How to get more affordable car insurance, liability considerations, and when to drop full coverage

Make sure you're saving on car insurance in the right places.

Affordable auto insurance is a balancing act. Sure, you want to pay as little in premium as possible. However, you also want to make sure you’re covered correctly.

People who are in an accident with inadequate insurance often find themselves in a position which is not that much better than having no insurance.

If you stay with the same company, there are effectively two ways to tweak your policy to get the most affordable auto insurance. For one, lower your liability limits. Second, adjust “full-coverage” or material coverage by raising deductibles or by eliminating material damage coverage entirely.

Other components of auto insurance, such as uninsured and underinsured motorist coverage and medical payments in states that do not have “no-fault” insurance, generally represent a small portion of the total premium. That’s why they usually provide little cost savings if changed.

Liability Changes for Savings

The most basic component present in all auto insurance policies is the liability portion. This is required in most US states. Liability is further divided into three parts, liability for injury/death to one person, liability to injury or death to more than one person, and liability for property damage. Liability coverage is defined by the maximum amount an insurance company will pay in any given claim for each category.

In insurance parlance, liability coverage levels are often defined by a grouping of three numbers: 50/100/50 – that stands for $50,000 for injury or death to one person, $100,000 for injury of death to more than one person, and $50,000 for property damage. In some states, companies also offer a combined single limit liability policy, or CSL. This is liability that covers all three liability scenarios under a single limit, and can therefore be more flexible.

While it’s tempting to get just enough liability insurance to meet the state minimum, that’s generally not a good idea. State mandated liability insurance requirements are often outdated and therefore inadequate for anything except minor accidents.

For example, Idaho requires minimum liability coverage of 25/50/15, a fairly typical amount across the country. Some states require more, others require less.

That’s all fine and good until you’re found at fault totaling a $45,000 Mercedes. That $15,000 property damage limit isn’t going to cut it, and you face the possibility of being sued for the difference. Accordingly many insurance agents recommend liability limits no lower than 50/100/50, or $100,000 CSL if available.

Full-Coverage Changes To Save

The other main component of auto insurance is known as material damage or “full coverage.” This pays for repairs to your own car if you’re found at fault, or if you’re involved in a single car accident. If you’re making car payments, your bank or lienholder will require you to keep this coverage.

Here’s an industry secret: most lienholders don’t care what deductibles you carry, and there’s where your wiggle room is.

Material damage coverage consists of two deductibles, a collision deductible which applies to accidents, and a comprehensive deductible which covers non-accident related mishaps such as theft, vandalism damage caused by hitting animals.

These deductibles are generally available in amounts from zero to $1,000. The comprehensive deductible is usually (but not necessarily) lower than the collision deductible. When determining your deductibles to get the most affordable auto insurance, go with the highest number you’re comfortable with.

Once the car is paid off, no state requires material damage coverage. That means that you can legally drop full coverage. While this single act can make give you more affordable auto insurance, it shouldn’t be taken lightly. Ask yourself this question, “If this car is stolen or seriously damaged in an accident, will I be OK walking away from it?” If your honest answer is yes, then drop material damage.

Your right to cancel auto insurance, how to handle switching companies, and canceling when you no longer need coverage.

Do you just tear up the policy when you don't want it anymore?

What happens when you cancel your car insurance?

It’s easy to cancel coverage. You can simply stop paying, but the cancellation is not instantaneous. When canceling insurance, it’s important to inform your insurance company of the exact date you want to cancel. Otherwise you may wind up paying for insurance you’re not using.

Your Right to Cancel Auto Insurance

Although some agents may try to imply otherwise, the fact is you have the right to cancel your auto insurance at any time for any reason…or for no reason at all. While changing companies at renewal can be an easier process for both you and the company, you do not have to wait until renewal to do so.

That said, there are a few things to consider if you rewrite your coverage.

First, your new insurance company will likely require a down payment to start your new policy. While there can be savings in the long-run changing companies, the upfront costs may result in a higher cost in the short-run. Be prepared for some additional charges when changing companies.

How to Handle Switching Companies

Secondly, ask your new insurance company to send a cancellation to your old company on your behalf. This prevents you from having to make that awkward call to the old company. A cancellation can be done with a simple note faxed to the old company from the new.

It can also be done with an “Acord Cancel” form. This is a standard industry form that most companies and agents are familiar with. Your new company will be happy to oblige, and your old company is required to honor the request. Agents much prefer sending cancellations than receiving them.

Getting a Refund

Also remember the chances of getting a refund back from your old company are pretty good. Most insurance companies design their payments so that you’re consistently paying for coverage not just for today but for a certain period into the future, generally around four to six weeks.

This is intended to keep your coverage from lapsing in the event of an inadvertent short or late payment. Further, insurance companies are required to refund any premium applied for unused time directly to you – called a “return of unearned premium.” As a result you may get a check back from them (or at least a smaller bill) a few weeks after you cancel.

When You Just Cancel Your Policy

For the very same reason, it is important to inform your insurance company if you’re canceling coverage due to selling a vehicle or otherwise not driving it anymore. Remember, it’s not illegal to own a car without insurance. Rather, it’s illegal to drive a car without insurance.

If you simply stop paying for insurance the coverage will eventually be canceled, but not until four to six weeks after the fact. Informing your insurance company of the exact date you’re not using a car anymore prevents you from paying for a month or more of needless coverage.

How staying out of trouble, getting good grades, insuring a cheaper car, and staying on your parents policy will keep car insurance premiums lower

Can this guy really get cheap insurance?

“Cheap insurance for young drivers” may be one of the great oxymorons in the English language, right up there with “military intelligence” and “jumbo shrimp.”

There really is no such thing, especially for single males under 25.

However, there are a few things youthful drivers can do to contain the cost and at least prevent it from becoming “exorbitantly expensive insurance for young drivers.”

Stay Out of Trouble

The most obvious thing a young driver can do is keep a clean driving record. Even a single accident, ticket or claim can send the premium through the roof – especially if it occurs while he or she is already in a high-risk company.

Cheap insurance for young drivers may be a matter of opinion even under the best of conditions, but with a bad driving record it’s an outright fantasy.

Get Good Grades

Young drivers can also keep their insurance costs down by getting good grades in school. What’s more this is no big deal. It’s not like insurance companies expect high school-age drivers to get into MIT.

In many cases traditional-age college students (i.e. those under 23) qualify for the good student discount as well. Most companies require documentary proof of a 2.0 GPA or higher. A transcript or letter from a school official to the insurance company usually works.

Insure a Cheaper Car

Another thing to consider is the young driver’s vehicle. Auto insurance premiums are determined not only by the driver but by the car. Some makes and models are significantly cheaper to insure than others.

While a young driver can’t do much about his or her age, they can do quite a bit about what they drive. Choosing an older, paid-for car and going with a liability-only policy is a good way to move towards cheap insurance for younger drivers.

Make sure you check with your agent before buying anything though. Some companies will require the highest-risk family member go on the most expensive car. Agencies can vary on how they enforce that rule as well.

Parents Can Help Young Drivers Too

A final way to work towards cheap insurance for young drivers is for them to stay on their parent’s policy for as long as possible. This allows the young driver to take advantage of many of the same auto insurance discounts his or her parents enjoy. It’s unlikely a youthful driver would qualify for these discounts separate from parents.

Most insurance companies are perfectly happy to keep a young driver on the parent’s policy throughout high school and well into college. This is assuming the college student goes to school in a state where the insurance company does business. However, students are usually forced to go it alone by age 23. Consult with an insurance agent or broker to determine your best course of action.

Consider your lienholder and personal financial situation before dropping collision coverage

This at-fault driver better have collision coverage.

Collision insurance covers damage to your vehicle when you are in an at-fault accident – so it can be a big chunk on your insurance bill.

Dropping collision coverage on your vehicle can often be appealing. After all, it’s probable the single most significant thing you can do to lower your auto insurance rates.

It’s no wonder people think about when to drop collision insurance – part of full-coverage insurance. But as with anything else, actions have consequences. Bear a few things in mind before dropping collision.

Don’t Drop It Until Your Car is Paid Off

Perhaps a better question is when NOT to drop collision insurance. The answer is if you’re still making car payments. Virtually all banks and other creditors on car payments – aka “lienholders” – require full coverage to protect their investment.

As the policyholder you have the right to drop your full coverage at any time. But if the lienholder finds out (and they will – the insurance company is required to inform them), they will “force place” collision coverage on the vehicle and then bill you for it.

No matter how expensive your full coverage is, the force placed insurance will be more expensive. As long as the lienholder is on your title, you are truly better off keeping your collision insurance. Adjust your deductibles if you need a price break.

Consider Lowering Deductibles Before Dropping Collision

Most lienholders require deductibles of $1,000 or less. Coincidentally, most insurance carriers offer maximum deductibles of $1,000. Higher deductibles are sometimes available on commercial policies.

If getting rid of collision insurance isn’t an option, raising your deductible can maximize cost savings. Just be sure not to raise it too high. When considering your deductible, choose the maximum amount you’re willing to spend on your vehicle in case of a mishap.

Anything lower, and you’re paying too much in insurance premium. Anything higher, and you could be stuck with paying more than you bargained for if you have an accident.

Understand the Risks of Dropping Collision

Regardless of whether you keep collision insurance, be sure to inform your insurance company to drop the lienholder as soon as you pay off your car. Otherwise this may be forgotten and cause problems later.

But once the lienholder is paid off and gone, you can consider dropping collision insurance without fear of their intervention. Just remember collision insurance protects your financial investment in your car. Without it, your car is not protected from at-fault incidents.

When considering dropping collision coverage, ask yourself one question, “If something happens to this vehicle, will I be OK with paying cash for another car?” If the answer is “yes,” then the time has come to drop collision coverage.

Why auto insurance is cheaper for women and how companies rate different groups of drivers

Will she really pay less money for car insurance than her brother?

Like it or not, women are charged different rates for car insurance than men.

That said, throw any negative preconceptions you may have about women drivers out the window. All things being equal, car insurance for women is less expensive than men.

Why is that?

Statistically speaking women are involved in fewer accidents. Ask any insurance actuary – the person responsible for setting premium rates.

Why Premiums Are Different for Women

Though it sounds like insurance companies are discriminating against men, rest assured they are not. Companies favor or punish different groups based on cold, hard statistics alone.

Here’s how it works:

Every insurance company employs at least one actuary. This is a person with a mathematics background who analyzes losses incurred by that company. They also determine if any particular group of drivers are causing more or fewer claims than others. The company then bases its premiums based on the actuary’s study.

It is important to note that insurance companies only consider their own loss experience when compiling these numbers – with only a passing interest in what their competitors are doing. What’s more, different companies place a different emphasis on different outcomes.

For the most part pretty much every company comes to the same basic conclusions: drivers under 25, as well as drivers over 74, cause a disproportionate amount of claims. In addition, women cause fewer claims then men. Thus, car insurance for women is cheaper than car insurance for men – though the rates don’t vary wildly.

The Gender Gap In Rates

The gender gap in insurance is most apparent at the high school ages. While insurance for a teenage girl is still expensive, it’s not as expensive as it is for her brother or boyfriend.

However, by the time she turns 25 rate differences between her and her male counterparts tend to level off. By the 50s rate differences between men and women are often negligible, but even at that age there are still differences in the woman’s favor.

Insurance is fundamentally a business of statistics. While by definition these statistics drive the business and prefer some groups over others, no reputable company will prefer or discredit anyone based on anything else.

When it comes to car insurance for women, the buying and servicing process should be absolutely no different for them than it is for men. If it is, you should probably take your business elsewhere.