Module 6.3: How to lower your car insurance premiums
Learn how car insurance companies offer wildly different quotes through different channels. Learn how to make sure you are getting the discounts you deserve, and how making a “lump sum” semiannual payment can save you hundreds over monthly payments. Also: Learn about your Comprehensive Loss Underwriting Exchange (CLUE) report, how to request it for free from LexisNexis, and why even talking to an insurance agent about a potential claim can raise your rates.
Collision and comprehensive insurance. Collision and comprehensive insurance only pay for damage to your car up to its fair market value. These types of insurance are expensive, provide the best cost–value trade-off at a $500 deductible, and cover damage due to theft, acts of nature, or collisions that are your fault. They do not pay for medical expenses, and they will not pay to buy you a new car. Therefore, if your car’s value is fairly low—perhaps below $5000, collision and comprehensive are an especially bad deal. However, if you have a car loan, you are typically required by your lienholder to have collision and comprehensive insurance.
Premiums vary. Surprisingly, car insurance premiums can vary quite a bit. In fact, if you request a quote from your current insurance company for identical coverage, you might get a much higher or lower price! Moreover, insurance companies are known to lure you in with low rates and then raise them over time, much like the boiling frog metaphor. Checking rates with several insurance companies every 6 months is ideal. At minimum, you should request quotes after a life change, vehicle change, or significant premium hike. All of this can be done online, and insurers such as GEICO like to offer discounts for policy holders who receive all their policy information online. A bonus: if you find a lower rate, you can switch insurance companies tomorrow and your old insurance company will send you a pro-rated check for the premium you already paid.
Your CLUE report. The Comprehensive Loss Underwriting Exchange (CLUE) report is an obscure credit report for car and homeowners’ insurance, managed by LexisNexis. Like your credit reports and ChexSystems report, LexisNexis is required by federal law to offer your CLUE report to you for free. They do not make it easy, however—you must call 866-312-8076 or print and complete a form from their website and submit it by postal mail to receive your CLUE report. Astoundingly, in many states, talking about a potential claim with an insurance agent can result in the agent filing the incident with LexisNexis, leading to higher premiums down the road, even if no claim is ever filed.
Your insurance company is not on your side. When considering what types of car insurance to have, remember that your insurance company is not your friend. They do not want to pay your claims, and will penalize you with higher rates, effectively nullifying the value of insurance for small collision and comprehensive claims. However, insuring yourself against bodily injury liability (BI), property damage (PD), and uninsured motorists (UM) is smarter. Bear in mind that if you have good health insurance, insurers such as State Farm only offer uninsured motorist coverage for your bodily injuries, not damage to your vehicle; therefore, UM coverage is effectively worthless since your health insurance would cover you anyway. However, BI and PD insurance protect you from liability should you mistakenly hurt others. Choosing the minimums required by state laws, typically $10,000 in coverage, can be a bad decision, because medical expenses will easily exceed these amounts, resulting in the damaged party coming after you for your assets and potentially forcing you into bankruptcy. Higher coverage reduces your risk.