5 Things You Need To Know About Auto Insurance

April 13, 2015

If you own a vehicle, maintaining sufficient auto insurance coverage is a necessity. Unfortunately, this area of our financial lives can become easy to neglect over the years. This is why an annual review of our insurance policies should be part of the financial planning process and those auto insurance policies need more than just a passing glance. If for no other reason, a refresher on the basics of auto insurance can help save you money while providing reassurance that you are protected for those “life happens” moments that can occur while behind the wheel of an automobile. Here are 5 things to know about auto insurance:

1. Your credit report can affect how much you pay for auto insurance.

We should all be concerned about our credit report because it affects our ability to get a loan, and the interest rate charged on a loan. But did you know that your credit report can also affect how much you pay for auto insurance? Qualifying for lower auto insurance premiums is another reason to monitor our credit scores.

Auto insurance companies have determined that people with higher credit scores are more likely to pay their premiums on time and less likely to file a claim. Lower risk levels equal lower auto insurance premiums. There are some steps you can take to clean up your credit report:

  • Visit www.annualcreditreport.com and make sure the information on your credit report from each of the three different reporting agencies is correct. If any of the reports contain incorrect information, follow the instructions for filing a dispute provided on the agency’s website.
  • If you don’t have credit, start establishing a credit record using the following strategies. Open up a credit account, use it, and pay if off or obtain a secured credit card. You have to demonstrate that you are a good credit risk before auto insurers (and others) see you as one.
  • Always pay your bills on time.

2. If you unfortunately find yourself at the scene of an accident, collect the information you need to file a claim.

The immediate shock and surprise of an auto accident is unfamiliar territory for most of us. After an accident occurs, the first priority is to make sure that everybody is okay. If there are injuries or if the damage to one or more cars looks substantial, call 911 immediately. A police officer should probably be called to complete an accident report.

Then you’re going to need to exchange certain information with the driver of the other car. Specifically, make sure you obtain:

  • Name
  • Address
  • Telephone number
  • Insurance company and/or agent
  • License plate number and/or driver’s license number

3. Beware of teenage drivers (they will cost you more money).

I admit that about two weeks after receiving my restricted driver’s license at the age of 15, I was the stereotypical teenager that likely ruined some innocent business traveler’s evening thanks to my failure to yield the right of way at a busy intersection during rush hour. Fast forward a few decades and I am fearful of my own kids getting behind the wheel within the next decade. We thought clothes, shoes, and summer camps were expensive…wait until those current or future teenagers get a driver’s license and you go to add them to your insurance coverage policy.

Insurance companies have determined that people ages 16-24 are more likely to get into an accident than more mature drivers. (In my case, I use the term “mature” very loosely.) So to compensate for the greater risk, they charge higher premiums. Your options:

  • Add your teenager to your current policy. If you are getting safe-driver discounts or discounts for having more than one insurance line with the same company (your homeowner’s and your auto together) then that will lessen the impact of your teen’s higher premiums.
  • Buy your teenager a high mileage used car that. The potential repairs on this kind of car (if you get it repaired) will be significantly lower than if your teen damages a newer, higher-priced vehicle.
  • Consider a driver’s education course for your teen. Some insurers will give you a discount if you send them a certificate stating that your child has completed such a course. Not only can this save you money, it can also provide some peace of mind knowing that your child is ready to transition from that bicycle you will always remember them learning how to master to an automobile.

4. Don’t be over-insured OR under-insured on your rental car.

Selling insurance on their autos is a lucrative source of income for rental car companies. The clerk who helps you at the rental car agency may make a pretty persuasive case for purchasing that loss damage waiver on your rental car. But doesn’t the insurance you have on the car sitting in your driveway apply to rentals as well? The fact is, the coverage limits you have on the car you own (comprehensive, collision, liability) will apply to your rental. And if you use a credit card to pay for the rental, it may offer an extra level of protection as well.

This doesn’t mean it never makes sense to purchase the additional insurance options offered by the agency. If you do not have collision or comprehensive on the old beat up car you drive (my family buys used and drives them as long as possible), you might want to accept the loss damage waiver on the brand new rental you’ll be cruising around in for a few days. If you’re renting a car in a foreign country, you probably will want to take the insurance as most personal policies won’t cover damages outside of the United States. You can also check out these important lessons my colleague, Erik Carter, learned a few years ago about rental car insurance.

5. Keep it between the yellow lines and slow down!

Driving within posted speed limits, wearing your seat belt, obeying all traffic signs and signals, not texting, and not drinking and driving are just plain common sense ways to stay out of trouble (and protect others). They will also greatly reduce your chances of getting into an accident. Following those basic guidelines will keep your insurance premiums down and help keep you and everyone else on the road safe.

In my 25 year driving history, I’ve seen some unusual things happen on the road. I’ve unfortunately hit a deer (technically the deer hit us but unfortunately lost the battle) that left the passenger side door useless and the only way to enter/exit was Dukes of Hazzard-style through the window. I’ve had near misses with cows, an alligator, and a wild boar and there was a buffalo incident in South Dakota’s Black Hills that presented a minor traffic jam.

I’ve also seen multiple RV fires on I-95 and just about every form of household furniture and appliance fall off the back of sketchy trucks while traveling at high speeds. Bottom line, there are enough dangers out there on our nation’s roads so be careful. Most importantly, protect yourself and your property with the right amount of auto insurance coverage.