How To Find The Best Car Insurance Policy
How To Find The Best Car Insurance Policy

If you drive a car every day to work, car insurance is essential. Vehicle insurance (also known as car insurance, motor insurance, or auto insurance) is insurance for cars, trucks, motorcycles, and other road vehicles. Its primary use is to provide financial protection against physical damage or bodily injury resulting from traffic collisions and against liability that could also arise from incidents in a vehicle. Vehicle insurance may additionally offer financial protection against theft of the vehicle, and against damage to the vehicle sustained from events other than traffic collisions, such as keying, weather or natural disasters, and damage sustained by colliding with stationary objects. The specific terms of vehicle insurance vary with legal regulations in each region.

In the article below, we have searched for information, insurance tips, and discount facts, what to avoid while looking for the best car insurance policy.

How Much Car Insurance Do You Really Need?

Photo:  LipiZZan India
Photo: LipiZZan India

How much car insurance do I need and how much car insurance is required are two very different questions. State requirements are often much lower than the amount necessary to protect you financially in the event of an accident.

The best liability coverage for most drivers is 100/300/100, which is $100,000 per person, $300,000 per accident in bodily injury liability, and $100,000 per accident in property damage liability. You want to have full protection if you cause a significant amount of damage in an at-fault accident. You will also want the highest levels of personal injury protection (PIP) coverage, uninsured motorist coverage, and other coverages required by law in your state. Remember, you will be held responsible for all damage you cause in an accident, so minimum liability coverage of 100/300/100 can protect your assets and future earnings.

Comprehensive and collision coverages aren’t requirements by law, but that doesn’t mean you don’t need them. If you have a loan on your vehicle, your lender may require comprehensive and collision coverage. Other coverages, like gap coverage or windshield coverage, may also be required by your lender to make sure you are protecting their investment.

Photo:  BrainQuizzes
Photo: BrainQuizzes

These coverages are also a good idea if you can’t afford to replace your car if it is totaled or could not afford a major repair out-of-pocket. There are a lot of ways your car can be damaged, so making sure you have protection against any potential loss is a smart decision, according to Money Geek.

Summary of Typical Car Insurance Coverage Types

Bodily Injury Liability: Liability insurance protects you by paying for another driver’s medical bills in an accident where you were at fault. Each state has its own minimum liability requirements, but it’s a good decision for you to have at least $100,000 per person and $300,000 per accident in bodily injury liability coverage.

Property Damage Liability: Liability insurance also pays for damage to another person’s property if you are at fault in an accident. Each state has its own minimum liability requirements, but you may want to have a minimum of $100,000 in property damage liability coverage.

Collision: Collision insurance pays for damages to your vehicle when you are at fault in an accident. If you have a loan on your car, your lender may require active collision insurance on your policy.

Comprehensive: Comprehensive insurance covers damage to your car that isn’t a result of an accident. Hail damage, theft, and fire damage are just a few examples of what would be under this comprehensive insurance coverage.

Factors That Impact the Cost of Car Insurance

Your car insurance cost will vary depending on several factors that include:

-Your driving record

-Your age and driving experience

-Where you live

-Coverage selections

-Deductible amount (if you buy collision and comprehensive coverage)

-Vehicle model

-Your car insurance history

Your credit-based insurance score (use of this in car insurance costs is banned in California, Hawaii, Massachusetts, and Michigan)

The difference between agreed value and market value

Photo:  Etiqa Blog
Photo: Etiqa Blog

Market value car insurance

The car’s market value is based on what similar cars in the same condition are worth, as well as the average price if you were to replace that set of wheels today. The value even takes mileage into account.

You may still need to pay a car insurance excess, a one-off payment to be made to your insurer before your claim can be paid out. That amount will vary, depending on what is agreed between you and your insurer when taking out the policy.

The benefits of market value

Market value policies are generally cheaper than agreed value ones, which can help save money for those who are happy to insure their car for what the market would pay for it. Another advantage of the market value car insurance is that it adapts to match the cost of replacing your car. If the car’s value changes in a couple of months or years, your insurance will reflect this. This way, you know that you can replace that vehicle with something similar, with the cost covered by your insurer.

However, it does mean you’ll get less money back over time as the vehicle depreciates, which is a drawback of market value car insurance. This is where an agreed value policy may be beneficial, according to Compare The Market.

Agreed value car insurance

The agreed value is an amount both you and your provider consent to insure the car for. It’s important to note that agreed value policies aren’t available for all vehicles. Each insurance company has its own rules on when they will offer it and how much higher or lower (compared to market value) they will insure the car for. If your car has pre-existing damage, this might affect whether you can get the agreed value.

A key difference between market value and agreed value is you get whatever amount of money back in a claim that you agreed on with your insurer because that policy pays the same regardless of your vehicle’s depreciation (minus any excess payments you may owe).

Insuring your car at agreed value does, however, have a few caveats.

It affects your premiums. You can insure your car for more than it’s worth. However, if the cost to replace the car is greater for the insurer, you may end up paying more in premiums. You can insure the car for less than what it’s worth for a cheaper premium, but you might not be adequately covered.

The agreed value can change. The amount you insure your vehicle for is honored for the term of your insurance policy. Your policy probably gets renewed every year, though, and then your insurer may propose a new agreed value which will typically be less than the first agreed amount.

The benefits of agreed value

The key benefit of an agreed value car insurance policy is that it provides more certainty on how much the car is worth and what you’ll get back (minus any excess payments) should you need to make a claim.

Market value vs agreed value: which is cheaper?

There are a number of factors that impact a premium and the vehicle’s value is just one of them. It’s important to shop around and compare your options.

Though market value policies are normally cheaper, agreed value can be less expensive if you insure your vehicle for less than it’s actually worth, resulting in a cheaper premium..

And if you want it to be covered for more than it’s worth, you’ll pay extra in premiums. Both of these situations require the insurer to agree to the lower or higher value you wish to insure your car for.

The cost of a market value insurance policy largely depends on how much your car is worth in the first place, amongst other factors. It’s important to compare market value options vs agreed value policies to see which option is right for you.

What Types of Car Insurance Discounts Should I Look For?

Ask about car insurance discounts when you’re getting car insurance quotes. You can typically knock down your car insurance costs with discounts for:

• Buying multiple policies, such as auto and home insurance

• Insuring more than one vehicle

• Being a good driver

• If you have a student on the policy, a discount if they’re a good student

• If you have a college student on the policy, a discount if they’re away at school without a car

• Taking a defensive driving class if you’re age 55 or older

• Paying your full car insurance cost up-front

Every insurer has a name for this: no claims discount (NCD), safe driver bonus, the list goes on. Essentially it's a discount for not making a claim. The amount of the discount varies depending on the insurer. A 'maximum' rating (which usually means no claims for five years) can save you up to 70%.

Some insurers offer a lower NCD, but will also give you a discount on their roadside assistance product.

You can often pay extra to protect your NCD, meaning if you do have an accident, it won't affect your rating. But if you have a protected no claim bonus, don't assume an 'at fault' claim won't have an impact on your premium. Some insurers increase your premium regardless. Even a 'no fault' claim such as hail damage can impact your premium.

Photo: Shutterstock

Photo: Shutterstock

Types of insurance discounts

1. Loyalty Discounts

To get a loyalty discount, ask your insurance company whether a discount is offered, how long you’ll need to be a customer to be eligible, and any other terms that might apply. Insurance companies apply the discount after a predetermined period of time, and some companies will increase the discount the longer you remain a customer. However, the availability of this discount depends on your insurance company, and it may also vary by the state you live in. For example, the states of Maryland and Ohio prohibit insurance companies from evaluating customers based on loyalty, so these discounts are not available in those states.

2. Good Student Discounts

High school and college students are often eligible for discounts. Some companies offer discounts to all students (usually with the caveat that they are enrolled in school full-time rather than part-time) though generally, insurance companies make this discount contingent on academic achievement (the theory being that a good student is likely to be a more responsible driver than a mediocre or poor student). This is similar to the way insurance companies use homeownership or credit score as a way of assessing an adult’s risk as an insurance company.

If you’re a parent with a student on your car insurance plan or a student with your own insurance policy, it’s worth a phone call to your current insurer to see if such discounts are available. If you’re shopping around for a new company, it’s definitely worth asking about, according to US News.

3. Vehicle safety discounts

If your car has safety equipment like anti-lock brakes, airbags, and daytime running lights, you may get a discount. Daytime running lights are typically very small discounts, but airbag discounts for full-front seat airbags can be as much as 40% applied to your medical payments or personal injury protection coverage.

4. Anti-theft device discounts

If your car has anti-theft features, you can typically get a discount up to 5% to 25% off your comprehensive coverage. Depending on the insurance company, you may be able to get anti-theft discounts for both factory-installed and after-market installed devices.

5. Multi-policy discount

A multi-policy discount often applies when you buy car insurance plus other policies from the same company. It’s also called a “multi-line discount” and is commonly referred to as “bundling.” Bundling car insurance and home insurance is usually one of the biggest discounts you can score, often between 5% to 25% off. But if you’re not a homeowner, don’t worry, you can typically bundle car insurance with other insurance such as a condo, renters, motorcycle, boat, RV, and life insurance.

Looking at some of the top companies’ multi-policy discounts shows Farmers is leading the way with bundling deductions on an auto policy when you also have a home, condo or renters policy. Bundling your auto and home policies gives you the best discount across the board, with discounts from 6% to 26%. Renters don’t get as much of a break, with discounts ranging from 2% to 9%, but every little bit helps, according to Forbes.

6. Good Driving Discounts

There are two main types of good driving discounts: those offered to drivers who maintain a clean driving record free of crashes and moving violations, and those offered to drivers who opt-in to tracking programs.

First, let’s look at whether you can save simply by being a good driver. Though some companies do offer small discounts (think 5% or so) if you maintain a clean record for a certain period of time, this isn’t as common as you might expect. It’s true that a clean driving record rewards you with lower premiums, but it might make more sense to realize this is simply how insurance works, rather than expect discounts for it. If you cost your insurance company money in the form of payouts, you’re going to see higher rates sooner or later. Keep it simple, and you’re less likely to see higher rates. So, while maintaining a clean record is one of the key factors in achieving cheap car insurance rates, it’s unlikely you’ll be offered a substantial discount for doing so. The goal is to keep your rates from going up in the first place, rather than expecting them to come down later.

7. Teacher Discounts

Many major auto insurance companies offer special discounts, rates, or perks especially for teachers and educators, including Geico and Farmers. Some of these perks include a waived deductible for vehicle damage incurred on school property and special compensation for work-related belongings stolen from a teacher’s car. If you’re a teacher, check with your insurance company to see if you are eligible for any such discounts or benefits.

8. Employer/Affinity Group Discounts

An employer or affinity group discount can save you money on car insurance, though if you don’t already qualify for such a discount, it’s not worth the effort to go find one. If you work for a company that has negotiated a bulk rate with a certain insurance company, you will qualify for an employer discount, although you’re sacrificing your ability to shop around for better rates or to find the company that’s best for you. Examples of affinity groups include clubs such as AAA or AARP, some credit unions, and some other groups, like alumni associations. These groups sometimes negotiate bulk discounts similar to employer discounts. To see if you qualify, contact your employer’s benefits department or group membership department, or your insurance company.

Useful insurance tips

1. Boost Your Credit Score

In most states, insurance companies use your credit rating to help determine your auto coverage premium. If you have poor credit, statistics indicate that you may have a higher risk of auto accidents, which results in a higher price for the insurance.

2. Combine More Than One Policy

You can save on coverage if you insure more than one driver and/or vehicle with the same provider. Most companies provide a discount for the additional business. It's not just for auto insurance policies; according to Bankrate, you can also save by bundling home or renter's coverage with your car insurance. For example, Allstate provides a 25 percent discount on homeowner's coverage and a 10 percent auto discount when you combine both policies.

Check with your insurance company to see whether you qualify for this type of discount. Usually, only family members can share an insurance policy, though you might be able to get joint auto insurance with a roommate if you own a car together.

3. Save Money With Safe Driving

Being a mindful driver who avoids distractions and dangers can not only prevent serious accidents but also help keep your auto insurance rates low. For example, Travelers Insurance provides a safe driver discount of up to 23 percent according to Nerd Wallet. On the other hand, moving violations that carry points on your driving record, such as speeding, will also raise your auto insurance premiums.

4. Run a Background Check

Price isn't everything when it comes to choosing the right auto insurance company. You should also check the credit rating of the company to make sure it has the money to pay your claim if necessary. Resources such as Standard and Poor's provide free online reports about insurance company financial strength ratings, so search this type of database after you get a quote.

5. Remove Unnecessary Coverage

Read your policy declarations page and identify any aspects of your coverage you don't need. Removing these policies, such as car rental coverage and roadside assistance, will save you money on car insurance.

If you have comprehensive and collision coverage on your vehicle, Investopedia recommends checking occasionally to see if it still makes sense to have these policies based on the actual cash value of your car. If the cost of comprehensive and collision plus your deductible exceeds the vehicle's value, you can drop your coverage.

Common mistakes buying car insurance

1. “Loyalty Penalty” Insurance Needs To Be Avoided

A 'loyalty penalty' happens when longstanding existing customers who renew each year pay more than new customers. In other words, these longstanding customers are penalized by paying higher prices compared to new customers.

In September 2018, Citizens Advice complained about a large number of loyal customers being penalized for their loyalty across mortgages, home & motor insurance, and broadband.

In 2018, the financial services regulator (The Financial Conduct Authority (FCA)) identified a number of issues relating to the way motor and home insurance was priced in the UK. In 2020, the FCA found that insurance companies charged higher prices for home and motor insurance for loyal customers who were likely to renew their policies.

More recently, in late May 2021, The FCA introduced new rules preventing insurance companies from charging more at renewal just for being an existing customer.

Be careful of discounts that only last for your first policy year – they're just there to get you through the door, and you'll be stung with a steep increase in a year's time.

Always check your insurer and at least three other insurers' quotes online before renewing your premium.

Several insurers in our car insurance comparison said they'd match or beat competitors' quotes, usually as part of a campaign.

If you show more of a willingness to switch, then insurers will have to recognize this in their premiums or risk losing business to their competitors.

2. Not comparing insurance companies

People usually compare the prices of retail goods every time they shop. You should apply the same principle when shopping for car insurance to increase your chances of striking a good deal.

So, always try to get at least multiple quotes from different companies when shopping for car insurance. For example, State Farm STFGX, -0.07%, and others typically provide lower insurance rates for good drivers. However, if your driving record includes accidents or speeding, you may need to shop around to determine the best and cheapest option for you.

3. Forgetting to update your insurance policy

While forgetting is not the same as lying, it’s one of the most common car insurance mistakes and some insurance companies treat both the same way. For example, if you don’t add your teenage driver to your existing policy but you let him or her drive your car, you can experience some pretty severe consequences.

4. Choosing the wrong deductible amount

The deductible amount is an important part of your car insurance policy. Generally, a lower deductible means a higher insurance price but less out-of-pocket expenses if an accident occurs. A higher deductible, on the other hand, saves money on your policy but makes you pay more if you get into an accident.

5. Buying just the minimum insurance coverage

It may be tempting to just get the minimum coverage insurance. But that is not always very smart. That’s why it makes the list of common car insurance mistakes. In almost 100% of cases, the minimum coverage is simply far from enough.

What’s usually required is liability coverage, which in fact doesn’t protect you but mainly the other person you collide with. Moreover, liability limits are typically low, which leaves room for the other person to sue you for much more than what’s covered by your policy.

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