You’ll begin this post much like myself before I wrote it — a car insurance plebeian. When you’re done, you’ll be a gladiator, with the know-how to save hundreds of cash$ on car insurance. Hopefully, a chunk of those savings you’ll start saving automatically, to free yourself from the Hollywood’s vicious financial cycle: what you spend < what you earn. Here’s how we’ll do it:
- Lower your premiums
- Shop for different rates
- Ask for their discounts
- Combine insurances
Each step alone can save you an extra $100 a month!
First, let me tell you about my weekend: I spent an afternoon researching my car insurance. Not typically what I do for shits and giggles, but I can totally geek out over it. I studied my coverage and my premium, trying to understand what exactly I was buying with my $900 every six months. I stared at a breakdown of my coverage for 5 minutes, that could have been written in Arabic for all the sense it made:
“$300,000 / $300,000 on Bodily Injury Liability. That sounds reasonable if there’s an injury that involves bodies… and someone is liable?”
Okay, soooo… I had no idea if it was reasonable…
But “bodily Injury” just sounded so… bad. It sounded like I’d better “Insurance Up,” because if there was any “bodily injury” I could lose everything.
Which is exactly what insurance companies want us to think!
Insurance, whether we’re talking about rental or car or life, is a booming business. They employ countless dudes and dudettes, armed with calculators so sophisticated they make your ‘ole TI-85s look like abacuses, and they sit in their cubicles, crunching statistics about our behaviors. Armed with this information, they set a premium that, in the aggregate, covers business costs, pads their paychecks, and leaves enough profit to keep shareholders happy. Once you understand this, everything else makes sense.
What makes us play right into the insurance companies hands, dancing like Marionettes to a Joplin ragtime?
We let fear, fear marketing, and our own laziness, sway our decisions. So the insurance companies laugh at us all the way to the bank.
I say, no more!
Armed with the info below, you’ll be able to tell insurance companies to suck your proverbial dick. You’ll be able to measure your own risk, and decide how much insurance you need. Step one is understanding:
How much coverage do YOU need?
Insurance is really, really personal. Your coverage and premium is shaped by dozens of factors about you, so you can’t choose the best coverage until you’ve sat down and explored your needs. For examples, here’s my own thought process:
I drive a 2006 Corolla. The KBB (that’s Kelly Blue Book, for those not in the know) value is around $10,000. It’s got 70k miles, runs well, and (fingers crossed) will run for years to come (c’mon, it’s a freaking Toyota). It’s hardly the apple of my eye, though. I don’t need/love that car. What I need is reliable transportation.
I currently bike ride to work ~3 times per week. The car literally sits in my garage half the week,, and I live close to work anyway, so my weekly commute is about 30 miles. Also, my personal rule is if it’s less than 3 miles away, I’m not allowed to drive, I have to bike or skate there.
Couple this with a stellar driving record, statistically speaking, the chances I’ll wind up in a car accident are slimmer than most. If I do get in an accident, my reasonably valued car isn’t so precious that I require the most comprehensive insurance. Should I need to fill a gap in my coverage out-of-pocket, I have an emergency fund for that.
If your automobile situation even closely resembles mine, consider reducing yourself to the minimum coverage and put together a decent emergency fund with the savings. The minimums differ from state to state. The California minimums are:
- Bodily Liability Insurance: $15,000/$30,000.
- Property Damage Liability: $5,000
What You Need To Know About Car Insurance
Here’s a breakdown of the most common types of coverages. Once you understand the terms it’s much easier to buy a plan that fits your needs:
Bodily Liability Insurance
If you are in a car accident and you are at fault, BLI covers the cost (above your deductible, should you have one) of medical bills from resulting injuries
There are two numbers in BLI, and they’re denoted like this: “$100,000/$300,000.” The first number represents the ceiling on what an insurance company will cover for medical expenses per person in an accident. The second is the ceiling on what the insurance company will pay per accident. In California, the minimum is $15,000/$30,000. This must be a part of your coverage.
Property Damage Liability
If you’re at fault, PDL covers the cost of any property damaged in the crash (cars or buildings).
In California, the minimum is $5,000. This must be a part of your coverage.
Personal Injury Protection
No matter who’s at fault, PIP will cover your medical bills, along with those of your passengers. This is something to think about if you do not have health insurance. If you have a good health insurance plan, that policy will likely cover most of your medical expenses, so you wouldn’t need PIP.
UM insurance covers you in case you’re in an accident with an uninsured or underinsured motorist and it’s their fault. Technically, even if they don’t have enough insurance to cover damages, they’re personally responsible for the gap from their own pocket. (If they have no cash$ though, then it’s a gray area and you might be out of luck — even if it’s not your fault.)
Collision Insurance covers repairs to your car if you’re at fault in an accident, and you tapped out your PDL on repairs to the other vehicle. If the car is totaled, CI will pay out the value of the car (before the accident, not new).
Do you need CI? If you decided to finance a $60K Mercedes Benz e300 because you thought you deserved it, you might sleep better at night with some coverage. I recently drove one, and I can tell you, it’s a nice ride: the seat automatically hugs your body around turns, the engine purrs just barely above a whisper, as if you’re floating down the street on a cloud. So you could finance the e300, pay $300 a month plus insurance, for the honor of this ride.
Or, you could pay cash to own outright a sensible car, and put all that money you’re saving by not paying car payments and a higher insurance rate into the bank, where it’s going to work for you. In which case, collision insurance may not be worth it.
Sometimes life throws shit at you. Sometimes, you’ll be in your car when this shit lands, and that’s what comprehensive insurance covers: weather damage (e.g., flooding), theft, animal collisions, etc. Nice to have? Definitely. But it’s pricey – you have to decide if the benefits outweigh the risks.
What kind of coverage do you already have, and how much are you paying?
Now that you know what exactly you’re paying for, you can decide what sort of risks you want to take with your insurance. That’s all insurance is — a game of measured risks. When I analyzed my risks, I realized I should lower the ceilings on my coverage (which in turn, lowered my premiums):
- Good driving track record: no accidents, no moving violations, no DWI’s
- Drive a ridiculously low number of miles per week
- 90 percent of my driving is done on surface streets and very few highways
- I don’t own many assets. I own outright a reasonably priced vehicle
Based on these factors, I lowered my coverage to the California minimums, which is saving me ~$100 per month. That’s $1,200 a year!
Shopping for Car Insurance
Remember: insurance isn’t a commodity. These are companies and people whom you’ll need, should you have to file a claim. My suggestion? Go with the big guns, ask them what their rates are, and then compare:
My Boss uses State Farm, because he likes having the same person he can call anytime. And anytime he’s called (read: I called for him) they’ve been able to speak on the phone. I mean, every time. If he wants to see him in person? They make an appointment, and he drops by.
Me? I don’t need that kind of personal attention — I just need someone to pick up my call. I don’t care if it’s Amber from San Diego or Daniel from Wichita. I’d rather save some money, which is why I go with Geico. So, call around or get quotes online, think about what kind of relationship you want with your insurance company, and pick the best fit for you.
Call for Discounts
They basically give you discounts for everything. I mean, everything: renewal discounts, combining renter’s insurance with car insurance, anti-lock brakes, Good Student discounts, employer discounts.
With Geico, a lot of these discounts happen automatically when you first sign up but it’s worth getting on the phone — yup, actually picking up the phone, crazy I know — and talking to a real person.
Should you combine insurances (with your spouse, girlfriend, boyfriend, roommate, or whomever) you can find an even better, discounted rate.
Saving cash$ on insurance isn’t difficult, but it requires being an educated consumer. You have to learn a little about what your coverage actually means, call around to shop for different rates, and ask for the discounts. Simple steps, really, to save $1,200 a year on car insurance.