Just like paying our property taxes, auto and home insurance is one of those necessary things we normally grit out teeth when we receive the bill and fork out the $$$. When we first moved to United States, we were in our mid-twenties and were considered new drivers. That, coupled with our lack of credit score, meant super high car insurance rates. Despite being rather naive about finances, I did do my research by contacting several main insurers (mostly because I was on a super-tight medical resident budget).
After contacting several insurance companies, our best bet for liability only insurance was > $1500/year for one car, with Geico insurance. The other quotes we received were over $2000/year – back in 2005. Compare this with our current insurance rates of $2350 for comprehensive coverage for 2 vehicles, 1 home, 1 rental property and umbrella insurance, you can see what a big difference it is.
When compared to our insurance quotes last year, it was an almost $500 dollar increase. With all that I have learned this past 2 years from other personal financial bloggers, I called my insurance agent to find out why.
I was told that Safeco had drastically increased their auto insurance due to high pay-out to claims made to their clients within the last year. Although we have never made a claim, have good credit, continuously insurance coverage the past 3 years, we quoted a higher rate.
According to a study by Insurance Information Institute, a trade group relating to insurance policies, car insurance has gone up by an average of 17% annually. Insurers note that the spike in higher payouts and more claims correlated with the advent of mass-sales of smartphones, which started around 2007.
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Since I am now (a little) more savvy, I decided to do more research about auto and home insurance in order to get the best rates.
- Being loyal to the same auto insurance company actually costs you money – forget about customer loyalty discounts in the insurance world. The opposite is true: drivers are subjected to higher insurance rates for sticking to the same company. I learned this the hard way when State Farm handed me a 25% increase in my premiums – but told me I’ll get 5% discount for being a ‘loyal customer’ – despite not submitting any claims and with a good credit score. In fact, insurance commissioners in several states are actively monitoring this practice. Instead of charging an insurance rate based on factors such as the consumer’s claims history and projected costs, insurance optimization is a practice of setting the insurance rate based on what the consumer is willing to pay. Studies have shown that this practice discriminates among less-educated and lower-income consumers, who are far less likely to compare rates.
- Insurance score: Most of us who live in the States have heard of a credit score or FICO score. Few have heard of a similar insurance score. This is a score used by major insurers such as Progressive and Esurance to determine your insurance rates. This score is based on your credit history, claims history and driving record. California, Hawaii and Massachusetts do not allow the use of credit scores when pricing insurance rates. There is a new website called The Zebra (www.thezebra.com) that allows you to find your insurance score, or your local insurance broker may be able to give you this information. I input my information into The Zebra and it did spit out fairly close comparison rates as my local broker did. It even gives you quotes from USAA (if you qualify based on their questionnaire) and Geico, which may insurance brokers would not. Since I am a Type-A personality and a numbers person, this is yet another number I’ll be tracking especially when I compare insurance rates (normally every 6-12 months).
- Consider buying liability-only coverage. When we first moved to the United States in our mid-20s and got our drivers license here, our full coverage insurance cost would have been more than $3000/year. By comparison, we paid around half of that for liability-only insurance. Considering that our ebay-used car was less than $4000/year, it was a no-brainer to purchase liability-only insurance, which is the minimum allowed by law. We also decided to go with liability-only insurance when we purchased an old truck, as we could easily absorb the loss (i.e. self-insure) and it was not worth paying for full coverage for a used truck that cost us less than $3000 dollars. That would mean that our used car or truck was damaged by fire, stolen by car theft or damaged in an accident, we are responsible for the cost to repair or replace the vehicle.
- Consider a higher deductible. Prior to getting our umbrella insurance, which automatically increases our minimum deductibles, we decided to increase our deductible for $1000. This means that our insurance will pay for repair or replacement cost in the event of an incident, but we will be responsible for the first $1000.
- Check for discounts. Because I was a member of a medical association, I qualified for an additional 10% off my insurance when I was doing my medical residency. In addition, we pay our insurance bills in full annually, and that gives us an additional 5% off our rates. By using the same insurance company for both auto and home and insuring multiple vehicles, you can shave some $$$ off your bill.
- Maintain a good credit score. As noted above, your insurance score is partially based on your credit score. With the exception of residents in California, Hawaii and Massachusetts, maintaining a good credit score will ensure you get a better deal on your insurance rates.
- Consider pay-per-mile insurance companies. There are special plans by various insurance companies that allow you to potentially get a discount if your vehicle mileage usage is very low. – Esurance has a pay-per-mile product in Oregon, Progressive has a plan called Snapshot, State Farm has a Drive Safe & Save plan and Allstate’s plan is called Drivewise.
- Special deals for good students and additional discounts for taking a safe driving course. As noted above, auto insurance rates for new drivers is substantially higher, as new drivers are more likely to get into an accident. As parents can attest, adding their teenage driver to their insurance policy, the rates can go up between 50-100%. By getting your new/teenage drive to take a safety course, you can often save up to 20% off their rates. Some insurers also offer a ‘good grades’ discount: if you teen gets a “B” average in their report cards, they may get an additional discount off the auto insurance rates. Yet another incentive to go well in school!
As a footnote, I ended up going with my local independent insurance broker, who got me new quotes for my auto/home/umbrella policies, and paid around $200 more total compared to last year’s rates, saving more than $300 from my original quote.
Do you have any additional tips to share on how to pay the lowest price possible for decent auto/home insurance?
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