7 Ways To Save On Car Insurance
Shopping for car insurance is all the rage, and competing companies seem eager for you to shop with them. You can sure listen to them about shopping and saving, but let’s talk about it, just you and me. Importantly, let’s have a little huddle about car insurance without a salesperson in the room.
Ok, ok. Shop your car insurance. The sales people are right. It pays to shop. Don’t shop it every year, but for sure shop it every few years. Why would anyone proactively lower your insurance premiums if you keep paying them? Also, you want to make sure they are keeping up with your safe (ahem) driving record and age, which may make you eligible for discounts. A little healthy competition can be very motivating, so it makes sense to let them know you are aware of what the other guy is offering and ask them to price match. A note that loyalty can pay in a lot of industries but typically not in car insurance.
Consider buying through a broker. Rates are the same, afterall. The broker is paid by the insurance carrier you end up buying through. I am all about the DIY on finances and money, but I will never give up my car insurance broker to go straight to the insurance. In the last few years, I have had two people hit me in the exact parking place in the exact spot on my car—yep, you should follow me to Vegas. And to have a human I could call, get on the phone with, and listen to as he worked out every detail and asked every question, including the ones I didn’t think of? Yep, that was worth it. Make sure your broker shops more than 5 companies (mine shops 44), and then every few years ask him/her to go out and shop for you. (Disclosure, my broker is Ben Haynes with Davis and Haynes insurance. He pays me no money to refer clients or to speak about him.)
Understand the difference between brokers and agents. Big difference between brokers and agents, it turns out. A broker prices multiple companies and gets you the best price and service. An agent, on the other hand, prices one company—his/her company. Some brokers that only price a few are captive so in essence operate like an agent. Ask and understand how many companies your broker will shop and the number he/she is working with at the time to guard against a captive broker.
Pay for what you can’t afford to lose. Remember you want higher deductible, higher liability. What I frequently see getting sold is lower deductible, lower liability. Ouch. No Bueno. You can probably afford to pay $500–$1,000 if you run into a concrete pole and need a new bumper. Sure, it burns, but that is a much different situation than when you hit someone, injure them, and are exposed to tens of thousands of dollars out of pocket. Then, you’re really up in flames. How is that possible? Well, say you live in Arkansas and get the state minimum liability insurance of $25,000 per person and $50,000 per occurrence, then the insurance company only pays $50,000 in an accident involving multiple people, even if damages are $100,000. Who’s on the hook? You. $50,000 in liability insurance is cheap, but do you know what else is still pretty cheap? $250,000 in liability or maxing out the liability the company offers. This can save money in the long run because you get a better insurance score. That better score then gives you overall better rates over time. Bottom line—liability insurance is a relatively cheap piece of your policy, but it is THE POINT OF INSURANCE.
Speaking of deductibles, save money on them. The higher your comprehensive and collision deductible, the lower your premium, and insurance companies ask you to pay quite a bit for lower deductibles. This is a great place to save on car insurance. But first, you must save. Let’s say you can save $10 per month in premiums by increasing a deductible from $250 to $1,000. What does that mean? That means if you hit that concrete pole, then you pay the first $1,000 before the insurance kicks in. Solution? Put $1,000 in a savings account called “car” and keep it there. Let’s nerd out on math for a second. If you put $1,000 in cash into a typical savings account paying 0.2% interest, you would make a whopping $0.17 in interest (wah wah), but if keeping that $1,000 in the bank gave you the confidence to increase your deductible from $250 to $1,000 and saved you $10 per month, assuming you didn’t hit the concrete pole (for some people that is a bigger leap than others), then you suddenly have an implied 12% rate of return on that money! ($10*12/$1,000). Pro-Tip: If you do decide to increase your deductible, shop out your insurance. Some companies offer higher premium discounts than others when you increase your deductible.
Pre-pay your car insurance for the year. Let’s say your car insurance costs $75 per month. If you told the insurance company that you would pre-pay for the year, they might let you pay only $765 rather than $900 ($75x12). Insurance companies will sometimes give up to a 15% discount for paying upfront. I don’t know about you, but I could always use an extra $135 for literally doing nothing differently.
Commit to driving slowly, and then get in a “driver-based rating” program. Some carriers will monitor your driving for 90 days and then offer as much as a 20%–50% discount. Ok, sidebar. What’s the rush, people? Drive the speed limit. Could you imagine the lifetime value of just leaving the house 5 minutes earlier to make sure you are not in a rush? Think of all the speeding tickets, insurance rate hikes and, far worse, accidents that can be avoided. I used to be a speeder and have the tickets to prove it, but when I married my husband who drives very slowly, I grew accustomed to that pace of driving. Pump the brakes, people. Leave the fast lane to your career. Pro-Tip: Do this now. There is an uptick in these discounts with people working from home.
So, folks, that is how you really save on car insurance.
For more helpful financial information, check out my book But First, Save 10: The One Simple Money Move That Will Change Your Life.
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