As many of you know, by day I am a risk management consultant and licensed commercial property and casualty insurance agent. I have a Certified Risk Managers designation as well as a Certified Insurance Counselors designation. That means that I know a lot of stuff that is good for me to know, but basically worthless information to the population at large! However, I have decided to draw on some of that knowledge for at least a couple of the articles having to do with the trimming of fat in your household budget so that you can improve your cash flow and pay down your debt. I am going to cover a few points in this article that you may or may not know, and at the end of the article, I will give you a resource that will help you begin your mission. So, let’s dive in!
Know your Coverages: Without running you through an entire 16 hour segment on the Personal Auto Policy, I will give you a very high level explanation of the basic coverages on the policy. There are a bunch of coverages in the policy form, but there are 3 basic coverages that will impact the bulk of your premium:
- Liability– this is what you may do to someone else should you have a wreck. It addresses both bodily injury and property damage to another person.
- Comprehensive/Collision – this is what covers your car should you have a wreck that does not involve another vehicle or you are hit by someone without insurance. This covers your vehicle so that you can get back on the road quicker and your insurance company will then “subrogate” and get their money back from the other party’s insurance company or they will sue the other part (if no insurance) in an effort to be reimbursed.
- Uninsured/Underinsured Motorist – this coverage pays you in the event you have bodily injury as a result of being in an accident with an uninsured motorist or someone who carries liability limits that are too low. In Florida, 87% of the drivers on the road are uninsured or underinsured. I will explain the reason for this later.
Know your limits: Controlling your auto insurance premium isn’t as easy as dropping the limits of insurance on your policy so that the premium goes down. The premium is determined by the level of insurance you carry, the value and age of the vehicle you are driving (for physical damage coverage), and the driving record of the people that are listed as insureds on the policy.
You do not want to play around with your liability limits. The average person should carry no less than 100/300/100. That means that if you are in an accident with another party and are at-fault, your policy will pay out $100,000 per person, a total or $300,000 per accident and $100,000 for property damage. This is called a split limit. That means that they divide out everything and assign a number to it. It would be interesting to see what your limits are as you look through your auto policy. I suspect there are plenty of you reading this article that are at 10/20/10. That means you only have 10k per person, 20k per accident and 10k for property damage. What happens if you T-bone a Mercedes carrying 4 people? The short answer: nothing good happens. When shopping for insurance, make sure you ask for an adequate level of liabiliyt. That is the one that you truly cannot control.
With regard to uninsured motorist, you will need to know whether or not it is “stacked” or “unstacked” in your state. Stacked is more expensive. You don’t need it stacked. If you have 100/300 in limit and you have 2 cars, stacked UM coverage would mean that you really have 200/600 in coverage. Unstacked would mean that you have 100/300. My advice on this is to buy a little higher limit like a 250/500 and have it unstacked. You actually get 50k more in coverage per person, but 100k less per accident. The premium difference between the two will justify the decision to have it unstacked. Understand that this is a question you will have to ask, or specifically click on if quoting online. Many states require that the uninsured motorist coverage be stacked automatically and that you as the insured “opt out” of stacked coverage in favor of unstacked. I don’t recommend not buying the coverage, but simply making this minor adjustment. It will save you $. In Florida, this coverage is through the roof because of the number of underinsured motorists. I attribute this to the fact that the state only requires a limit of 10,000 on the liability portion of the policy to get your tag. Unfortunately, many people probably believe that they are fully covered since this is what the state requires. Not true. That said, because they carry low limits, when they are in accidents, uninsured motorist coverage ends up paying out for the insured. This drives the price of the coverage up.
Physical damage coverage is a whole different story. If you finance your vehicles, you have no choice. Your bank will dictate to you what limits to carry and what deductible you must have. If you don’t finance your vehicles, this is another place to save! If your vehicle is paid off, depending on the age and value of the vehicle, you may choose not to carry this coverage. For example, if I am driving a car that is only worth about 2500 bucks, this coverage doesn’ make sense for me. Why would I pay around 300 per year for coverage with a $500 deductible on a car that is only worth $2500. Another thing to know is that the higher the deductible, the lower the premium. If you have followed our financial webinars, you should have an emergency fund of $1000. Take a $1000 deductible on your physical damage coverage. You already have the deductible covered in your emergency fund. If you aren’t in a position to drop the coverage altogether, go ahead and take the higher deductible and save the money on premiums.
Know your premium: While I don’t advocate shopping your car insurance on a monthly basis, I do think it makes sense to shop it at least once per year. Some people shop it every 6 months. If you have the time on your hands, go for it! The internet has made it very easy for you to be able to get quotes and see whether or not a change makes sense. At the very least, you need to shop around to keep your current provider honest. Many of these companies will give you a fantastic rate to get your business and then gradually up the premium over time. Don’t let that happen! If you have a good history, you need to make sure you are getting the benefit of that good record. Shop your coverage and continue to drive that premium down. The longer you have a good driving record, them more you will benefit from it.
We are partnered with a number of different companies that will provide you with multiple options for your coverages. You may get quotes with lightning quick turn-around times with the click of a button.
As with anything else, it doesn’t cost you a thing to shop. You may be surprised what you find! To see if you are paying too much for your auto insurance, you may click on any of the banners in this post, or you may simply CLICK HERE! Remember, this isn’t like your credit report. You want to inquire about your auto rates as much as possible!