My Finances Today — Car insurers may be happy there’s an estimated $120 billion paid in premiums each year, according to the Brookings Institution, but most drivers would prefer paying less.
Take Kelly Palmer, 34, of Portland, Ore., who has turned to an alternative auto insurance service called Metromile that charges fees based on actual miles driven in their vehicles. “I was paying over $100 a month with my old insurance, and that actually was a great rate too, compared to other companies,” Palmer says. “Now, I am sitting at about $50 a month — and that includes one long drive. With the service, only the first 150 miles count each day.”
“The savings is my No. 1 reason for switching, and I love the concept of only paying for what you use,” Palmer says. “I am way more aware and responsible about how much I drive now.”
Getting creative about auto insurance payments is a trend, as consumers grapple with confusing insurance model with prices that can fluctuate by hundreds of dollars based on a wide variety of reasons.
For example, New Jersey and Iowa have some of the highest average insurance rates in the U.S., while Iowa has the lowest, according to CoverHound, an online auto insurance site. Or you may not have known that car insurance rates go up 94% after a DUI (yet another great reason no to drink and drive) or that women on average pay 3.5% less for auto insurance than men (they’re considered safer drivers).
With so many variables linked to premiums, how can you cut the best deal to keep rates down but stay fully protected on the roads? Sam Belden, a vice president at CoverHound, says the first thing to do is understand some common myths on auto insurance.
“The biggest myth in auto insurance is that prices can be bartered,” Beldon says. “They are non-negotiable. Rates are regulated by the state insurance commissions, but each insurance company looks at different things when ‘filing’ rates with the state.” Where those myths end are with key factors such as driving record, credit score, having continuous insurance and whether you own a house (which demonstrates stronger financial stability).
“The best bet is to get rates from several insurance companies to find the one that fits your situation and needs,” Beldon says.
A good way to reduce your monthly car insurance bill is to raise your deductible. “We’ve found that one way to reduce your coverage, up to 25% to 40%, is to increase your deductible on comprehensive and collision coverage,” Beldon says. “If you can afford a $1,000 deductible, go for it, because your premium will go down quite a bit.”
Doug Smith, senior vice president of personal lines at Erie, Pa.-based Erie Insurance, advises consumers to flip every stone possible in search of insurance rate discounts. “For auto, you can often lower your rates with discounts for accident forgiveness, taking driving courses if you’re a teen or over 55 and young drivers with a safe-driving track record,” he says. “Also, the more safety features you have on your car, the more you can save. Seat belts, air bags, antilock brakes and an alarm system can save you money on your auto insurance.”
Additionally, look into discounts for policyholders with good driving records and for customers and policyholders with a longtime relationship with an insurer. Every insurance company offers different discounts, Beldon says, and it’s just good money sense to vet as many of them as you can.
— By Brian O’Connell for MainStreet
