Confused About Car Insurance?
Are you confused about car insurance? Did you just select the same kind of coverage that your parents did because I don’t know it’s confusing as heck. I’m going to walk you through the exact steps to figure out how much car insurance you really need and spoiler alert you have the potential to save big money so stick around.
I have to tell you I had four separate conversations with my students in budget boot camp and the freedom project. I was talking to the students and I was shocked because so many of them were in my opinion overpaying for car insurance. We had talked about oh well you know my parents had this for my car and then when I got the title I just kind of took the same coverage and while that may be really easy for you to do you could actually be throwing a lot of money down the drain. So let’s talk about how much car insurance you really need.
Step One: Understand the 3 Types of Car Insurance
You need to understand the three types of car insurance coverages available. That includes liability, comprehensive and collision.
Liability Insurance
Liability insurance covers any bodily injury or property damage when you have an accident that is your fault. In other words if you were to hit somebody your insurance would cover the cost of the repairs to that car or if you caused any harm to the person like physical injury. Liability insurance this is the basic type of insurance that everybody needs. It’s illegal to not have this type of insurance so make sure you have it. So bodily injury liability think of this as medical cost. Property damage liability think of this as the cost of the repairs to the car.
Comprehensive Coverage
Comprehensive insurance covers any kind of repairs to your car that did not result from a collision. Let’s say your car got broken into, a tree branch fell on top of it, your car caught on fire unexpectedly, from a natural disaster, a hail storm came around. Any of those things would be covered by comprehensive insurance.
Collision Insurance
The last type of insurance number three is the collision insurance. Collision insurance covers the cost of repair for your vehicle if you are involved in an accident and it doesn’t matter whose fault it is, whether it is the person who hit you or you hit somebody else. Collision coverage will cover the cost of repairs to your car. Your own liability insurance does not cover the cost of repairs towards your car unless the other person is at fault and then their liability insurance would cover the cost of your repairs. And let’s say that other person didn’t have enough liability insurance to cover the cost of your repairs this is where collision coverage would help you out.
What if I Have a Car Loan?
One important thing to note here is if you have a car loan you may be required to have full coverage which means all three types of insurance on your car. So while you may not have the opportunity to pick and choose the different insurance types that you want you do have the option to shop around different insurance companies to get the best rate.
Step Two: Determine How Much Car Insurance You Need
You need to determine how much car insurance you need. I will say this it is a really good idea to maximize your liability coverage. Now generally most insurance companies will max out in three different areas. This would include personal injury, total injuries per accident and property damage. So when you go into your insurance coverage you can log on to your account you should see three different numbers. The max generally for personal injury is $250,000, the total injuries per accident is $500,000 and the property damage max is $100,000.
Example of My Car Insurance
Now I wanted to show you guys exactly what type of insurance I’m carrying with my 2015 Subaru Forester so you can get an idea. But I have maxed out bodily injury and property damage liability to those exact numbers 250, 500 and 100. So it’s a good idea for you to max this out. If your numbers don’t match mine and to give you an idea of how this would impact your premium I went ahead and went inside of my insurance coverage and I did some changes hypothetically to see how it would impact my rate. So from the drop down menu and I’m on Progressive right now I could select from the 250, 500, 100 and let’s say that I just dropped it down to half that 100 per person, 300 per accident and 50 per accident and see what that does for my car insurance premium. So you can see it actually reduces my premium from $215 and this is paid out every six months to $197 for a six month premium. So my premium overall would drop $14.78 if I switched within my policy period. But if you look at the effect of the entire six month period because I pay my car insurance every 6 months that’s the difference between 215 and 197 and it only changes my six month premium by $20.
So let’s get this straight cutting my liability in half only saves me $20 for 6 months. So it only saves me $3.33 per month. I don’t know about you but paying just $3 extra to literally double my liability I think that’s a pretty good deal. So maximizing your liability insurance is key.
Important Note You Can’t Ignore!
Next you’re going to take a look at your comprehensive coverage it’s pretty inexpensive to add so I would suggest including this as well. Here’s a very important note about comprehensive and collision coverage. Raise your deductible if you have $1,000 in your emergency fund that’s set aside for emergencies. If you have at least $1,000 in savings raise your deductible on your comprehensive and collision coverage. And just for kicks I’m going to show you what happens when I reduced my deductible from $1,000 to $100.
Okay remember comprehensive insurance covers any repairs to your car that did not result in a collision so these are things like natural disasters, theft, that sort of thing. So when I went into Progressive and I changed my comprehensive deductible from $1,000 to $100 that was a difference between paying $23 to paying $76. It actually is a big difference because it cost me $53 more. The change raises my premium from $380 every 6 months to $433. So that’s a difference of about $8.83 additional per month or $106 per year. A great way to save even just $100 per year in my case is just raising my deductible.
Changing the Collision Deductible
Now let’s see how changing the collision deductible from $1,000 to $100 changes things. Okay so this is insane but when I changed it from a $1,000 deductible for collision coverage which was $105 for a 6 month premium rate dropping it to $100 increased my premium to $290. That’s insane. This by far is the biggest swing impacting my premium. By lowering my car deductible from $1,000 to $100 I effectively increased my premium. Basically the money that you pay towards the car insurance company just to keep your car protected. I went from $380 for a 6 month period to $565. That’s a difference of $370 per year. If you do anything if you take away anything from this article I highly suggest that you increase your deductible on your collision insurance to $1,000.
Why Changing the Deductible Changes Your Premium
So you’re probably wondering why is that such a big difference in a lower collision deductible than a higher one. Well what you are basically telling the insurance company is that you are willing to take on less risk if somebody hits you to pay for that out of pocket repair cost than the insurance company. And the insurance company is like oh you don’t want to pay more for the collision coverage then we’re going to charge you more because you are a more risky customer to us and we’re afraid that somebody’s going to hit you and you’re not willing to pay more upfront out of pocket costs. That’s why it’s so important to have at least $1,000 in your emergency fund because if you have at least that much money you have the opportunity to save yourself some mega bucks on your insurance premium.
Step Three: Get Multiple Car Insurance Quotes
Step three is to get multiple quotes from multiple car insurance companies. So you’re going to have to do a bit of leg work to shop around but now you know what to look for right. Liability you are going to max out in my case it was 250, 500, 100. You’re also going to opt for comprehensive and collision coverage with a $1,000 deductible in each. Got it. Then you’re going to request and put that out there to different insurance companies.
Useful Tool for Car Insurance Quotes
Now I recently used a tool called Gabby that’s gabby.com and what I did was I downloaded my coverage policy from Progressive I uploaded it into Gabby’s system and I said keep my coverage the same. For you you might opt to change your coverage to what I listed out and then they’re going to email you and say hey these are all the car insurance company quotes that we selected for you that could be a good fit and then you can opt to choose to switch through Gabby. It’s really simple. Because I had already maxed out my liability and my deductibles for comprehensive and collision I actually was told by Gabby that I was getting a good deal so I didn’t make any changes and then they’re just going to keep that on record so that if there was a new quote from another insurance company they would be able to notify me and then I could make a switch. You do not have to be brand loyal to these auto insurance companies they don’t care they want your money and what I really like about this is I’m okay switching so that I can get the best deal and the best coverage.
Step Four: Optimize Your Car Insurance Coverage
Once you get the multiple car insurance quotes and you’re able to make some adjustments step four is optimize your car insurance to get the best rate. Now one thing that I really liked about Progressive and I know a lot of other car insurance companies do this is you can bundle other insurance policies with car insurance. So with Progressive I bundled my renters insurance and auto insurance into one and we get a slight bundled discount.
My other trick to saving money on car insurance is opt to pay the six month premium rate instead of the monthly rate. When you pay the monthly rate you’re actually paying slightly more than if you were to pay the six month rate. In my case my monthly rate was $72 and my six month rate was $380. Well when you divide the $380 out by 6 months it only ends up being $63. So that’s a difference of $9 that I’m saving or $18 per year. And I don’t know about you but I’d rather save that $108 for something really nice.
A really quick trick to do this is simply add in that 6 month premium to your budget and budget out for it monthly. So it still feels like I am paying my car insurance monthly but instead of giving it to the insurance company I’m just setting it aside in my account and then when that sixth month is due I will go back in pull that money out of my account and pay for it because I’ve already saved up for it monthly.
How Your Driving History Impacts Insurance
I want to mention a side note here your car insurance premium is impacted by your driving history. So if you’ve been involved in accidents in the past and recently that could impact your premium rate so take that as a caveat. Also if you have an older vehicle your car insurance premium might be a bit higher. That’s because insurance companies seem to think that older cars are less safe. When we moved to California the insurance premium was $492 for our six month premium and then when we bought our 2015 Subaru Forester in cash our insurance premium dropped from 492 to 380 because it was a newer vehicle.
Final Thoughts
All right so to recap all this I know I unpacked a lot of stuff for you but in order to know exactly what car insurance you need remember the three types of car insurance types — liability, collision, comprehensive. Your liability you’re going to max out 250, 500, 100. Your comprehensive and collision raise your deductible to $1,000 each. You’re going to get multiple quotes from multiple companies and make the switch. You’re going to optimize, pay the six month premium as opposed to the monthly premium and see how you can bundle other existing insurance policies.