By FPA member Richard Gotterer, CFP®
Last Updated: May 30, 2011
In challenging economic times, people look for different ways to save money. If you haven’t taken a look at your auto insurance policy in some time, there may be big savings in doing so. Rates differ substantially from company to company, even region to region. There are numerous factors that go into how much one pays for insurance coverage, including the number of drivers in your household, the ages of the drivers, your driving record, make, model and age of your car and even your credit rating. The reality is that many insurance companies are feeling the pinch from recent natural disasters, the economic downturn and the impact that investment returns have had on their investment portfolios.
You can fight back! It starts with a review of your current policy’s coverage options to determine if they are still applicable. Then consider the following steps to potentially lower your premiums.
- Increase your deductible: By raising your deductible, you are essentially partnering up with the insurance company by bearing a certain amount of financial risk. Choose the highest deductible you can afford.
- Think about multiple policies discounts: Insurance companies typically offer discounts when they provide you with insurance for different products. So look into having your home and auto policy with the same company.
- Consider dropping collision on cars with minimal value: Insurance companies are only obligated to payout on your car’s actual cash value. Many have their own proprietary database to determine value based on mileage, condition of the car and other factors. Use independent sources such as Kelly’s Blue Book to give you a starting point for determining the value and compare this against the cost of your coverage.
- Take advantage of discounts: Make sure you are receiving all applicable discounts such as:
- Passive restraint systems, anti-lock brakes, alarm systems
- Being a low mileage driver or being in a car pool
- Senior citizen
- Taking a safe driving course
- Good student
- Belonging to certain associations
- Also, inquire about other discounts that may apply to you.
- Improve your credit score: Not all, but many insurance companies review credit scores to help determine insurance premiums as studies have identified a correlation between credit history and the potential to file claims. Improving your credit profile can reduce your insurance costs.
- Consider adding an umbrella insurance policy: An umbrella policy provides an additional layer of liability protection over and above your primary insurance. While this is an added cost, it may be cheaper than increasing your coverage limits.
- If possible, pay your premium in full: Utilizing the installment payment option usually increases your cost and subjects you to an additional administrative or processing fee for each payment. In addition, inquire if you can lock in your policy for 12 months instead of the typical 6 months.
What Should You Do Next? Compare and Shop Around
- Call your current insurance company and tell them your rates are too high. Ask if they can lower your premium.
- If you work with an insurance agent, ask them to provide you with alternative options or contact an independent agent at www.iiaba.net. They may be able to find you a better deal.
- If you don’t mind the DIY approach, search the Internet using sites such as www.insweb.com or www.insurance.com to obtain multiple quotes from several companies to compare.
- Contact insurance companies directly such as Geico, Progressive, Allstate, or State Farm. These companies market and sell their products from their own agents and typically are not resold through independent agents.
While the cost of your insurance coverage is important, remember price is not everything. Be sure to review the financial strength and claims-paying ability of the insurance company you’re considering. Refer to AM Best or Standard & Poor’s, which offer ratings of insurance companies’ financial strength. This will be extremely important if you ever have to file a claim.
Most importantly, make sure you have the right amount of coverage to protect your family — while also protecting your financial assets.
FPA member Richard Gotterer, CFP®, is Managing Director, Florida at Wescott Financial Advisory Group, LLC.