoyt said, “by moving to an insurer that is not good at paying claims is ‘penny wise and pound foolish.’”
Further, a quality insurer should offer a toll-free phone number for questions. Choose an agent or company representative that takes the time to answer your questions, Hartwig said. And when you get a quote, be sure to confirm the price and request quote confirmation via fax or e-mail.
