Go Back Go Ahead

F ew bills in the typical household produce the hand-wringing of the periodic and inevitable auto insurance bill. Ask the family whose teenage son or daughter just passed a state's driving test and is about to take to the road. They know firsthand the sticker shock that goes with insurance for teens.

But like death and taxes, auto insurance is one of life's inevitabilities. It would take the mind-set of an Evel Kneivel to let your family do without this important financial protection. Aside from the fact that states require it, going without insurance is asking for trouble. The difficult decisions come when we start asking these questions:

  • Why are my premiums so high?
  • How can I minimize these expenses?
  • What coverages do I really need?

Let's take a look at these questions, and in the process perhaps bring a little sense and understanding to the money-eating auto insurance beast.
       Why are premiums so high? The U.S. Department of Transportation estimates that auto insurance costs have risen, on average, by 50% over the past 12 years. Much of the increase is attributable to our increasingly urban population. We live closer to each other in cities, meaning there are more cars on the road and more of us to get in each other's way. That means more opportunity for accidents. We drive more miles than ever before, too, and those extra miles mean additional chances for mishaps.
       Cars are much more complex, so repair costs are higher. As insurance companies' loss exposure increases, so do insurance premiums. Add the escalating problems of theft and fraud, and the rising cost of medical care, and it's easy to see why premiums sometimes seem out of control.
       Given that driving a car exposes you to financial risk, what are some ways to save money on insurance? You have options in building the best auto insurance deal. For starters, be prepared to spend almost as much time looking into buying insurance as you did into buying that new car.
       Of course, buying insurance has nothing to compare with the thrill of taking possession of your vehicle. Insurance doesn't go fast, it doesn't look good in the driveway, it doesn't feel like fine Corinthian leather. You can't even put the top down. So, in buying insurance, you need patience and faith that all the trouble you're going to will be worth it in the end. Maybe imagine a stack of dollar bills mounting up on the kitchen table as you trim the excess from your auto insurance premium. Here are a few ways to accomplish that goal.

Compare prices. Few commodities vary in price from company to company as much as insurance does. Get at least three quotes on comparable policies from competing companies. "Be sure to buy the product that will give you the service you expect, especially at the time of a claim," says Bill Jolicoeur, vice president of personal lines, CUMIS General Insurance Co., Madison, Wis. It may sound sacrilegious, but your brother-in-law-the-insurance-agent doesn't always have the best price on every policy. You can learn companies' reputations by following the next suggestion.
      Contact your state insurance commissioner's office for information about the companies doing business in your state. Most states publish a buyers' guide to auto insurance, which gives you profiles of the reputation, pricing, financial stability, and other pertinent facts about companies you're considering. The Insurance News Network has an excellent Web site for general information of this type.
      Start your search for low rates before you even buy those new wheels. Consider purchasing a car with a reputation for easy, economical repair. The easier a car responds to body shop work, the lower the premium is likely to be. Having effective safety equipment reduces premiums, too. And "low profile" cars are less likely to be targets for thieves. Insurance companies base their rates on repairability and theft rates as well as on your driving record. "We encourage policy owners to call us for rate differences based on repair costs," Jolicoeur says.
      Consider higher deductibles. The deductible is that portion of a repair bill you pay before the insurance company takes over. If you take on a greater portion of the "first dollar" repair load, you not only reduce the insurer's financial commitment, but demonstrate your willingness to become a partner in the risk as well. Set aside funds to cover your deductibles in your Pacific Community Credit Union share savings or money market account. (Use these accounts, too, to save funds to pay all your periodic insurance premiums.)

Consolidate coverage. You often will get a better rate by insuring all the vehicles in your family through the same company. Add your homeowners policy, and rates are likely to fall more. But once again, be sure to compare. Policy consolidation usually results in lower overall cost, but there are exceptions.

      Drive safely. Insurance companies give significant discounts for spotless driving records. And if you don't have a good record, start working today to improve your driving habits. If you have accidents and traffic offenses on your record, you're paying a hefty insurance penalty.
      Look for financial stability in choosing an insurance carrier. Once again, your state insurance commissioner's office can give you information about the companies you're considering. Remember that when you select an insurance company, you're entering a partnership that could affect your future financial stability. It makes sense to choose the strongest partner you can find, consistent with good value. At the Insurance News Network site, click on "ratings" to find reports about company financial health.

Check with credit union financial professionals. Chances are, they can offer sound advice on how to meet your vehicle and other insurance needs. As a consumer-owned financial cooperative, your credit union can help with every aspect of your financial life.

       Finally, how do you pick the coverages that are right for you? Ask yourself what's likely to happen to your assets in case of an accident. Insurance is protection against financial loss. What are you trying to protect with insurance coverage on your automobile?
       For most of us, the answer is everything. All those things we own, both now and in the future. Our present and potential assets. And the coverage that can protect those assets is bodily injury liability. If you injure someone in an accident, you could be sued.

       You could be responsible, not only for actual damages, but for pain and suffering, loss of income, and other costs. It is imperative that your insurance cover this eventuality, for you and for other family members and friends who drive your car.
       Property damage liability also is practical coverage, in reasonable amounts. This pays for damage to the other driver's car, and also may cover other property damaged in an accident.
       Another common coverage is medical payments, which pays for treatment of passengers in your car and for family members involved in an accident in another vehicle. Although medical payments insurance appears to cover a wide range of situations, it may duplicate coverage you already have under your health insurance plan. Duplication is a waste--you pay for coverage but cannot collect from two sources. Be sure to check the provisions of each policy in reviewing your overall coverage.

States that have no-fault laws require personal injury insurance. This coverage pays your medical bills and may cover funeral expenses and lost wages, as well as replacement services such as child care for hospitalized parents.
       Collision and comprehensive coverages are important if your car is new, or just a few years old. However, as a car ages, collision coverage may become more expensive than it's worth.
       Uninsured and underinsured motorist, towing, and umbrella are other common coverage types. Whether you take these coverages depends on your situation. In most states, they account for only a small portion of your total insurance bill, so weigh the investment against the peace of mind you may gain from having the coverage.
       Insurance is a major component of that money-eater we call the automobile. However, with a little work and patience, it can be, if not tamed, at least trained to serve you.

GO TO Table of Contents      Liability Coverage      E-Mail Privacy     
Decorating      Auto Insurance       Fast Facts
©1997 Credit Union National Association, Inc.