The Top 13 Biggest Mistakes People Make When Buying Car Insurance

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    Buying car insurance that is right for you, your car and your budget can be a daunting experience. There’s so much to learn and the terminology can be a little difficult to understand.

    To get the right coverage that’s going to provide you with the peace of mind you need without breaking the bank, you’ve got to carefully consider all of the many options that are going to be placed in front of you. It is important to educate yourself in advance so you can avoid ending up with coverage that you’ll regret when it’s too late.

    Here is a list of the top 13 mistakes people make when buying car insurance.

    1. Getting the bare minimum of coverage.

    According to insurance professionals, buying the bare minimum of coverage is one of the most common consumer mistakes. Some car buyers are so focused on paying as little as possible on insurance that they buy the minimum amount of coverage required. However, while this may meet legal requirements and save you money on premiums, it could come back to haunt you, especially if you get into an accident with an uninsured or under-insured driver. In such a scenario, you would have to pay for everything out of your own pocket.

    No matter how good a driver you are, you’re not immune from mistakes that other drivers can make while driving. According to Driver Knowledge, there are 6 million crashes every year in the United States. If you don’t protect yourself with adequate insurance coverage, the mistake of one reckless driver can end up having devastating consequences on your entire life. This is why you need to be sufficiently protected each and every time you’re on the road.

    Although many people choose to only purchase liability insurance, you should consider getting an umbrella policy. An umbrella insurance policy provides a broader form of coverage that will supplement your basic liability auto insurance policy. For a small premium, an umbrella policy provides an additional $1 million worth of coverage on top of your existing policies. This can help prevent the possibility of financial ruin due to an unforeseen accident.

    2. Buying directly from an insurance company instead of an independent broker.

    The biggest reason why people buy the wrong insurance coverage is because they buy from directly from an insurance company rather than from an independent broker.

    The problem with buying insurance directly from an insurance company is that they are not legally bound to evaluate your insurance needs or sell you the correct coverage for your circumstances.

    You need to already know exactly what you want before approaching them. You are buying insurance, not paying for advice. If you buy the wrong insurance coverage, the difference between what you get in a claim and what you could have got with the right coverage could be in the region of hundreds of thousands of dollars.

    On the other hand, when you buy auto insurance through an independent insurance broker who represents several different insurance companies, you’ll be dealing with a professional who will thoroughly assess your needs to make sure you get the right coverage for your circumstances. They’ll be able to search the market and help you get the best deal, and they can do this every year whenever your policy is up for renewal, so you can be assured of getting the best deal every time.

    3. Not considering a company’s claims history.

    All insurance companies are not created equal. Before you decide where to buy your car insurance, check out the reputation of different companies online. Some drivers get so focused on finding the cheapest deals that they don’t pay enough attention to the coverage benefits and insurer’s reputation.

    When you’re comparing and contrasting a bunch of different policies, you need to know how an insurer will react if you file one or more claims. If the insurer you go with offers the cheapest deal but has a history of evading claims, your premiums get wasted. Before signing, look up the insurer’s customer-service rating through the National Association of Insurance Commissioners’ Consumer Information Source, and avoid companies with a higher-than-average complaint ratio.

    4. Not paying your premiums by the due date.

    Not paying your insurance premiums on their due date will lead to cancellation of your auto insurance policy. Note that there is no grace period with auto insurance. If you miss a payment, your policy will lapse. If you reapply for auto insurance coverage after a lapse, you’ll be quoted higher rates because one of the risk factors insurers look at is your record of prompt payment of bills. Studies show that drivers who let their policies lapse ended up paying 8.8 percent more for auto insurance than they were paying before the lapse.

    5. Telling tales on your insurance application.

    It can be tempting to twist the truth so that you can cut the cost of your premiums, but lies can come back to haunt you. Your insurer will likely find out when they dig into your background in order to finalize your premium payments.

    If your car insurance company discovers that you’ve omitted or provided false information on your quote, your actual premiums will dramatically exceed your quote. They can also cancel your policy and refuse to pay any claims. The most common lies include providing an incorrect home address, lying about your job, not disclosing convictions and misrepresenting annual mileage estimates.

    6. Not updating your policy after a life change.

    Since you first purchased your auto insurance policy, how much has your life changed? For example, when you add a teen driver, get married or divorced, have a child, or buy a new car, you should let your car insurance company know because everything from getting married to buying a home can impact the amount you pay for car insurance.

    For example, if you have recently got married, adding your spouse to your insurance policy can lower the monthly payments on your car insurance premiums. Most auto insurance companies give discounts when they know their customer is married because they associate marriage with stability.

    7. Overspending on auto insurance.

    Collision insurance is one of the most popular types of insurance policies, but it is also one area where people overspend on insurance. Collision insurance helps to repair or replace your car if it’s damaged in an accident with another car or object. If your car is old, there’s really no point in getting this type of insurance.

    If your yearly collision premium is equal to 10% of your car’s blue book value, then you should drop your collision coverage. This is because if your car is totaled, coverage is limited to your car’s blue book value. If your car is old, you could be paying a lot of money for insurance that will not pay you much when you file a claim.

    8. Choosing the wrong deductible.

    Some car buyers opt for no deductible or a small one in order to avoid handing out too much cash if they get involved in a car accident. The problem with paying little or no deductible is that it’ll likely cause you to pay more for premiums than you could recover in claims or than you would if you raised your deductible a bit.

    Low deductibles also encourage you to make small claims which could cost you a claims-free discount or prompt your insurer to drop you. If you have a history of safe driving, increasing your car deductible could save you a significant amount on your car insurance premiums.

    9. Not asking for discounts.

    Failing to ask for all possible discounts is another common mistake for car insurance buyers. Most insurance companies offer discounts, but they are not going to offer all of them to you. You’ll have to ask for them. There are probably a few discounts available that you didn’t know about when you signed up for your first insurance policy.

    For example, you can take a “safe driver’s course” that’ll increase your driving skills and lower your insurance premium. Ask for a list of discounts your provider offers, and thoroughly review it against your own list of discounts for which you think you qualify for.

    10. Not paying in full.

    You might choose to pay for your insurance on a monthly basis because it’s easier and more convenient to budget for smaller bills that have to be paid regularly rather than bigger ones that have to be paid less often. However, your premiums will be more expensive if you choose to pay in monthly instalments.

    If you can handle it, pay your premium “in full”, which probably means paying every six months or once per year. Some insurance providers charge interest or other service fees if you make monthly payments, while others will lower your premium rate by as much as 10 percent if you pay in full.

    11. Not shopping around.

    Insurance premiums vary dramatically because every car insurance company uses its own set of parameters to analyze risk. Some insurers are more interested in your driving history, while others may focus solely on your credit score. This means that two insurance companies can offer the exact same coverage at very different prices.

    If you’re shopping for car insurance, check out the rates of at least three or four companies before you make a decision. Even if you already have car insurance, shop around rather than automatically renewing your existing one, which is what many consumers do. By not shopping around, you may be paying twice as much for your car insurance.

    While the car insurance policy you took out last year was the best deal at the time, it might not be the best deal this year. If you want to save money on your auto insurance, you should never renew your car insurance without speaking to a car insurance broker first.

    12. Not understanding your needs.

    Buying insurance without understanding the type of insurance coverage you’re signing up to can be a dangerous decision that could have serious financial consequences. Take the time to read the coverage you’re getting, and don’t be afraid to ask questions early on in your decision-making process.

    E.g. you should know if the coverage you’re getting will pay for a rental if your own car is damaged or totaled in an accident. Take notes and refer to them when the time comes to purchase so that you don’t get a shock if the unexpected happens.

    13. Buying a car without knowing how much it will cost to insure.

    If you’re considering buying a new car, be sure to shop around and compare policies and rates prior to buying the car. This will make sure that you will be able to comfortably afford the insurance premiums.

    There’s nothing worse than buying a new car only to find out that the cost to insure the car is going to be too expensive for you. So, be sure to do some research and comparison shopping online before heading off to the dealership and purchasing a car.

    Information Sources

    National Association of Insurance Commissioners’ Consumer Information Source

    Cheaper Car Insurance

    Money Expert

    GEICO

    Trusted Choice

    The Simple Dollar

    iii.org

    The Zebra

    eInsurance