How Progressive’s “name your own price” auto insurance options work, what they don’t do, and why agents and companies charge what they have to anyway.

No, you don't really use one of these.

Recently Progressive launched an ad campaign proclaiming you can name your own price on car insurance. Sounds like a great deal. Now you can buy auto insurance coverage based on your budget rather than by having to sort through confusing liability limits and deductibles, right?

Well, sort of…but not entirely.

How Name Your Own Price Works

Like accident forgiveness, the choose your price feature is primarily a marketing tool. There’s really not anything new about it other than presentation.

When using the feature, which according to Progressive itself is available in “most states” (read: not all states), the company actually has you quote your coverage the old fashioned way first. That is, you provide them with your vehicle information, driving history and desired coverage levels.

After that they give you a premium quote but let you adjust the price. Of course, adjusting the price has an impact on the coverage. For example, if Progressive (or anyone else, for that matter) offers you a 50/100/50 liability only policy for $50/month, it’s still $50/month regardless of the marketing. If you want a policy for $40/month, you’ll get it at lower liability limits.

In short, it’s really little more than a new way to accomplish a very old insurance sales tactic. Agents adjust coverages to fit into their clients’ budgets all the time in the exact same way. Given that the first auto insurance policy was sold in 1897, we figure the practice dates to, oh, 1898 or so. You can “choose” your price anywhere in this manner; it’s just that Progressive found a new way to package it.

When You Can’t Name Your Own Price

Choosing your price doesn’t mean you can just go down to your local insurance agent and get some arbitrary discount. Insurance agents can’t do that. They have to use the approved prices and discounts given to them by the insurance company for a particular driver, vehicle and coverage level.

What’s more, the agent can’t offer you a lower price and offer to make up the difference, even as a charitable contribution. This practice is called “rebating,” and it’s illegal. Agents can lose their license doing this, therefore no reputable agent will do it.

States Help “Name” Your Price Too

Agents can’t just charge what they want for car insurance. In many ways, neither can insurance companies. States require insurance companies to hold a certain amount of money in reserves for claims at any given time. Even for small carriers, this is a substantial amount, easily in the tens of millions of dollars. When an insurance company fails and is taken over by the state, a process called “receivership,” chances are problems with this are a primary reason for it.

To that end, states require insurance companies to charge rates that allow them to sustain these cash reserves. The insurance rates a company charges must also be approved by a state’s insurance commission. Any available insurance discounts are factored into this beforehand. Yes, this means that rates can (and are) different from state to state even within the same insurance company, all other things equal.

How insurance companies rate accidents, how an optional accident forgiveness option can stop auto insurance rate increases, and how it really works.

You don't have to pay more for this ... if you already are.

No doubt you’ve seen the commercials by now. The announcer strolling through a quiet, idyllic suburban scene, telling you how you can protect you and your loved ones with optional accident forgiveness on your car insurance coverage. In other words, if you get in a wreck the insurance company promises not to raise your rates. Sounds like a good deal, doesn’t it?

Well, it can be. However, it’s important to know exactly what “accident forgiveness” entails.

How Accidents Factor in Insurance Rates

The philosophy behind charging people who get in accidents more than people who don’t is pretty simple: those who use insurance benefits more should pay more than those who use them less.

That said, not all auto insurance claims result in higher rates. Those that do tend to fall in one of two categories: liability claims resulting from accidents when you’re found at fault, and full coverage collision claims. What’s more, the latter is usually only subject to rate increases if the claim exceeds a certain dollar amount. That exact amount varies from company to company, but is usually in the neighborhood of $750 to $1,000.

Accident claims stay on your record for three to five years, again depending on the company. Multiple claims in that three- to five-year period may result in you being dropped, forcing you to go to a non-standard or “high risk” company.

How Accident Forgiveness REALLY Works

Accident forgiveness simply means that if you’re in an accident that would otherwise raise your rates, the insurance company instead will keep your rates where they are. Here’s the rub, though. Accident forgiveness is an optional feature, and therefore comes at an additional charge. In other words, in many respects it’s easy for the insurance company to keep your rates where they are after an accident … because you allowed them to raise your rates beforehand.

A lot of it is truly in the marketing. With accident forgiveness or without it, the company’s loss exposure remains covered. It’s all motivated by the bottom line, not by altruism.

Accident forgiveness typically applies to only one accident. If you’re in a second accident – particularly if it occurs in the same policy period as the first – you’ll most likely get uprated (premium increase) anyway. You also may still be subject to being dropped for multiple accidents in the same way you would be without the accident forgiveness option. Consult with your insurance agent for details specific to your company, assuming your company offers an accident forgiveness option in the first place (not all do).

Is Accident Forgiveness Right For You?

One could make the argument that those who take the accident forgiveness are assuming they’ll be in an accident in the next three to five years. Indeed, many may scoff at such a sentiment. For people who do, optional accident forgiveness is probably not a good fit for them. However, if you find the knowledge that your rates won’t go up after an accident comforting, perhaps the peace of mind is worth it. Ultimately it’s a matter of personal preference.

A history of car insurance coverage, a general overview of what it is, and it’s different components.

Car Insurance. Yeah, it's been around for a while.

A great deal can be written (and indeed, has been written) on car insurance. There are so many components to consider that one could easily fill a book. While exploring these components in detail is necessary, it’s also a good idea to take a look at car insurance coverage from a very general standpoint.

A Brief History of Car Insurance Coverage

In the larger insurance realm, auto insurance is part of what’s known as property and casualty insurance, or P&C. In addition to auto insurance, common types of property and casualty insurance include homeowner’s, renter’s and most commercial insurance products. The origins of P&C insurance in the United States dates back to colonial times, when groups of neighbors would establish simple communal burnout funds. One of the first of these funds was founded in Philadelphia by none other than Benjamin Franklin.

The first true auto insurance policy was a liability only policy written in 1897 in Dayton, Ohio, by Travelers. This policy, purchased for $1,000 (an astounding amount of cash in the day) simply covered the driver against accidental death, bodily injury and property damage. Fortunately for us, auto insurance today covers a lot more for a lot less.

As cars became more commonplace during the first years of the 20^th Century, auto insurers were beginning to determine auto insurance premiums based on demographics and risk. Both Farmers Insurance Group in California and State Farm Insurance in Illinois were founded in the 1920s and originally sold auto insurance policies to, you guessed it, farmers. Why? Well, at the time it was believed farmers were good drivers simply because they were farmers. Today auto insurance risk assessment is much more scientific, literally considering thousands of variables.

Liability Car Insurance Coverage

At a basic level, auto insurance is comprised of two main components: liability and full coverage. As it did for that guy in Dayton over a century ago, liability auto insurance today covers drivers against accidental death, bodily injury and property damage. It also covers against damages caused by uninsured and underinsured motorists. This coverage is known as UM/UIM.

Liability coverage is required in all 50 states, the District of Colombia, Puerto Rico and throughout Canada. Some states also require UM/UIM coverage. Exact coverage requirements vary, but many areas require only a small amount of coverage. These state minimum limits are generally inadequate for anything other than minor accidents.

Many insurance professionals recommend carrying liability limits of at least $50,000 for bodily injury to one person, $100,000 for bodily injury to any group of people and $50,000 in property damage in any one accident. This is expressed in industry standard “split limit” format as 50/100/50. Some companies also offer a combined single limit, or CSL, coverage. The rough CSL equivalent to a 50/100/50 policy is $100,000 CSL. Both of these limits well exceed all current legal requirements.

Full Coverage Car Insurance Coverage

Full coverage protects your own car against property damage in a wide variety of situations. As its name implies, collision coverage helps fix your vehicle if it is hit. Comprehensive coverage covers a wide variety of other perils, including theft, vandalism, animal strikes and auto glass damage.

No government entity in the United States legally requires full coverage, however most auto lenders require it as part of their lending agreements. Failing to do so opens you up to “force placed” insurance, which is extremely expensive. If you’re making payments on your car, keep full coverage. It’s worth it.

Using discounts to find cheaper car insurance, choosing a cost-effective liability limit, and how to best utilize full coverage.

It's all about the discounts.

So you want cheaper car insurance? Why not?

What’s more the insurance companies know it. For years major insurers have run multi-million dollar advertising campaigns on this very premise. Finding cheap car insurance is no problem at all for most people.

That’s all fine and good, however simply looking for cheaper car insurance is not always the best thing to do. What you really want to do is look for cost-effective car insurance.

Cheaper Car Insurance Means Discounts

Apart from shopping around, the single best way to find cheaper car insurance is to find and qualify for as many discounts as possible. While the exact discounts available vary from company to company, just about everyone offers multi-car discounts, discounts for packaging auto insurance with other insurance lines such as homeowner’s insurance, discounts for good credit, good student discounts, and so on.

Rest assured there are plenty more.

A good agent will look for these discounts on your behalf. It’s the agent’s job to be familiar with the discounts his company offers. He or she is well-motivated to find these discounts for you, both because it’s good customer service, and also because it gives the agent a chance to outbid the competition (insurance agents love doing that). While it’s certainly possible to find these same discounts online, know you’re on your own when you do so.

Shop for Cheaper, Intelligent Liability Coverage

The most straightforward way to save on liability car insurance coverage is to simply go down to your local agency, ask for the state minimum limits and refuse to accept anything else. Indeed, this is how many people shop for insurance. It works, as long as they never get in an accident.

The plain truth is state minimum liability limits are routinely inadequate for anything other than minor accidents. If anything serious occurs, it’s very easy indeed to exceed the limits for bodily injury and property damage on a state minimum liability policy. While the insurance limits run out at a certain point, your legal liability doesn’t. If you’re in this situation you may find the accident very costly indeed, even with adequate insurance coverage in the eyes of the state. You may face subrogation or even be sued.

Instead, many insurance professionals recommend a more robust liability limit, such as a 50/100/50 “split limit” policy or a $100,000 combined single limit policy (CSL). These limits are often still reasonably priced for most people. The myriad of discounts available can make them even more appealing.

Don’t Forget Full Coverage

While no state requires full coverage auto insurance, it’s not always a good idea to forgo it. If you’re still making car payments, your lender will require you to carry full coverage as part of the contract. You’ll need to do so until the car is paid off.

Don’t think you can pull a fast one on them, either.

Lenders will ask your insurance company to send them a “binder,”which in this case is basically a piece of paper that documents that the vehicle in question has full coverage and lists the lender on the policy. Without a binder, a lender can put “force placed” insurance on your vehicle. Force placed insurance usually features limited coverage and extremely high prices. Keeping your full coverage is much more cost-effective.

Once your car loan is paid in full, you’re free to drop full coverage and remove the lender from your policy. Don’t assume the latter happens automatically. It often doesn’t. While this instantly results in cheaper car insurance, it also instantly results in significantly reduced coverage. Without full coverage you’re no longer covered against theft, vandalism or any accidents where fault can’t be pinned on someone else. If you’re OK with that, then go for it. If not, there’s nothing wrong with keeping full coverage.

Full coverage may not make for cheaper car insurance in the short-term, but it may be a cheaper route if you have an at-fault accident in an expensive vehicle.

Getting Mexican auto insurance from an agent or a third party source, and other documents needed to drive in Mexico.

Driving in Mexico takes planning

Yes, you can drive your car in Mexico. Seriously.

But before you strike out south of the border, you should understand how to get car insurance in Mexico.

While its infrastructure doesn’t have the best of reputations, there have been significant improvements made to Mexican highways in recent years, particularly around the major cities. While back roads can still be scary, many major routes are as well-maintained as anything north of the border.

If you have business or family in Mexico, it’s not at all that far-fetched to drive down there. You just need to make sure you have the right paperwork.

Getting Mexican Auto Insurance

Unlike in Canada, American auto insurance is not recognized in Mexico. Indeed, many American auto insurance policies specifically exclude coverage in Mexico. You may be able to get away with U.S. car insurance it if you stay near the “border zone,” but even that’s subject to interpretation. If you drive more than 15 miles or so into Mexico, Mexican auto insurance is an absolute must. There’s no debate there.

It’s best to plan ahead.

Contact your agent to see if he can find you a plan. Although virtually no American insurance company writes auto insurance in Mexico, American agents may have access to Mexican auto insurance companies through brokerages. Insurance agents often use brokerages to fill high-risk or unusual insurance needs. Chances are your agent has access at least one.

Other Methods to Obtain Mexican Auto Insurance

If your agent strikes out, you can purchase Mexican auto insurance coverage online. Failing that, it is possible to purchase Mexican auto insurance near the border. The closer you get to the border, the more ubiquitous these agencies become. But be careful. If you go this route, make sure you’re working with a reputable firm and actually buying Mexican auto insurance.

As in the U.S., Mexican insurance companies are independently rated by A. M. Best, a neutral insurance rating company. Major, respected Mexican insurance companies with good A. M. Best ratings include Grupo Nacional Provincial, ACE Seguros and HDI Seguros (“seguros” is the Spanish word for insurance).

Whatever you do, don’t try to drive in Mexico without at least liability auto insurance underwritten by a Mexican company. According to the State Department, if you’re in an accident and found without insurance you’ll be detained until financial responsibility can be resolved, even if you’re seriously injured. The State Department also says your chances of jail time in such a scenario are “almost certain.”

In addition if you’re found driving under the influence of alcohol or drugs, your Mexican auto insurance is effectively invalidated. Obviously, don’t do that either.

Other Required Mexican Travel Documents

In addition to a valid passport or other approved travel document such as a passport card (which you’ll need to get back into the U.S.), there are several other documents you need to obtain before you legally drive in Mexico.

You and all adults in your party must obtain a Mexican tourist visa at a Mexican consulate or at a port of entry after you cross the border. The application for this visa is pretty straightforward, but you will need to go to a nearby Mexican Army Bank (“Banjercito”) branch to pay the necessary fee, which is currently in the neighborhood of $20 each. Mexican tourist visas are good for up to six months.

Remember, You’re Importing a Vehicle Into Mexico

Mexican authorities also require a “Temporary Vehicle Importation Permit” for every foreign vehicle driven in Mexico. Although there are some exemptions if you stay in the northwestern states of Baja California and parts of Sonora, these permits are required everywhere else. Getting caught without one is no joke. You may be arrested and your vehicle may be confiscated.

This permit can generally be obtained at the same place you get your tourist visa. At the customs port of entry or Mexican consulate, you will need to show the authorities at the Banjercito branch your passport, a valid driver’s license and your vehicle registration or title. Banjercito offers an English-language online application for the permit at its web site, which can expedite the process considerably.

The fee for the permit itself is around $30, while the required bond deposit can be up to $400 depending on the age of your vehicle. A credit card can be used for the bond deposit, which is given back to you once you surrender the permit upon leaving Mexico assuming there were no problems.

Don’t forget to surrender the permit before you head home. If you leave Mexico without doing so you lose your bond deposit and any future vehicle importation permit applications will be denied.

It can be a confusing situation, but it’s not impossible getting auto insurance in Mexico. Just understand the process before leaving the US.