Living Below Your Means
Re: Auto Insurance Article Posted

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By MissEdithKeeler
November 24, 2006

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Tim, I appreciate the effort you put into your article, but frankly, I think it's pretty fluffy, and I think you're just plain wrong on the uninsured motorist issue.

Here are my tips for saving on insurance, and this is based on 20 years in the insurance industry:

� Before you sign on the dotted line, do your financial due diligence and check on the financial solvency of the company from whom you are buying coverage. Check their AM Best rating (, and don't choose a carrier with a rating of less than A-. This rating evaluates the financial solvency of the company you are buying from. Why is this important? If a company is not financially solvent, it may not be able to pay your claim when you need it to, and that's tantamount to not having any insurance at all.

� Also check on the carrier's service record. Each state has a department of insurance which is responsible for regulating the insurance companies doing business in that state. You may also be able to get information about audits conducted by the department of insurance which includes information on their customer service history. If you can't get anyone at the insurance company to return your call to talk about your claim, you might as well not have any insurance at all! To get in touch your state's department of insurance, start here:

� Collision and comprehensive coverage represent the biggest opportunity for saving money on your insurance premium. As a general rule, the higher your deductible, the more money you will save on your monthly premium. (Just keep in mind that if you have an accident, you will have to come up with the amount of your deductible in order to get your car repaired! So make sure you have at least that much in your emergency fund). Generally, raising your deductible higher than $1000 will not result in a significant amount of savings, however. Your agent will be happy to run the numbers for you. Also, remember, if you have a lien holder, the terms of your loan will require you to maintain collision and comprehensive on your car. Once your car is paid off, however, it becomes your choice whether or not to carry this coverage. It's always a good idea to check the value of your car each year when you decide whether or not to renew this coverage. Is it worth paying $1000 a year in premium, when your car is worth only $750? Don't lose money by going on automatic pilot!

� What happens when you are hit by another party who didn't have enough foresight (unlike you, Fool!) to buy liability insurance? This loser hits you, doesn't have insurance, and you are left high and dry, through no fault of your own. As many as one-third of drivers on the road today do not have valid insurance, so the chances of being involved in an accident with one of them is pretty high. Uninsured motorist coverage, on your policy, steps into the place of the liability insurance the other guy should have had. Uninsured motorist coverage is optional in some states, but it usually covers both property damage and bodily injury. You should carry uninsured motorist bodily injury limits that are equal to your liability limits, and uninsured motorist property damage limits that are not significantly more than the value of your car. (Because you can't collect more than the value of your car, plus associated rental expenses). In some states, UNDERinsured motorist coverage is available; this is coverage that acts like uninsured motorist coverage when the other guy has some liability insurance, just not enough to cover all of your losses. And you'll be happy to know that premiums for this tend to be pretty low.

� Medical payments coverage is coverage that is paid to you and your passengers for your medical treatment incurred as a result of an accident, without regard to fault. This is one of those coverages that is good to have, but probably not absolutely necessary if you have good health insurance. Medical payments coverage is generally pretty low cost, but the limits of insurance aren't that high either.

� PIP coverage (personal injury protection). Some states have optional PIP, and in some states it's mandatory, and in other states, it's just not available at all. PIP functions a lot like medical payments coverage, but often, it will include a component for lost wages, loss of services, a death benefit, etc. This is something to talk to your agent about, but if you have adequate coverage for these things elsewhere (either another insurance policy, or your own well-padded emergency fund!), then you might not need this coverage.

� Towing and labor, and rental are two coverages offered on your auto policy that you can probably do without. A good rule of thumb for insurance is that you want to insure for those things that would represent a hardship for you if you had to pay for it yourself, and that you don't want to insure for things that you could probably take care of if you needed to. Towing and labor coverage will usually pay up to $100 or so (depending on the policy) for a mechanical breakdown on the side of the road, or if you lock yourself out of the car. Chances are you could pay that yourself if you had to, so paying a premium for that (even though it's low) is probably not that great a deal. Same thing for rental coverage: if you needed to rent a car for a few days while yours is in the shop, could you afford it? If so, do without this coverage.

� Liability coverage is the single most important coverage on your auto policy. This is coverage that protects your personal assets in the event that you have an accident and are found to be at fault. No one likes to think about this, and statistically, most accidents are pretty minor, but it is possible that you could maim or kill someone in your car. While it might be tempting to try to save a few bucks and get less liability coverage, you won't think it was worth it if you have a serious accident that you are responsible for. Your liability limit is the limit that the insurance company will pay on your behalf in the event that you are found to be at fault in an accident. So the question is, how rich are you? How rich do you want to be? If you have an accident and don't have enough insurance, it's possible that the other party could obtain a judgment against you for the amount above your liability coverage. They could garnish your wages, they could take your assets, and surely they could ruin your credit rating. So don't scrimp on the liability coverage, and if possible consider a personal umbrella policy as well. (A personal umbrella is liability coverage which sits on top of your other coverages and provides an additional layer of protection).

Some other tips for saving on insurance:
� Don't pay for the optional coverages offered at the rental car counter. Whatever coverages you have on your own personal auto policy generally transfer to the rental car. So don't buy the collision damage waiver, don't buy the optional insurance, or any other coverages offered at the rental counter. The only exception to this would be if you don't carry collision coverage on your own car; in that case, you might want to accept the coverage on the rental... but it will cost you.

� Keep up with your credit card payments. Most insurance companies now run your credit score to help determine your premium, so the higher your credit score, the better rate you can expect to have for your premium.

� Don't have accidents, and don't speed! Violations will up your premium more than anything.

� If you have violations, consider taking a defensive driving course to lower your premium. Some carriers even allow online defensive driving school. An investment of a Saturday afternoon and a few dollars could save you hundreds over time.

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