How to Find the Right Auto Insurance Policy for Your Needs

How to Find the Right Auto Insurance Policy for Your Needs

When it comes to finding auto insurance policies for your family, it’s imperative to understand what you’re doing. As an informed buyer, you’re far more likely to get the right policy at the right rate.

5 Things You Need to Know

Car insurance doesn’t have to be a confounding topic. With some willingness to learn the ropes and understand what’s really going on behind the scenes, you can find the perfect auto insurance policy for your needs. Here are a few recommendations:

1. Know What Your State Requires

Every state has its own laws regarding how much insurance drivers are legally required to carry with their vehicle.

In total, there are five types of coverage that a state can mandate: bodily injury (BI), property damage (PD), uninsured/underinsured bodily injury (UIM BI), uninsured/underinsured property damage (UIM PD), and personal injury protection (PIP). Some states only require BI and PD, while others require all five. Likewise, every state has its own minimum coverage.

There are only a few states that don’t require insurance. In New Hampshire, drivers only have to prove their ability to pay for damage in a car accident. (However, the state can require drivers to get minimum coverage after a major violation, like a DUI.) In Virginia, residents can pay an uninsured motorist fee of $500 per year instead of getting insurance. And in states like Mississippi, Alabama, and Alaska, drivers can post a cash deposit or bond equal to the minimum car insurance amount if they don’t want to purchase car insurance.

2. Understand How Rates Work

Car insurance rates are determined by two major factors: underwriting and rating.

Every insurance company assigns a risk value to each applicant. Based on the results, a rating is assigned and a price is given that reflects the cost the insurer believes it’s taking on for a potential claim. Each carrier’s rates are impacted by a proprietary blend of factors, which may include any or all of the following:

  • Driving record
  • Location
  • Age and gender
  • Marital status
  • Vehicle (make and model)
  • Vehicle use (higher mileage means more risk)
  • Prior insurance coverage (missed payments, canceled policies, etc.)

Because each insurance company’s underwriting process and risk models are unique, you’ll find that rates vary from one carrier and policy to the next.

3. Know Which Discounts You Qualify For

Insurance companies offer discounts to customers as incentives for good behavior and loyalty. Being aware of these discounts and which ones you could potentially qualify for will make you a more informed driver.

Examples of discounts include multiple vehicle, home and auto bundles, driver education courses, anti-theft devices, safety devices, anti-lock brakes, and low mileage. The more of these you layer together, the better your rates will be.

4. Shop Around for Rates

Car insurance rates can vary significantly from one company to the next. If you put your focus on one insurance company and never consider the alternatives, you could end up paying more than you should for basic coverage.

As a recommendation, consider doing an annual rate check where you get at least three quotes from different companies to see if there’s a way to save money. You’ll have to be the judge of when it makes sense to change policies, but knowing the rates keeps you informed as to what the market is like at any given point in time.

5. Figure Out Your Own Risk Tolerance

You can significantly increase or reduce the cost of your auto insurance policy by playing around with different deductibles. One recommendation is to figure out how much you’re comfortable spending out of pocket in an accident. Based on this number, you can figure out your own personal risk tolerance.

If you have adequate financial resources and are able to pay a larger deductible without compromising your financial situation, you might be willing to raise the deductible and “self-insure” part of the risk. But if a large deductible would sink your finances, it’s better to pay a few bucks more every month for lower risk. Massage the numbers to see what works!

Don’t Rush the Process

When shopping for auto insurance, it’s important that you take your time and do the proper due diligence. Rushing through the process could lead you to make a premature decision that leaves you paying more and/or getting less coverage than you need. Be disciplined and intentional!