It is said that one of the pillars of modern civilization is "pooled risk" - more commonly referred to as insurance. An individual's chances of wrecking a car on any particular day are relatively small - the Insurance Information Institute estimates that you'll file an auto insurance claim every 11 years or so. However, the costs associated with an accident can be monumental. By contributing a small portion of the likely costs of an accident to a common pool of money, you can enjoy open-road motoring without fearing financial purgatory should you misjudge an apex or blow a tire on a particularly challenging stretch of mountain highway.
Strangely, there exists an odd sort of person who, against the mighty forces of the law and self-interest, chooses possible financial and legal ruin over auto insurance. The next time you drive to the supermarket, take a quick look around you. One out of seven drivers you pass - about 14 percent - will be uninsured, according to the Insurance Research Council. This rate varies dramatically by state. In sensible Maine, 4 percent of drivers are uninsured. In rather-less-sensible New Mexico, almost one third of motorists are. It's not an east/west thing, either: Over one-quarter of South Carolina's drivers are uninsured, while a scant 6 percent motor without protection in neighboring North Carolina.
Don't stop reading now just because you have auto insurance coverage. Not all insurance plans are equal, and a few minutes research and a couple of phone calls may be enough to save you big dollars. Here are some things to consider when you shop for insurance.
Don't use an insurance company just because Mom and Pop do. It's surprising how many people stick with the same insurance company their parents have always used without a moment's hesitation. Mom and Pop may be very nice people, and can tell you if they've had a particularly good or bad experience with their carrier, but they're probably not experts at selecting the right insurance for you. Shop around. A friendly insurance broker or agent with access to dozens of insurance companies is just a phone call or mouse-click away.
Don't be cheap with your coverage. America's national symbol may be the Bald Eagle, but it might as well be the Big-Haired Ambulance-Chasing Lawyer. Even the most inconsequential fender-bender may unleash a swarm of trial lawyers eager to prove that your little fender-bender is giving crippling migraine headaches to everybody within 4 blocks of your accident. And if you cause serious injury to somebody, you want to ensure that you carry enough coverage to provide adequate medical care. The Insurance Information Institute recommends at least $100,000 of bodily injury protection per person and $300,000 per accident - more if your net worth is higher. This is in addition to comprehensive and collision coverage.
Raise your deductibles. Nobody likes the thought of coughing up a $500 or $1000 deductible. But when you keep your deductible too low, you're almost certain to fritter away on higher premiums whatever you "save" with a lower deductible. Say you spend $1000 per year for $300,000 of coverage, with a $500 deductible. In this case, you're spending 1/3rd of 1 cent per dollar of coverage ($1000/$300,000). But if you lower your deductible to $100, you could raise your premium to $1200 or more - $200 more per year for an $800 decrease in your deductible. That's 25 cents per dollar of coverage, or 75 times more expensive per dollar than your basic coverage. Insurance may be a pillar of civilization, but it's not worth 25 cents per dollar of coverage.
Combine policies. Whether you rent or own a home, often you can combine home or renter's policies with your auto policy and reduce your total cost - sometimes to less than the cost of auto insurance alone.
Ask about discounts. You may be surprised to learn that all kinds of things can earn you a discount on your auto insurance - getting married, buying a car with a theft alarm, air bags or anti-lock brakes, being related to Tony Soprano, and so on. Some insurance companies even offer discounts to SUV drivers (take that, Consumer Reports). But you won't know if you don't ask. Your agent should ask you specific questions like these when you sign up for a new policy, but as circumstances change, update your insurance records. Some changes, like turning 25 or getting married, may earn you a discount. Other changes - like dropping collision coverage on cars more than 10 years old or worth less than $3000 - may result in bigger savings. Unreported changes that materially affect the type of coverage you need, like whether you've moved or you've started using your car for business purposes (see below), may cause legal headaches down the road if you find yourself involved in an accident.
Keep track of points on your driving record. Search for better rates when points expire. Many people go for years on a policy without realizing that points have dropped off their record, entitling them to lower insurance premiums. Not surprisingly, your insurance company probably won't do this for you. In many states, points remain on your record for 3 years or so. When they expire, you don't want to be stuck paying extra.
Keep a clean credit record. It may not be fair (ok, it's definitely not fair), but insurance companies are increasingly setting their customers' rates based in part on credit checks. What does a missed payment for that Barcalounger you bought in '97 have to do with your likelihood to have an accident? Not much. Nevertheless, it's the latest trend in estimating insurance risk. In all likelihood, a couple of late payments here and there aren't going to throw you into the high-risk insurance pool. But more serious credit problems might.
Buy commercial insurance if you use your car as part of your work. While every policy differs somewhat, it generally holds that if you use your car for more than personal use and getting to and from work, you'll probably need a commercial policy. If you're a pizza delivery person, a traveling vacuum salesman, a Realtor, a caterer, or a private investigator, you'll almost certainly need commercial auto insurance. In many cases it's not clear whether you really need it - so call your agent and ask. And don't kid yourself into thinking that if you wreck your car on the job, you can just tell your agent you were going to the video store. Claims investigators - and the police - are highly-trained BS detectors and will ask you detailed questions about what you were doing and where you were going at the time of your accident. If your story doesn't add up, you might find that you've become the subject of an insurance fraud investigation.
Most important, drive safely. There's a lot more than money at stake.
Tom Castle is married and works for a consulting firm in Dayton, Ohio. In his free time, he fantasizes about September 19, 2002, the day the lease on his feckless Saab 9-3 expires.
Disclaimer: This article is published for general information only, and is NOT intended to serve as specific legal or financial advice. Readers should talk to an insurance professional before making changes to any insurance policy.
