How to Buy Car Insurance

Car Insurance Buying Advice

James M. Flammang / autoMedia.com

They make it sound so easy, with advice just a phone call away—or available with a quick visit to a storefront agent. Even so, insurance shopping can seem like wandering into a maze. Why? Because unlike prices for other commodities, auto insurance rates aren't clearly stated. There's no simple price list.

Your cost for auto insurance is based upon a variety of factors, only a few of which have any relationship to driving. Your age, address, type and age of vehicle, occupation, whether you smoke and other factors can drive your total insurance cost up or down, often by a considerable sum. Depending on specific state laws, too, an insurance company can simply refuse to provide coverage at all, at any price, if they deem the risk excessive.

Policies vary, too. Not everyone wants—or needs—the same types of coverage, with the same limits and deductibles. Insurers vary enormously in terms of the discounts they offer, or the surcharges they might tack on for insuring a high-performance automobile, or one known to be popular with thieves.

One-Stop Shopping

Today, a growing number of consumers are comparison-pricing by computer. Shopping over the Internet has one big advantage: You can fill out applications with any number of insurance companies and get a price quote from each one. Cost isn't the only factor to consider, but in a couple of hours, you can come up with a batch of quotes, then decide which one should get your business. Many Internet search engines are linked to insurance-shopping services.

Policy Components

Here are the basic elements of an auto policy:

> Liability: This is the portion of a policy that everyone needs—the part that protects you for damage caused to property (a vehicle or otherwise) or bodily injury or death to a person if you're at fault in an accident. Liability limits are measured in tens of thousands—or even hundreds of thousands—of dollars. Three figures typically are given, stating the maximum sums that could be paid out for a single incident. As an example, "50/100/25" means $50,000 bodily injury coverage for one person, $100,000 total coverage, and $25,000 for property damage. How much you need is a personal decision, but additional liability often doesn't cost a lot more. Many states have a specified minimum that all drivers are expected to have, but it's seldom an adequate sum. Drivers with assets to protect are encouraged to obtain a high-liability policy, to guard against financial disaster.

> Collision: This portion helps pay for damage to your own vehicle in an accident. Rates are based largely on vehicle type and age. As a rule, owners of older cars are better off without it, because payoffs are based on the car's "book" value (actual cash value), which is likely to be minimal. Late-model owners must also realize that the amount paid in a claim takes depreciation into account, so you can receive considerably less than the cost of a replacement vehicle.

> Comprehensive: Pays for physical damage that results from incidents other than collisions, including storms, vandalism and theft. Here too, paying for coverage on an older car may be wasteful.

> Uninsured/Underinsured Motorist: What if you're involved in an accident with a person who has no insurance, or whose policy pays only a pittance to the injured party? With this coverage, you're more likely to wind up with a realistic payout.

> Medical Payments: Covers medical treatment for bodily injury in an accident, for you and your vehicle's occupants. If you have adequate hospitalization insurance, this might not be necessary—but check your existing coverage before deciding.

Collision and comprehensive coverage typically have deductibles—the amount that you agree to pay on your own before the insurance policy "kicks in." High deductibles translate to lower premium rates, because you're transferring part of the risk to yourself.

Discounts may be available to drivers who complete a defensive-driving class or have a clean record for a stated number of years, to owners of cars equipped with certain safety devices, to senior citizens or retirees with good records, to good students, to owners of specified vehicles, to new-car buyers, and for many other reasons. Each insurer has its own criteria for determining who gets a lower rate. Always ask about availability of any discounts to which you might be entitled. Discounts often apply only to certain parts of the total policy, so they don't necessarily amount to huge savings.

Reduce Risk

Each element of the policy is priced separately. Determine exactly what you're paying for the liability portion, and how much any additional coverages cost. Skimping on liability is unwise, but if the total cost is high, consider dropping some of the nonessentials. Attempting to reduce risk in every possible way gets expensive—and you could always be involved in an incident that doesn't happen to be covered.