The divorce is over, and you are on your own. You have a lot of big decisions to make, but the one about car insurance should be easy, with the following tips from consumer-finance expert Ethan Ewing.
In fact, it begins when you buy a car.
• Plan your purchase. You will save right out of the gate if you opt for a car without a lot of bells and whistles. Turbo features, for instance, often raise premiums because insurers think that, if you choose turbo, you are more likely to speed. And look up which cars have the highest theft rates – generally speaking, the imports like Honda Accord, Honda Civic, Toyota Camry, Nissan Sentra, the Toyota pickup, and some domestic makes like the Dodge Caravan, Ford F150 Series, Saturn SL and the Dodge Ram pickup. Out West and down South, full-size pickups are often the most vulnerable. If a car is likely to be stolen, it will often cost more to insure.
• If you live in a city, compare the cost and convenience of parking in a garage to what you will pay extra in theft insurance if you park on the street.
• Pay bills on time and pay overdue debts. Insurers take credit scores into account when determining rates. You can raise your score as much as 20 points in a month just by paying on time.
• Determine liability coverage: Basic liability covers damage to property or injury to other people as well as court costs. Each state has minimums. Liability coverage is expressed in three numbers, generally noted in thousands of dollars. The first is liability for one person hurt in an accident. The second is a maximum for all injuries in one accident: you, your children, their friends. The third covers property damage. So, 25/50/15 covers $25,000 for one person's injuries; $50,000 for all injuries; and $15,000 in property damage.
• Determine collision coverage, which insures a vehicle against damage from an accident.
• Determine comprehensive coverage, which covers damage from things other than accidents.
• Choose medical coverage wisely: Medical coverage on an auto policy pays medical expenses arising from an accident. Compare that with what is covered by your health insurance. If you do not have health insurance, definitely opt for medical insurance on your auto policy.
• Uninsured/underinsured motorist: This is defensive insurance. The coverage pays for damage to your car if an uninsured driver (or someone without enough insurance) causes an accident.
• Consider gap insurance, which covers the amount between the value of a car and the balance on the car loan. It offers peace of mind, especially in the first year or two of a new-car loan, when the vehicle has depreciated in value, but the loan balance is still high. At this point, if you totaled your car, an insurance reimbursement might not be as much as you owe the bank. You then remove this coverage when the loan amount falls below the vehicle value.
• Evaluate other coverage: Adding optional coverage increases peace of mind, but also increases cost. It might include coverage for a rental car or roadside assistance.
• Set the deductibles: This is a great area for savings. You pay the deductible before the insurer pays its portion. The higher your deductible, the lower your premium. The Insurance Information Institute estimates that by choosing a deductible of $500 on collision instead of $200, a car owner can save up to 30 percent on premiums. Choose the highest deductible you could afford in the event of an accident.
• Ask about discounts: Eligibility for discounts might include age, driver training, car features (air bags, alarm, antilock brakes, LoJack), a clean driver’s record, or having more than one policy with the insurer. Some insurers give discounts for low mileage, but infrequent drivers sometimes pay more.
• Be careful with business use: Some policies will not cover an accident if the car is being used for business travel. If you use your auto for business of any kind – whether delivering flowers part-time or hauling your hand-made quilts to a store – ask about your insurer's rules.
Ethan Ewing is a consumer-finance expert and president of www.bills.com in San Mateo.
How to Buy a Used Car, Part 2