Nobody likes buying car insurance. It's never appreciated until you need it, and it can be a significant part of the cost to drive a car. What you want is a car insurance policy with the maximum coverage for the minimum price. Avoiding costly mistakes can get you to that goal.
Finding the right insurance coverage is just as important as finding the right car, and the decisions go hand in hand. What car you choose affects your insurance options, and your insurance budget can limit what car you can drive.
In most states, it is illegal to drive uninsured, so finding the right car insurance coverage is a critical step to getting on the road.
Take a look at the following tips to avoid common auto insurance buying mistakes.
1. Not Shopping Around
Insurance buying is a lot like car buying. You have to shop around to find the best deal. One insurance agent may be able to get you free quotes from several companies, or you can be your own advocate and research different companies and policies online.
You want to start shopping well before you need to buy insurance so that you don’t have to choose a policy just because there isn’t time to research all of the options that may be available. In some states, you can’t leave the dealership with a new car unless you can show that you have car insurance. Most lenders require that you have insurance on any vehicle that they have loaned money on.
2. Not Making an Apples-to-Apples Comparison
The biggest challenge in comparing quotes is ensuring that you are making apples-to-apples comparisons. Make sure you are looking at each component of the policy separately, and make sure that each quote has the same deductible and coverage level for each element.
Every policy should have bodily injury liability, property damage liability, and uninsured/underinsured motorist coverage.
Other coverages include comprehensive insurance, which covers your car in case of theft, vandalism, vehicle fires, or natural disasters like hailstorms or falling trees. Collision insurance pays for repairing your vehicle if it is involved in a collision with another motorist or object.
Medical payments coverage pays for costs incurred from injuries to your passengers, while personal injury protection (PIP) covers your medical expenses. Sometimes your medical insurance will not cover injuries sustained in an auto accident.
Check with your state department of motor vehicles to find out what coverages are required in your state and any limits that the policy must meet.
3. Not Being Prepared With the Answers
For you to get an accurate rate quote, you will need to fill out an application and answer some questions. If you don’t answer the questions correctly, you could find yourself over or underinsured. Insurers will want to know details about your car, where you live, and your driving habits.
Insurance quotes are not only based on the type of car you have but also its trim level and engine size. Insurance costs vary by the zip code of your home address, with insurance companies looking at specific local crime statistics when they underwrite the policy.
Knowing the distance of your daily commute and the approximate number of miles you drive per month also help insurance companies provide accurate quotes.
4. Lying on the Application
Whatever you do, don’t lie to your auto insurance company when you are getting a quote or making a claim. Doing so can leave you uncovered in case of an accident, cause them to cancel your policy, and put your ability to get a policy in the future in jeopardy.
Insurance companies are hesitant to insure anyone who has a cancellation on their record.
Be honest about how much you drive, when you do it, and the value and condition of your car. If you are in an accident, lying to their claims department or investigators can make it difficult to defend you if you are later sued. In some cases, not being honest with them is grounds to deny a claim.
Insurance companies have access to DMV records, so not telling the full truth about your accident history or driving record will be found out. From a personal standpoint, do you think an agent who has caught you in a lie is going to work hard to get you a great deal?
5. Not Understanding Your Needs
Every state has different statutory limits on what insurance you must have and in what amount. Those limits, however, are just the minimum of what you should have. Different policyholders need different amounts of insurance, and finding the right balance of cost and coverage is critical to saving money.
If, for example, you have a 10-year-old subcompact car, you probably don’t need to spend a lot of money on comprehensive insurance. If you are a public figure or might be seen as someone with deep pockets, you should consider significantly higher liability coverages, plus an excess liability (umbrella) insurance policy.
If you are unsure of what coverages you need, it is probably best to consult with an insurance agent when you are first shopping for a policy. If you want to consider other companies at renewal time, you’ll have a good idea of the types and levels of insurance you need.
6. Not Updating After a Major Life Event
It is essential to update your car insurance policy after a major life event, such as marriage, divorce, moving to a new house, or adding a newly licensed teen driver to your household. When you get married, for example, your rates will likely go down.
Because the crime statistics in your new neighborhood may be better than your old one, your rates may go down if you move. If you purchase a home, you may qualify for substantial discounts by bundling your auto and homeowner’s policies with one company.
Auto insurance is one of the few places in life where discrimination is legal in some instances – insurance companies can charge different rates to men and women, and change rates as you age. This legal form of discrimination is based on statistical averages for claims in those demographic groups.
7. Not Considering Online Insurance Companies
Unless you have complex insurance needs that require one-on-one counseling with an insurance agent, you might be able to take advantage of online insurance companies that save money by not having brick and mortar locations or independent agents that they have to pay commissions to.
Even if you can’t bring yourself to use a company that doesn’t have physical locations, you can go to many traditional insurance company’s websites to seek quotes and comparison shop. When you buy car insurance online, be sure to be accurate with any documents that you fill out. You won’t have an insurance agent to double-check the forms.
8. Not Considering the Cost of Different Drivers
Just because your teenager got their driver’s license does not mean you have to add their name to every car insurance policy in your household. You can probably save some serious money by adding them to the five-year-old family minivan, and not your 2018 Ford Mustang GT.
While the mere fact that teen drivers are in your household will likely increase the cost on all of your vehicles, being selective on which car policies you formally add them to can save you a lot of money. Of course, your teen driver may disagree with your choice, but insurance rates are based on statistics. They show that inexperienced drivers are more likely to get into trouble in high-horsepower cars than they are in more mainstream vehicles.
Likewise, if one member of a couple has horrible driving habits, with crashes and moving violations on their driving record, it is probably not a good idea to merge your policy with them.
If a driver is not listed on a policy, they should not be driving the vehicle. If something terrible happens, the insurance company could potentially decline any claims.
9. Buying Too Little Coverage
Most states have minimum requirements for insurance coverage; however, they are only minimums, and in many cases you should have significantly more coverage. Even if your state does not demand it, you should at least carry uninsured/underinsured motorist, personal injury protection, and medical claims coverage.
If you have a car loan, you will likely be required to carry comprehensive and collision coverage to protect the lender if the car is damaged or stolen. If you fail to carry insurance, the lender will likely place their own (high-priced) insurance on the vehicle and add the cost to your monthly payment.
If you drive a high-value or new car, you will definitely want to have good comprehensive and collision coverage even if you do not have a loan. Otherwise, you might be left without a car – and without the money to buy a replacement – if your vehicle is stolen.
Your liability policy will only cover up to its specific limit. If you are sued for significantly more than that limit and you are found to be at-fault, you could lose your home or other personal property in a lawsuit.
10. Buying Too Much Coverage
It is also possible to be over-insured. If you don't have a large asset base to protect, you probably don't need a super-high liability limit. If your car isn't worth much, it's a waste of money to be paying high auto insurance rates for great collision and comprehensive coverage.
Some insurers will pitch add-ons, such as roadside assistance and towing. If you are a member of an automobile club, such as AAA, you may not need the additional coverage. Many new cars also come with roadside assistance coverage. It’s important to know what you have and what is covered before you pay double for the same service.
11. Not Considering the Deductibles
Having a low deductible – the amount you have to pay before your insurance company picks up the tab – is great after you get in an accident, but it is costly when it comes to paying your premiums. In many cases, you should choose a higher deductible and save some cash.
Policies with lower deductibles cost more than ones with high deductibles. If you usually have enough money to pay a higher deductible in your savings or family emergency fund, you're probably better off choosing a policy with such a deductible. Just changing the amount you might be out-of-pocket from $200 to $500 can save you a tremendous amount of money on your comprehensive and collision coverages.
Before you choose to go this route, be sure to consider what your state or lender requires. Some will not allow you to go to a high-deductible plan.
12. Not Bundling Your Policies
One great way to lower your insurance bill is to bundle multiple cars with your homeowners or renters insurance. It’s convenient for you, and insurance companies love it because it makes it more complicated to change companies if you are not satisfied with their service.
In many cases, bundling your life, boat, or motorcycle insurance with the same company that writes your auto insurance policy with will bring you additional discounts.
Before you bundle, however, you'll want to price the component separately. Don't automatically assume that having all of your coverages with the same company will save you money. You need to make sure that each element of the bundle meets your needs.
Bundling can save you a lot of hassle when it comes to making claims. If a fire in your garage damages your car, one phone call can start both the homeowners and auto insurance claims.
13. Staying With Your Insurance Company Forever
Most people just pay their auto insurance bill when it comes due, without giving it a second thought. If you want to save money, though, renewal time is a great time to look for a better deal. You may find out that you are getting a great deal, or you may see that you are overpaying.
Since you already have a policy in hand, you probably have a pretty good idea of what coverages you need. You can go online and request quotes with the same coverage from a variety of agents and companies, without spending too much time.
If you are happy with your current company but get a lower quote elsewhere, you can take the quote back to your agent to see if they are willing to meet or beat the price.
14. Not Seeking All the Available Discounts
When you are shopping for an auto policy, be sure to take advantage of every discount that is available to you. That includes things like multi-car and bundling discounts, as well as things like price reductions for vehicles that aren’t driven many miles per year.
Staying with the same company forever isn't necessarily the best idea, although loyalty can bring discounts.
Your teenage driver can get you discounts by taking driver education classes and keeping their grades up. You can get discounts by remaining loyal to one company, paying your bill up front, or using electronic funds transfer to pay for renewals automatically. Having a short commute or working from home can also knock a few bucks off your bill.
Certain anti-theft and advanced safety equipment on your vehicle will get you discounts with some insurers.
Remember to explore affinity programs. Organizations like AAA and AARP work with companies that provide discounts to their members. Some trade organizations and college alumni associations have relationships with insurance companies that might save you a few dollars. USAA only serves current and former members of the military and their families, and does so with some of the best rates and highest rankings in the business.
One of the easiest tips to save money on your insurance is to pay the premium with a rewards credit card. If you get 2 percent cash back on purchases, it’s like you just got a 2 percent discount on your policy. It only works if you pay off your credit card balance each month and never pay interest.
15. Not Considering the Company’s Reputation
Not every insurance company is created equal. Some have great rates but lousy customer service, while others have concierge service that comes at a high price. Before you buy, check out our ranking of the Best Car Insurance Companies to find out which brand is right for you.
You’ll also want to talk to family and friends about their experiences with local insurance firms. You may find a great independent agent who will work hard to save you money.
16. Not Understanding the Policy That You Purchased
It's easy just to tell an agent that you want full coverage for your car and let them handle everything for you. That can be a road to purchasing the wrong policy if you don’t understand what’s included. It can leave you underinsured if the agent is just trying to show a low price.
As we have seen on the previous slides, cheap car insurance isn’t appropriate for every consumer.
Missing extra benefits that you didn’t know were part of the policy can have you paying for the same service elsewhere.
17. Ignoring Your Credit History
What does your credit rating have to do with your car insurance rates? Auto insurance companies will tell you that there is a correlation between your credit score and your likelihood of making claims. Since they can show a statistical link, they can charge you more if your score is low.
Before you start shopping for insurance, take advantage of your free annual credit report from each of the three major credit reporting companies – Equifax, TransUnion, and Experian. You can also get your credit score as a benefit from some credit card companies, or from websites such as CreditKarma.com.
Correcting any errors in your reports and working to improve your credit score can help to lower not only your car insurance rates but also your homeowners or renters insurance costs.
18. Buying a Car That’s Expensive to Insure
Different cars cost different amounts to insure. Even various trim levels and engine choices can affect how much auto insurers charge to cover the vehicle. Failing to consider the cost of insuring different cars before you buy one can cost you thousands over the life of the vehicle.
Before you head to the dealer, talk to your insurance agent or get free quotes online so you can compare the insurance costs of different cars. Some cars will be more expensive to insure because of their performance, while others cost more due to high repair costs. If the vehicle uses lots of advanced materials, such as aluminum, ultra-high-strength steel, or carbon fiber, it will be more costly to cover.
If you have high-risk drivers in your household, some insurers will not even cover high-performance sports cars. If you have a valuable classic car, you should seek out car insurance companies, such as Hagerty, that specialize in collector cars.
19. Taking Advantage of Their Convenient Financing
When it comes to paying premiums, insurance companies will usually offer you a couple of options. You can pay the semi-annual premiums in full, or you can pay each month. If you choose the monthly payment route, watch the fine print, or you can find yourself paying steep finance charges.
Some companies will charge you interest, while others charge a fixed convenience fee.
While paying your dues using a rewards credit card can be a good deal if you pay your balance off each month, it stops being a good deal if you carry a balance on your card and have to pay high interest rates.
20. Paying For Auto Insurance on a Rental Car
If you already have car insurance, why would you pay for more when you rent a car? In most cases, your own car insurance policy will cover a short-term rental while you are on a business trip or vacation – despite any high-pressure sales pitches you run into at the rental car desk.
There may be limits regarding the types of cars that are covered, so be sure to check with your insurance company before you travel to ensure you are protected. Some credit cards also include rental car coverage, so if there is an accident, your car insurance company doesn’t have to get involved.