If you read the article How Insurance Pricing Works you know that there are a lot of things about who you are that affect your rate. These are generally things you can't easily change (or wouldn't change just to get a cheaper quote) your age, your marital status, your driving record, your credit score, etc.
There are also a number of choices that you can make that directly effect the amount you pay. We'll discuss those choices in more depth in this article.
Deductibles
One of the choices that you'll face when you get a quote is what your deductibles should be. Let's start with a brief description of what this is. When you buy insurance, the insurance company is basically making a promise that they will be responsible if you get into an accident (collision coverage) or if your car is damaged by some other means (comprehensive or other-than-collision coverage). If you get into an accident, the insurance company pays your claim up to the limits you have purchased (more on that later), minus the deductible. That is the amount they "deduct" from the payment, or said another way, the amount that comes out of your pocket. Usually, the deductibles are $250, $500, or $1000.
How do you choose what your deductible should be? Which will save you more money? The answer to this one is: it depends. If you choose a higher deductible, say $1000 rather than $500, your premium amount will be lower. Why is this? Your premium is lower because the insurance company doesn't have to pay as much if you have a claim. The other side of this is pretty clear. If you do have a claim, you pay more than you would have with a lower deductible. Here are the factors that you should think about in choosing your deductible.
First, answer this question: does your credit score and driving record accurately reflect how much of a risk you are. Let's say you've got great credit and have never been in a wreck. But, you've had tons of near misses since you don't really pay attention when you drive. You've really just been lucky. In that case, your probably better off with a low deductible, since your clean record is likely not going to continue and you are more likely to have a claim. On the other hand, maybe you have had a few really unlucky traffic tickets and an at-fault accident, but are really a very careful driver who almost never comes close to an accident. In that case, you may opt for a higher deductible since your premiums will reflect those of a much riskier driver than you actually are.
Another factor to consider is your financial situation. No matter how risky your driving is, you need to consider your finances in making your deductible choices. Let's use a simple example to illustrate this. If your job requires you to have a car in working order and you could not afford $1000 to get your car repaired after an accident, then you need to have a lower deductible. This will cost you more money on your premium, but it will be more manageable since you will pay that over time rather than all at once. On the other hand, if you are very comfortable in your finances and could afford a larger one-time hit, you may be better off with a higher deductible based on some of the factors we discussed earlier.
Limits
Another set of choices you have that effect your quote are the limits on your policy. There are two major limits on most polices. The first is the Bodily Injury limit. This is the amount that the insurance company will pay for injuries to others in an accident that you cause. The second is the Property Damage limit. This is the amount the insurance company will pay for property that is damaged (such as other cars) in an accident that you cause. Simply put, the lower the limits you choose, the less money the insurance company has to worry about paying out in a claim. Less risk for the insurance company means a lower premium.
There is a temptation to choose low limits to save money on your premiums. Many people just think of insurance as something the government makes you get and they choose the minimum limits allowed by the laws in their sate. If you have assets to protect, however, choosing low limits can be a foolish choice and cost you more money in the long run. Remember, here at the Finance Center we are all trying to save money overall and not just get you the lowest premiums. If you save $50 per year on your premiums but end up losing your house or business because you chose the state minimum limits and were at-fault in a big accident, you would not be able to say that you saved money. We'll be the first one to say that its very hard to predict what may happen in the future. But, if you have a house, business, or other assets, you would be better off opting for higher limits. Then, save money by comparing different companies' rates for those same higher limits. Without doubt, some of the companies will offer better deals than others even if you have chosen a high level of protection for your family.
Additional Coverage Options
Most insurance companies offer a number of optional coverage choices. One common coverage option is rental car coverage. If you have this coverage your insurance company pays you a daily amount to use on a rental car while your car is being repaired. In deciding on this coverage, you should think about how you actually use each car and what would happen if you got into an accident. If one car is just used for weekend pleasure driving, you probably do not need rental car coverage. On the other hand, if you use your car to commute to work every day and have no other transportation options, the coverage may be important. Also, like the deductible, you need to think about your financial situation. If $30/day for a rental car would be affordable for you, you can save money on your premium by declining the coverage. If that would put your budget over the edge, then better to pay a little bit more every six months as part of your premium.
Other optional coverage choices can be thought of in a similar way. Towing coverage is a good example. Generally, this coverage pays for towing your car from the scene of an accident to a repair facility. You should consider this similar to your deductible. You may never use the coverage. But, if you do end up needing a tow, you could end up paying hundred of dollars. Can you afford that all at once? Or, would your rather pay a smaller amount over time? Those are the kinds of questions you should ask yourself in considering these types of coverage.
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