Although some people view auto insurance as a necessary evil, you will be grateful for the added security it provides if you are ever involved in an accident. However, frugal people often wonder if it is best to pay for only the minimum coverage required by law or to pay a little more for better coverage. The answer depends on many things, including how much you can afford to pay from your own pocket in the event of a collision.
Price Versus Value
You already know that the lowest priced item does not always give you the best value. The same goes for car insurance. You may be able to find a rock-bottom premium, but what does the policy cover? What is the deductible? Will it do you any good if you need to repair or replace your vehicle? What about medical bills?
High-deductible plans have lower up-front costs than low-deductible plans, but check to see exactly how much you could save by switching. For example, if going from a $500 deductible to a $1000 deductible only saves you a few dollars every six months, it may not be worth it.
Your Automobile Emergency Fund
Maintaining an emergency fund dedicated to vehicle maintenance is a good idea. Keeping enough funds on hand to cover your insurance deductible is an even better idea. You may be able to save a significant amount of money throughout the year by switching from an ultra-low deductible plan to a more moderate plan and setting aside the amount of the deductible in a savings account.
Negotiating for a Lower Rate
If you have had coverage with the same insurer for many years, it may be time for a policy audit. Several factors can affect your rate, including:
Credit score - Your insurance company may view you as more or less reliable depending on your credit history, so paying your bills on time and not taking on more debt than you can handle may help you get a better rate. Most states allow insurance companies to consider credit score in their calculations, but a few do not.
Gender - Insurance companies rely on demographic risk data to set their rates. Young men often pay higher rates than young women.
Age - After a certain age, the discrepancy between rates for men and women seems to disappear, but it may resurface later.
Driving record - Rates typically go up with each collision or traffic violation.
Marital Status - Married people often get lower rates than singles.
Residence - If you live in a congested metropolitan area, you can expect your rates to be relatively high because incidents are more likely to happen on busy streets.
Other policies with the same company - Most companies offer discounts to people who purchase both home and auto insurance.
Seeking the Best Advice
The best person to help you find the perfect balance between cost and value is a qualified insurance agent. He or she can review your personal circumstances, driving habits and coverage needs to find the best package for you.
You should also ask your agent about how the car you drive affects your premium. Things like make, model, year and safety rating can earn you a higher or lower out-of-pocket cost. It may not be worth replacing your current vehicle just to lower your insurance premium, but these things are good to keep in mind the next time you are in the market for a new car.
The author of this article chooses to be anonymous. The website owner received compensation for placement.
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