Some things are never simple. Insurance, for example: there are so many variables in the insurance world that make choosing the best insurance policy for you and your vehicle becomes a dizzying dilemma. From which agent you use, to which company, to what types of policy, and which optional coverage policies you pick, the cost and quality of your coverage can vary greatly. Here’s a refresher on auto insurance, along with some tips to making sure you take your time and choose the right policy:
What’s the difference between liability, basic collision, and comprehensive policies? The liability portion of a policy covers costs injuries, deaths, and property damage. There are usually separate maximum limits for each individual’s injuries, total injuries, and property damage. Collision insurance covers damages to your own vehicle in an accident, and in some situations provides coverage to other involved vehicles. Comprehensive covers damage to your vehicle not related to a collision, like fire or flood damage, vandalism, or collisions with animals—as well as theft of the vehicle itself.
What type of policy do you need? Find out what’s required in your state, and work up from that. Most states require basic liability insurance, and some require additional policies to cover for uninsured motorists. To many insurance experts, it does not usually pay off to have collision on a vehicle that’s more than four years old or comprehensive on a vehicle that’s more than six years old, unless your vehicle is old enough to be approaching classic/collectible status. Comprehensive and collision insurance are usually required by lenders, so get it if you’re still making payments. It’s also a good idea to get coverage for uninsured/underinsured motorists. Some insurance companies will cover rental cars and towing costs for an extra fee, and other policies will also offer medical payment insurance, which applies to you and your passengers in the event of an accident. These extra policies are often not as good as they sound on the first sell—a high deductible (sometimes as much as an average short tow) applies to the towing policies, while the medical policies are usually only secondary and supplemental to your existing medical insurance. Read the details!
Get recommendations. Take a few days to ask friends and coworkers who their insurer is, which agent they’ve worked through, and what sort of experience they’ve had. Also check with your local Better Business Bureau to see if there’ve been complaints against any of them.
Check that your agent is licensed. Insurance agents are generally licensed by the state, and agents are often required to openly display their licenses. Some agents sell only one company’s policies, while others sell those of three or more companies.
Check on the procedure for claims. In the event of an accident when you need to make a claim, will your agent become involved and assist you personally, or will he/she only direct you to call a toll-free national number and leave you to deal with someone two time zones away? Remember that your agent makes money selling policies, not necessarily aiding customers. However, the better insurance agents are the ones who understand that helping current customers will boost their reputation and build business in the long run.
Research the company. With a poor economy and increased competition among companies, the financial shape of some insurance companies might be questionable. You need to choose an insurer that is financially healthy and capable of paying claims when you need them. Several independent firms rate the financial condition of insurance companies, and some also rate their ability to pay claims. For financial ratings, consult with Moody’s (212-553-0377) or Standard & Poor’s at (212-208-1524), and for information on the claims-paying ability of a company check with A. M. Best at (908-439-2200). Consult with your accountant if or someone who’s experienced in reading financial data if you’re not sure how to read the information.
Should you go for the cheapest policy, or the one with the best potential benefits? As with most things, cheaper is not necessarily better. With the entire industry having access to nearly the same set of risk data, you can be almost sure that a cheaper policy will skimp on benefits, service, or both. More likely, bargain policies that appear similar at first look but are quite different in price are going to be different in terms of the deductible (how much you pay out-of-pocket before the policy kicks in). Make sure you’re aware of these policy differences. Insurance experts recommend selecting the highest deductibles for collision and comprehensive insurance that you could comfortably pay out in an accident (it will reflect a large cost savings in your monthly premiums), combined with the most liability coverage you can afford.
What if you make a claim or get a ticket? Some insurance companies might choose not to renew your policy after you have an accident and make a large claim or get just one ticket. They have to be up front with their policies at the time that you sign on, and if you’re a borderline “high-risk” driver, then they should tell you. Ask if your policy will change significantly after one ticket or claim.
Discounts can add up. Remember to check if any premium discounts apply for anti-theft devices, airbags, or anti-lock brakes. Some even give discounts for drivers who have a particularly short commute.
Read the small print and all of the policy’s conditions before signing. Simply put, it eliminates those nasty surprises when you need to make a claim.
Keep track of your policy and service once you’re a customer. Always compare your past service with your current service, watch your premium bills (they should drop over time if you haven’t had recent claims), and periodically ask around to see if there are better deals.
Remember that your auto insurance policies not only cover your car’s damages in an accident—they also safeguard your financial stability if you’re liable. Shopping for insurance can be headache-inducing, but without a good policy you’ll have more than a headache on your hands.