Get Up to Speed on Your Auto Insurance Policy
An unfamiliar phenomenon has hit the auto insurance market -- declining rates.
In California, two of the biggest auto insurers, State Farm Mutual Automobile Insurance Co. and the Automobile Club of Southern California, have announced price cuts. Insurers in at least half a dozen other states, including New Jersey, Illinois, Michigan and Indiana, are cutting rates too, said Loretta Worters, a spokeswoman for the Insurance Information Institute in New York.
One reason is fewer accidents and thus claims to pay. Insurance experts think stricter driving laws, safer cars and an aging population may have combined to make U.S. roads safer.
Whether more insurers will cut rates is an open question. Some companies say the dollar amounts of medical and damage claims are rising, canceling out the benefit of fewer claims. But the fact that some companies are cutting rates sends a clear message to motorists: It’s time to shop around for insurance.
“Even if a consumer gets a rate reduction from their current carrier, it’s no reason to be complacent,” said Bruce Norman, senior vice president of Mercury Insurance Group in Los Angeles, a discount insurer. “Things change, and you can save a lot of pocket money by shopping around.”
Defining Coverage
But shopping for auto insurance can be confusing because there are hundreds of companies and several decisions to make about coverage limits. Not all motorists understand what each component of the policy covers, so it’s easy to make mistakes.
“You have this buffet of choices with auto insurance,” said Candysse Miller, regional director of the Insurance Information Network of California. “So you have to make some decisions. Do you want the lean policy that costs less but may not give you the full service? Or do you want Plan B that costs more but provides more coverage?”
In so-called fault states, including California, there are at least six standard components and several optional components. (No-fault states have slightly simpler policies.) You must choose coverage limits, or waive coverage, for each. To do that wisely, it’s important to know what the different components cover -- and remember that you should insure against losses that would be catastrophic, not merely inconvenient.
* Bodily injury-liability coverage: This is what pays damages to others if you are at fault in an accident. Californians are required to have at least $15,000 in coverage for each person and $30,000 for each accident. That’s generally the cheapest option, but if you own your home or have a good income, you’ll want substantially more coverage, such as $100,000 per person and $300,000 per accident, to ensure that your assets won’t be wiped out if you cause a serious accident.
* Property damage: This covers the other person’s car -- or the telephone pole or streetlight -- that was damaged by your vehicle. California requires at least $5,000, but most people choose higher limits, such as $50,000 to $100,000. You don’t want to sideswipe a Ferrari and be carrying just $5,000 in property coverage.
* Medical: This pays to treat you and your passengers if you cause an accident. This coverage supplements any medical insurance that the injured party might have. It doesn’t need to be a huge amount, unless you or any frequent passengers have little or no regular medical insurance.
* Uninsured motorist: This pays your damages, including lost wages and medical costs, if you are hit by an uninsured driver who is unable to cover the costs. In California and other fault states, uninsured-motorist coverage can be reduced or waived by those who have adequate health and disability insurance.
(This coverage is usually not offered in no-fault states, where drivers generally pay their own damages regardless of who caused the accident, Worters said.)
* Comprehensive: This pays for repairs to your car if it’s damaged by a falling tree, a fire or some other incident while it is parked.
* Collision: This covers damage to your car from an accident.
Owners of old or inexpensive cars sometimes drop comprehensive and collision coverages because the cars are not worth repairing. That can often save hundreds of dollars in premiums each year.
Many policies also offer towing and car rental coverage -- options that may make sense for motorists who have no way to get around when the car’s in the shop and who lack the wherewithal to pay those costs out of pocket.
The only other coverage question that drivers should decide before price-checking with various companies is about their deductible.
The deductible is the amount you must pay before insurance coverage kicks in. The lower the deductible, the higher the premium cost. Those with adequate available cash can save a bundle on premiums by hiking the deductible from the standard $100 per incident to $500.
Start Shopping
Comparison shopping is vital because the cost of an identical policy can vary by 50% or more from one company to the next, Norman noted.
You can leave the comparison shopping to an independent agent. However, for those who don’t have an agent or who want to check rates on their own, many state insurance departments make comparing easier by offering rate surveys on their websites or by mail. Many departments also can provide complaint histories on the insurers licensed in the state.
The surveys are just a first stop because they reflect the cost of a sample policy, not your specific policy. Still, they can provide a starting point -- and often toll-free phone numbers of a variety of insurers.
There also are many websites that enable drivers to compare multiple insurers, such as www.ensurance.com, www.insure.com and www.insweb.com.
Many individual insurers also offer quotes via the Web.
To get an accurate quote, motorists need to know the year, make, model and vehicle identification number of their car (or cars), the number of miles driven each year and the age and driving records of all licensed drivers in the household.
Ask About Discounts
Most insurers offer discounts to good drivers -- those with no accidents and fewer than two tickets in the last three years. And many offer discounts to good students, teachers, engineers, nonsmokers and others whom their underwriters consider to be unusually good risks.
Some insurers also offer discounts to customers with multiple policies, so it can pay to inquire about insuring your car and home with the same company.
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Kathy M. Kristof, author of “Investing 101” and “Taming the Tuition Tiger,” welcomes your comments and suggestions but regrets that she cannot respond individually to letters or phone calls. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or e-mail kathy.kristof@latimes.com. For previous columns, visit latimes.com/kristof.
