Return to The Money Mentor Blog

How to steer clear of auto insurance hazards

save on auto insurance
January 03, 2017

By Thomas Muellner

After doing the hard work of researching a new vehicle online, kicking the tires at your local lot and navigating the dealership sales floor, the last thing most drivers want to worry about is getting the best deal on auto insurance. With new types of car insurance available and a range of factors to consider, it can feel like just as much of a hassle as shopping for the car itself. 

However, knowing your options and the personal factors that influence your auto insurance costs can be a major financial plus. It will not only help you save serious cash throughout the time you own your vehicle, but will also help you be sure you’re tailoring your coverage to fit your individual needs.  

Knowing your state laws

How much car insurance do you really need? Well, it depends. 

In almost every state in the country, drivers are required to purchase a minimum amount of liability insurance to cover damage caused to other vehicles and property, as well as personal injuries, in the event of an accident. The exact amount varies widely, so make sure you understand your local laws and shop accordingly. Failing to maintain a minimum amount of insurance on your vehicle is a serious violation that can lead to hefty fines and may even result in your license being suspended, so don’t mess around.

But liability insurance is only part of the equation. While having it keeps you legal, it only covers damage done to others – not to your own vehicle. And do you really want to risk your brand new ride?

If not, you’ll want to consider investing in some level of collision insurance or comprehensive insurance for your vehicle. Collision insurance traditionally pays for expenses related to damage done while on the road (i.e., a fender bender in the mall parking lot), while comprehensive insurance also includes things like vandalism, weather damage and theft.  

No matter which type of coverage you choose, expect to pay a fixed monthly premium, due in six-month or 12-month increments, as well as a set deductible, should you make an insurance claim. As a rule of thumb, the higher your monthly premium is, the lower your deductible will be, and vice-versa. 

How much should auto insurance cost?

For better or worse, data dictates the rates offered by insurance companies, and the rate you’re quoted is influenced by everything from the type of vehicle you own to your credit score.. 

Most drivers can expect to pay between $1,200 and $1,600 per year for coverage; however, this figure depends largely on the amount of insurance you purchase and your personal demographic information. There’s really no hard and fast number. 

For example, historically accident-prone segments, such as drivers under the age of twenty-five, can expect to pay significantly higher premiums than veteran navigators. Similarly, city dwellers tend to face elevated rates, compared to suburban and rural drivers. 

Finding ways to lower costs

While it’s not realistic (or recommended) to change your identity or move to a new city just to try and get better car insurance rates, savvy drivers who are intentional about their auto-related decisions can ensure they’re getting the best value for their personal situation. Here are a couple areas to focus on:

  • Vehicle make & model – Vehicles with above-average safety ratings tend to see lower rates than those without; brand new and luxury vehicles are generally more expensive to insure than pre-owned and economy vehicles. Try to balance both day-to-day driving needs and expected costs. 
  • Credit history – In the same way your credit score can affect interest rates and credit approvals, it can also be used to determine your monthly auto insurance premium. If you’re concerned that negative marks may be dragging you down, take the right steps to improve your credit score.  
  • Driving record – Accidents, moving violations and auto-related court decisions can all influence the insurance rate you’re quoted. Be sure your information is up-to-date by reviewing a copy of your driving record and fixing any errors. You may also want to ask insurers about any safe-driving discounts or incentives they offer. 
  • Vehicle usage — If you log heavy miles for work or an outside hobby, consider additional transportation options, such as carpooling or taking public transit, to limit the strain on your vehicle. It can help reduce the need for vehicle maintenance, and it may even allow you to to take advantage of a low-mileage discount from your provider. 

Though there’s no silver bullet for finding lower rates, by making sure you’re putting your best foot forward and comparing options, you can make sure you’re getting the best value for your money.

Alternative auto insurance options 

Lastly, tech-forward drivers may have heard about the emerging trend of pay-per-mile auto insurance companies. They work by installing a small device into your vehicle’s on-board diagnostic port (OBD-II) that transmits vehicle information back to the provider, who in turn uses that data to adjust your monthly rates. At the end of the month, you pay a flat fee plus an additional amount that’s determined by the distance you’ve traveled.  

It can be a great alternative for city drivers and families that use their second car sparingly; however, it’s not a great fit for everyone. Because pay-per-mile programs are specifically geared toward individuals who drive just 5,000 miles or less each year, average car owners may not see the value. 

Additionally, the information collected in these programs varies by company. Some are very limited in scope, only tracking the miles you’ve traveled. Others factor in things like average speed, braking habits and time of day to determine rates, leaving a big brother feel that may be unsettling for more “creative” drivers. 

Further, true pay-per-mile services offered by companies like Esurance and MetroMile are only available in certain states at the moment, so you’re out of luck if you’re currently living outside a major market. 

But regardless of the auto insurance options you choose, by knowing what’s available to you, comparing rates and being proactive about putting your best foot forward to providers, you can rest easy knowing that you’ve given yourself the green light to enjoy the open road.