Arm Yourself with the Facts to Get the Best Value for Your Insurance Budget
When purchasing car insurance, it’s important to understand the factors
that affect your car insurance premium rates and coverage. But how do
you differentiate between truth and fiction? A good place to start is by
puncturing some common myths about auto insurance:
Myth 1 – Color determines the price of auto insurance
“Arrest-Me Red”? “Hide-in-Plain-Sight-White”? It doesn’t matter. What does matter is the type of
car you select. What you pay for insurance is based on make, model,
body type, engine size, the age of the vehicle and the age, driving
record and credit history of the driver. Premiums are also based, in
part, on the car’s sticker price, the cost to repair it, its overall
safety record, and the likelihood of theft. For more: What Determines the Price of My Auto Insurance?
Myth 2 – It costs more to insure your car when you get older
Quite the opposite—many drivers over 55 years of age can, in fact,
qualify for a reduction in auto insurance rates if they successfully
complete an accident prevention course (available through local and
state agencies as well as through the AAA and AARP). Insurance companies
will usually provide up to a 10 percent discount on car insurance, but
check with your provider before you sign on. If you are retired or are
not employed full time—therefore driving less—you may also be eligible
for a discount of up to 5 percent off your car insurance. Age
requirements for this type of discount vary by state and insurance
carrier.
Myth 3 – Your credit has no effect on your insurance rate
Your credit-based insurance score does matter. Why? An insurance score is a measure of how well you
manage your financial affairs, not your financial assets. Many
insurance companies take your insurance score into consideration when
you want to purchase, change or renew your auto insurance coverage.
Because the majority of people have good credit, and insurance scores
are derived from a person’s credit history, most people end up paying
less for insurance when insurance scores are factored into the pricing
equation.
Myth 4 –Your insurance will cover you if your car is stolen, vandalized or damaged by falling tree limbs, hail, flood or fire
Here’s where you’re in control—by opting for comprehensive and collision
coverage along with your standard liability policy. Lenders frequently
require drivers to buy comprehensive and collision coverage as a
condition of a car loan agreement. If a car is worth less than $1,000 or
less than 10 times the insurance premium, purchasing the optional
coverages may not be cost effective. But bear in mind that you need to
purchase both collision and comprehensive coverage in order to fully
protect your vehicle from all types of damage.
Myth 5 –You only need the minimum amount of auto liability insurance required by law
Almost every state requires you to buy a minimum amount of auto
liability coverage. Chances are that you will need more liability
insurance than the state requires because accidents often cost more than
the minimum limits. Buying only the minimum amount of liability means
you are likely to pay more out-of-pocket for losses incurred after an
accident—and those costs may be steep. The insurance industry and
consumer groups generally recommend a minimum of $100,000 of bodily
injury protection per person and $300,000 per accident.
Myth 6 – If other people drive your car, their auto insurance will cover them in the event of an accident
In most states, the auto insurance policy covering the vehicle is
considered the primary insurance, which means that the owner’s insurance
company must pay for damages caused by an accident, regardless of who
is driving. Policies and laws differ by state, so make sure you
understand the rules before allowing another person to drive your car.
Myth 7 –Soldiers pay more for insurance than civilians
If you are in the military—regardless of which branch—you actually
qualify for a discount on auto insurance. In some situations, you might
be able to have your commanding officer make a phone call on your
behalf, but for most auto insurance companies, you will need to supply
documentation that lists your name, rank and the time that you will be
enlisted in the service. This allows insurance companies to determine
how long you will be eligible to receive a military discount. Shop
around to find auto insurance companies that provide discounts for
former members of the military as well as their families.
Myth 8 –Personal auto insurance covers both personal and business use of your car
If you are self-employed and use your vehicle for business purposes,
personal auto insurance may not protect you. While commercial auto
insurance can be more costly than a personal policy, one of the best
ways to keep your auto rates down in any situation is by having a good
driving record. If there are others, such as employees, using your car
check regularly to make sure they also have good driving records.
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