Mastering the Auto Insurance Maze

Auto insurance: it’s something we all need but not something we all understand.

Separating fact from fiction and making wise decisions when it comes to purchasing auto insurance isn’t easy—and it doesn’t help that we are barraged by gimmicky insurance company advertisements.

For Progressive, there is Flo, the spunky brunette who loves tacos and giving people discounts. For Allstate, there’s Mayhem, the mischievous guy who loves causing trouble. For State Farm, an agent appears out of thin air whenever someone sings the jingle “Like a good neighbor, State Farm is there.” And, for years, Geico ads have starred the gecko with an accent and love for fast service.

So how can you tell the difference between just a cool commercial and a legitimate company offering competitive rates?

Whether you just bought a car and are looking for insurance for the first time, or you already have insurance and want to make sure you are getting a good product for a good price, the following questions and answers will be helpful to review when you start shopping for auto insurance.

How are auto insurance premiums determined?
Auto insurance premiums, the amount you pay your insurance company each month, vary considerably depending on risk, coverages, and vehicle type. Generally, premiums are based on the amounts and types of coverage you buy, your driving record, age, gender, marital status, where you live, how you use your car, your credit history, and your claims history.

Insurance premiums are also calculated using driving, accident, and insurance claim statistics. These statistics show drivers under 25, males, and single people are generally involved in more accidents, so they have higher premiums.
What does my credit score have to do with my auto insurance premiums?

Adam Hamm, North Dakota’s Insurance Commissioner, said most people are surprised to find that their credit score has anything to do with the rating of auto insurance. But credit scores are used to calculate premiums for good reason.

“Credit-based insurance scores can be effective predictors of the number of claims consumers file and the total cost of those claims,” says Hamm.

How much coverage do I need?
Bodily injury liability, property damage liability, personal injury protection, and uninsured and underinsured motorist coverages are mandatory by law. The amount of required coverage varies by state—North Dakota and Minnesota minimum requirements and definitions are listed in the table below.

According to Consumer Reports and other auto insurance experts, the amount required by law is not always sufficient to cover your liability and property damage needs in the event of an accident.

Eric Duhigg, financial representative at Country Financial in Fargo, says what people who carry only the state required minimums don’t realize is, “If the medical bills exceed those limits, then the insured will have to pay the rest out of pocket. Having good liability limits generally only costs a few extra dollars per month and can prevent being stuck with thousands out of pocket in an accident.”

Coverage recommendations from Consumer Reports are also included in the table below.
How do I determine when I should carry collision and comprehensive coverage on my vehicle?

Collision and comprehensive insurance are optional, unless you have a loan against the car and your lender requires it. Collision insurance covers damage to your vehicle when you are involved in an accident with another vehicle or object. Comprehensive insurance covers a loss that results from something other than a collision with another vehicle or object, like fire, lightning, hail, and theft.

A good rule of thumb is to carry collision and comprehensive if you wouldn’t be able to afford to repair or replace your car. Because the higher the deductible the lower the premium, Consumer Reports suggests you choose the highest deductible you can afford to pay out of pocket.

What information do I need to know to get insurance quotes?
The first step is to decide on the policy limits you need and want so you are comparing like coverages. In addition, to get accurate and comparable quotes you will need to provide basic information about the car and about the drivers in your household. Consumer Reports recommends providing the following:

1. Information about the car: the make, model, year, trim line, and vehicle identification number of the car(s) you intend to insure.
2. Information about the drivers in your household: the age, sex, and recent driving record of all potential drivers.
Keep in mind that quotes are just estimates, and they can change once the insurance company gathers information about the drivers in your household and sorts out the final details.

How often should I compare rates?
Consumer Reports recommends comparing auto insurance prices every year—although that doesn’t mean you should necessarily switch insurance companies.

Eric Duhigg, financial representative at Country Financial in Fargo, says good coverage is more important than saving some money. He suggests you shop around for a new insurance company only if you are unhappy with your current policy and/or service, as sometimes consumers get benefits for staying with a company for a long period of time.

“I think once you find a good company with a good agent, you should stay with them, except in a situation where they are no longer taking care of your needs,” he added.

Jim Huesman, an insurance agent with Strand and Marcy Insurance in Comstock, Minn., said it is especially important to shop around if there are significant changes in your situation, such as young drivers starting out or buying a different vehicle.

If you decide to switch companies, Jessica Magness, an agent with Warner and Company of Fargo, says, “Never cancel what you currently have before the process is complete and you’re completely satisfied; that way you’re not stuck.”

Should I use an agent or shop online?
When it comes to deciding between using a local insurance company or an online insurance company, opinions vary.

“There are a lot of companies that advertise on TV about saving money and buying it over the Internet,” Huesman says. “Those ads are cool and they look good, but I think that people are really missing out if they don’t go through an agent. An agent is going to help them make decisions, and they’re also going to be there when they actually have a claim. You can buy a lot of stuff on the Internet, but insurance is probably one you don’t want to.”

Other experts believe it comes down to personal preference.

“Choosing an insurance company with a local agent allows you to meet with that agent face to face,” Hamm said. “You can get to know them and ask questions, and you may prefer the more personalized service they can offer. However, if having face-to-face contact with an agent isn’t a priority for you, buying insurance online may meet your needs.”

How can I save money on auto insurance without compromising quality?
Consumer Reports provides the following tips for saving money on auto insurance:

• Check rates before you buy a car, as premiums may differ greatly from one car to another.
• Look for equipment discounts, such as for air bags, antilock brakes, and anti-theft equipment.
• Ask your insurer if they offer a multiple-policy price break if you purchase auto, home, and personal liability coverage from the same place.
• Check your state to see if taking a certified defensive driving course will reduce your rates.
• If you have children who drive and they get good grades, take advantage of the good grades discount.
• Ask your insurer if any groups to which you belong qualify for discounts.

Jessica Ballou, from Mapleton, N.D., graduated from Concordia College in May with a Bachelor’s Degree in Journalism.

Filed Under: Money & Consumer

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