August 13, 2009, 5:00 am

How To Save Money On Auto Insurance

by: The Financial Blogger    Category: Insurance
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insurance-pannelIf you are like most people, you probably consider shopping for insurance to be a hassle. I know I did. Until about a month ago, I had been with the same car insurance company for six years. Since this company had given me the best quote at that time, I had selected them. Then, with the insurance in place, I stopped thinking about it and kept paying the premiums.

The truth, however, is that investing a little time to periodically review your car insurance can save you thousands of dollars because, unlike things like gas prices, auto insurance is one recurring expense that car owners have control over.


In my case, my wife and I had my old 1990 Toyota Celica and a 2002 Camry. We were paying a little less than $500 per 6 months. We had no comprehensive or collision on the Celica, and we had a $1,000 deductible on the Camry.

Then, I decided to sell the Celica because it was almost 20 years old and it was just sitting on the driveway. Since my wife is a homemaker and I work from home, we really didn’t need two cars. After I sold the Celica, my insurance dropped to about $400 per 6 months.

Since my circumstance had changed, I decided to get quotes from some other auto insurance companies. I kept the $1000 deductible and made sure I checked all options for low mileage. I ended up getting a great deal from Geico for slightly less than $200 per 6 months! For just investing a few minutes of time, I will save almost $400 per year.

The fact is that, today, car insurance policies are very standardized, and it is very easy to compare different companies for apple-to-apple coverage. As long as the insurance company is in good standing with your state, has a good A+ financial rating, and has reputation for paying claims fairly, then you should shop on price. There is no reason to pay extra out of habit, or a feeling of loyalty.

Here is a summarized list of 6 tips for reducing your auto insurance costs:

1. Periodically shop around for quotes from other insurance companies.

2. Reduce coverage on old cars. The rule of thumb is to drop collision and comprehensive coverage on any car that is worth less than 10 times the yearly premium.

3. Raise deductibles. Self-insure yourself for small problems and just let your car insurance protect you from catastrophic losses. According to the Insurance Information Institute, just by increasing your deductible from $200 to $1000, you can save 40% or more on your premiums. In my own experience, if you are a competent driver (and have an emergency fund), a $1000 deductible for auto insurance is ideal. Anything higher will not offset your premium that much.

4. Double check that you are getting all the discounts that you are entitled to. Common discounts include things such as anti-theft devices, having anti-lock brakes, being free of accidents and claims, taking a defensive-driving course, and having multiple policies through the same insurer (i.e. both your auto and homeowners insurance). At the same time, don’t be afraid to split your insurance among carriers if it saves money. I saved money by switching my auto to Geico and leaving my home owner’s insurance with my old company, even though I lost the multiple discounts.

5. Maintain a good credit rating. Insurers will give you better rates because higher credit ratings correlate with fewer claims.

6. If you do not drive a car very often, check to see if you qualify for any low mileage breaks.

Praveen Puri writes about business, finance, trading, and passive income on his Simple Trading System blog. He is the author of “Stock Trading Riches”, and has been a full time trader, software developer, consultant, internet marketer, and vice president of a major bank.

image source: stallio

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Comments

I am already paying $300-something for my 99 Honda, so i’m satisfied with that, butu all the advice you gave for shopping car insurance should also apply to homeowners insurance, which at least for me is much more expensive.

It’s on my list of things to do.

You should also note that since insurers will need to check your credit before they give you a price, to do all your auto or homeowners insurance shopping within a fairly condensed period time, like a week or two. In this way, each insurer’s credit inquiry won’t represent one “ding” to your credit; the credit reporting bureaus will see a cluster of auto insurers looking at your credit and recognize that you’re shopping for new insurance, so they’ll count multiple credit inquiries within a fairly short period of time as a single inquiry. Too many inquiries spread over time could hurt your credit score.