Auto Insurance Policy, Coverage and Cost Disparities – What You Must Know Before Buying

There can be vast differences among auto insurance quotes and auto insurance policies currently offered in the marketplace. Use of your favorite search engine with the terms “auto” and “insurance” quickly provides a plethora of coverages, coverage levels, rates, options, payment terms, insurance companies, and geographic availability, just for starters. With virtually limitless choices, how does one select a suitable policy?

First, remember what you are buying: risk coverage, pure and simple. You want this coverage to pay for any damages, bodily injury, medical care, or loss of life, for which you are found liable. Sounds pretty serious, doesn’t it? It is. Not only is it important to insure against the full range of risks under which you will operate your vehicle, it is of the utmost importance that you be indemnified (protected) against those risks by a company with the resources to do so. While those resources include the obvious financial ones, they also include customer service, and good will within the industry. An insurance company customer service function that is efficient, conscientious, and courteous can prevent a lot of distasteful complications. Similarly, good insurance company relations within the fraternity of auto insurers may greatly facilitate handling of your claim, or the claim of the damaged party. Basically, a lawsuit avoided is a win for all concerned parties. With risk coverage established as the primary consideration, all others, including cost, take a back seat. Nevertheless, no matter what selection process you utilize, keep in mind the following factors:

1. Buy only the insurance coverage you need, and cannot self-insure. If you’re driving a $2500 vehicle, and Collision coverage (which covers the cost of repairing YOUR car) costs $3000 per year, it should be obvious that you can self-insure total loss of your vehicle, and do so at a profit. It should also be obvious that any automobile in motion, regardless of cost, is capable of inflicting approximately the same amount of property damage, bodily injury, or death, and that these Liability coverages are necessities for all but the super-rich and the penniless. Many other coverage options allow you to customize your policy based on your aversion to specific risks and the premiums quoted to relieve you of those risks. Among the many factors that influence the amount of your premium, the coverage deductible, which you specify, offers the greatest opportunity for overall premium savings. These savings aren’t free, of course, as you are assuming the risk of covering the cost of the deductible should a mishap come your way, in exchange for a lowered premium.

2. Buy only from a reputable insurance company. These companies:

    • are generally corporations of, and hold corporate assets in, your country of residence, and are subject to local and national laws and court decisions;
    • are licensed to do business in your state;
    • compare favorably against their peers in the A.M. Best ( Ratings for qualities such as:
      • financial stability;
      • customer service; and,
      • claims handling.

3. Get the best price you can for the coverage you need. While this sounds like an endless process, it is self-limiting when restricted to obtaining an auto insurance quote from reputable insurance companies. Three auto insurance quotes should suffice, but get as many as you need to exhaust a given level of insurance company quality: if there are six top-rated firms, get six quotes, for the same coverage needs, in order to ease your selection. Since no two companies have the same customers, workforce, or business base, no two companies have the same experience (profit and loss) base, and therefore, no two companies will have the same cost history on which to predicate (future) premiums. Although companies must compete with their peers in the marketplace, a number of considerations (such as whether a company made a profit or incurred a loss, consumed or accumulated reserves, or added or lost policyholders) necessitate obtaining multiple rate quotes. While many people have reported substantial savings purchasing auto insurance online, it is critical that you purchase your insurance from a reputable insurance company. Remember, you’re buying risk coverage here. Don’t buy without checking the rating of your intended risk coverage partner.

4. Don’t invalidate your coverage by being less than completely candid during the application process. The quote an insurance company gives you is based on rating a number of factors concerning you and your driving habits. This includes your driving record; number of tickets; age; sex; marital status; location; daily and yearly mileage; vehicle use (business or pleasure); make, model, year, engine/hp; number of operators; number of vehicles, etc. Your driving record is public information readily available to your insurance company. You provide most, if not all, of the other rating factors. Doing so with less than complete candor is almost certainly not in your best interest. Most reputable insurance companies validate the information you provide. Those that don’t are not what you want in terms of a risk partner. Among the options available to companies that have unknowingly issued policies based on falsified information are correcting (raising) your rates or cancelling your policy, upon discovery of falsified information. Once again, remember that you’re buying risk coverage here. You don’t want to find out that your risk coverage partner has dropped you because of falsified application information AFTER you’ve had an accident or are involved in a lawsuit. This situation may be a rarity, but if you were the insurance company, and were being sued for millions in damages caused by a policyholder who materially mis-stated the factual basis on which your risk coverage contract was based, how hard would you try to invalidate the policy? Enough said.

5. Consider limited field of membership, and group affiliated policies. Due to the narrow slice of the risk pie that such policies cater to, rates may be substantially better than those available to the general public. Since this type of policy focuses on the lowest risk groups, it invariably raises rates for all other motorists, since the low-risk policyholders are removed from the general risk pool. If you fall into the field of membership for any of these policies or companies, be sure to compare their costs with your other quotes. Companies offering highly advantageous policies for preferred risk drivers include USAA (for US military members, retirees, spouses, veterans, and their children); GEICO (for government employees); and most major insurers in association with many fraternal and professional organizations.

6. Investigate “bundling” your insurance coverage needs. Some insurers offer discounts, favorable payment plans, or improved coverage for such things as multiple vehicles, multiple drivers, homeowners insurance, renters insurance, and life insurance policies purchased by the same policy holder. Get quotes.

7. Take advantage of all of your positive policy rating factors. These merit reduced rates for: High-Credit-Rating Applicants; Good Students; Anti-Theft Car Alarms; Anti-Skid Braking Systems; LoJack or similar systems; Electronic Stability Protection; Multiple Vehicles; Multiple Drivers; and, Safe Driver Discounts, for example.

Time to Shop With the foregoing factors in mind, you are now ready to quote-shop, via the internet., or similar sites, are excellent starting points to obtain multiple quotes or more detailed information concerning policies and coverages over the internet. Companies such as Geico, Allstate, Hartford, State Farm, Progressive, Liberty Mutual, USAA, INA, Nationwide, Travelers, and most other large companies maintain an online internet presence, with quote capability. The advantage of using a multiple quote site is that the application information, which is as extensive as necessary for an accurate quote, need only be completed once, vastly reducing the time required to get the quote process started. Once you’ve got some baseline quotes, you’ll find the company-specific sites very easy to navigate, especially if you’ve printed out the input data you used to get your multiple quotes. Remember, you’re looking for “apples-to-apples” quote comparisons from reputable, well-rated insurers. Using the internet, you’ll avoid the ubiquitous automated call menus; being placed on terminal hold while waiting to speak to an agent; driving half way across town to get rates then repeating the process until you’re either satisfied or exhausted. It’s so much easier to identify the reputable, highly-rated insurers; mouse-click your way to one or two multiple-quote sites; fill in the input data, keeping a copy for later use; compare cost, features and qualities of the top insurers; and, make your selection.

A Final Warning! We cautioned earlier concerning the absolute necessity of dealing with an insurance company that is reputable and well-rated among its peers. While the internet offers the possibility of substantially reducing your premium costs, it also brings into your field of view unscrupulous insurers that pay few claims, use stalling tactics, or worse, while offering coverage at premiums well below most of the quotes you obtain. Living through one claim with one of these insurers will convince you of the wisdom of buying from a reputable, highly-rated insurer, despite any advertised savings from lesser companies. Unrealized savings, coupled with unpaid claims, relieve you of your premium dollars and leave you basically self-insured, at risk for whatever damages the insurer avoids, escapes, or evades. You’ll find it far better to reduce your premium through the many other means mentioned here, than to stint on the quality of the company you pick to assume your risk. As the headline above advises, all auto insurance policies and companies are not created equal. Having thus far tried to hammer the concept home, one last repetition seems in order: buy from a reputable, highly-rated insurer, reducing your premiums through the many means presented herein, and sleep soundly, knowing your risk-partner’s got your back!