Getting cheap auto insurance is not always the best policy. Understandably, the cheaper the policy the less that is covered. Depending on your financial situation, that’s not always a bad thing. However, it is critical to understand what you are giving up for a cheaper premium.
Let’s take a look at the pros and cons of cheaper car insurance.
Comprehensive or Collision Coverage
One of the most common ways to get a cheaper auto policy is to choose collision over comprehensive coverage. But, taking this cheaper alternative could leave you financially exposed.
Understanding the right coverage for your situation starts with clear definitions of collision coverage versus comprehensive coverage.
Collision coverage will pay for repairs and damage to your car from another car or object (i.e., fence, utility pole, tree, etc.).
Comprehensive coverage will pay for repair damage to your car caused by weather, hitting an animal, floods, fire, vandalism, and theft.
In both cases, the limit of the auto policy payout is tied to the value of the car. Consequently, as your car becomes older it might make sense to save a little money by dropping comprehensive coverage and just carrying collision coverage.
What Coverage Do You Need?
In addition to covering your losses in a car accident, most states require you to insure for a certain amount of liability coverage. This coverage is to cover bodily injury and property damage to others involved in an accident that involves you.
Typically, liability coverage is provided in three ways:
- Bodily injury (per person), covering each person injured during an accident.
- Bodily injury (total), covering all bodily injury incurred in an accident.
- Property damage (total), covering damage sustained to the property of others. This does not cover damage to your property.
Outside of government required coverage there are additional optional coverages that might be more or less important based on your personal preferences to the age of your car.
These coverages include:
- Uninsured motorists, which protect you against motorists that don’t have insurance and if you got in an accident with them wouldn’t be insured to pay for damage to your car or your medical bills if injured.
- Medical costs, which pays some or all of your medical bills if you’re injured in an accident.
- Personal injury protection, which, like uninsured motorists coverage, pays for medical expenses or lost wages if you’re in an accident and the other motorist is not sufficiently insured.
Raising Your Deductible
One of the easiest ways to lower your monthly insurance premium is to simply raise your deductible. This is the amount you will pay before your insurance kicks in if your car is damaged in an accident.
Lowering your deductible can save you a lot of money, but beware that if you don’t have the money to pay your deductible you’re not going to be able to fix your car. So, it’s important that you chose a deductible (and save for it) that you can afford to pay if you get into an accident.
Be careful that you don’t get a super low quote that lures you into insurance with a deductible you can’t cover.
Pay-Per-Mile or Telematics
Another option for low-cost insurance is usage-based insurance.
These new, innovative insurance products reward drivers that don’t drive that much or are willing to have their driving habits monitored by telematics technology.
These insurance plans reward those who theoretically have a lower probability of being in an accident because they are on the road less or are encourages to be more cautious because your monthly bill depends on it..
Safe Driver Discounts
Discounts for good driving don’t always require you to have a “big brother” in the car. Your driving history – no accidents and few to no traffic violations – can simply speak for itself.
These discounts are pretty typical and can qualify you for the lowest rates available as you compare insurance quotes.
Improving Your Credit Score
Believe it or not, your credit score is a major factor in your determining your insurance rate. According to insurance pricing algorithms and models, your credit score is highly correlated to your probability of filing a claim.
Consequently, if you want to get the cheapest insurance start working on improving your credit score. It can save you hundreds of dollars without changing the quality of your coverage. This can be one of your best approaches to lower insurance rates.
Getting the cheapest auto insurance is a combination of good financial (credit), safe driving habits, and getting the appropriate coverage for your personal situation.
Photo by Carlo D’Agnolo on Unsplash
