car insurance

Your car insurance costs may be on the rise with several factors possibly contributing to that increase. For example, a new driver, a different car or a change in coverage can send your rates soaring. Just the same, you can save money on auto insurance by implementing the following money-wise strategies immediately.

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1. Review Your Credit Reports

Every consumer shopping for car or homeowners insurance is assigned an insurance score. That three-digit score is based on certain credit report characteristics and is used to measure risk, not creditworthiness. Just as you can retrieve your credit score, you can obtain your insurance score.

Because both your insurance score and your credit score are based on your credit reports, you should review all three of your consumer credit reports to determine if there are problems listed that may contribute to a lower score. For instance, late credit card payments, high outstanding balances on certain loans and a checkered credit history can impact both scores.

Free copies of your credit reports are available through AnnualCreditReport.com. Review your reports for accuracy and work on building a better credit history. Gradually, your insurance score will rise thereby lowering your auto insurance rate.

2. Review Your Insurance Coverage

How much insurance do you have? How much insurance coverage do you need? If you have not reviewed your auto insurance policy in some time, do so before it is set to renew.

You can save money on car insurance by assuming greater risk. Instead of a $200 deductible for comprehensive coverage, consider $500. Collision coverage is ideal for most cars that are less than 10 years old, while dropping collision coverage for high mileage older vehicles can save you money.

New drivers on your policy will cause your insurance rates to spike. Encourage your teens to maintain good grades as insurers offer discounts for students that have at least a “B” average.

2019 Volvo XC40

3. Qualify For Discounts

Insurers regularly offer discounts to consumers in a bid to attract and retain their business. You may qualify for discounts in several areas, immediately reducing your auto insurance premium by at least 10 percent.

Consumers who use the same insurer for their cars and home will receive a discount for bundled insurance. Contact your insurance agent to inquire about available discounts including safe driver, anti-theft device and for completing a defensive driving course. Affinity discounts are available if you belong to certain associations or organizations, such as a credit union.

4. Improve Your Driving Record

Points on your driving record can send your car insurance rates soaring. Employing safe driving habits can gradually lower your rates with your record typically cleared of all of its infractions within three years.

You can speed up the point reduction by completing a department of motor vehicles approved safe driving course. Visit your state’s DMV site to learn what courses are available. Typically, if you successfully complete a state-recognized driver safety course, the DMV will shave as many as three or four points off your driving record, lowering your car insurance premium.

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5. Consider Your Future Car Purchases Wisely

Your heart says, “sports car” but your head says “family sedan.”

Although there is nothing wrong with following your heart, your head may insist that you save money. This is where your choice in vehicle matters and will affect your insurance rates.

But before you buy any car, make a call to your insurance agent to receive an insurance quote. You can also find out which vehicles will cost you less by visiting the Insurance Institute for Highway Safety’s website to retrieve the crash test ratings for today’s new cars.

The IIHS is funded by the major insurance companies and your rates are based in part on how well a car holds up in a crash. Choose a model with a “top safety pick+” rating and your insurance agent will offer a correspondingly lower rate quote than a vehicle that isn’t rated as high.

Other Underwriting Factors

Each auto insurance company has its own insurance rating system, but there are general guidelines these companies follow that make it possible to compare coverage. Other factors that can affect your insurance rates include where you live, your gender and age, your marital status and the number of miles you drive annually.

Here’s an unpleasant thought: you buy a new car and within months it’s stolen or totaled following an accident. You believe that your insurance coverage is excellent, but are soon rudely awakened when your finance company sends you a bill for thousands of dollars. Had you chosen gap insurance, your finance company wouldn’t be demanding payment. That is if you knew about such coverage in the first place.

car crash gap insurance — Is your auto insurance sufficient for protecting you against total loss?

What is Gap Coverage?

Gap insurance, also known as gap coverage, pays the difference between what you owe on your vehicle and what your car is worth. Gap coverage is especially important if you do not put enough money down on your new car and its value has slipped below what you owe on it.

For instance, you buy a new car and pay $27,500 for it, putting $2,500 down. You take out a loan for $25,000 and five payments later your outstanding balance falls to $23,500.

Unfortunately, you get into an accident that destroys your car, which soon reveals how vulnerable you really are. You file a claim with your insurer and the insurance company sends your finance company a check for $19,500, representing the value of the car minus your $500 deductible. The difference here is $4,000, an amount that your finance company says that you still owe on the loan.

That gap represents the difference between the loan balance and your insurance payment, monies that you must repay.

Going Upside Down

Many car shoppers are “upside down” or “underwater” with their auto loans, a term that also describes some homeowners.

Typically, borrowers are upside down for two reasons:

1), they do not put enough money down, and

2), the car loses a significant amount of its value within the first few months of ownership.

Indeed, it is not uncommon for a new car to depreciate rapidly with Edmunds.com noting that a new vehicle loses on average 11 percent of its value the moment it drives off the dealer’s lot. Several months later the car’s value may fall by 25 to 30 percent, making it entirely possible that you owe more to your finance company than what your insurer says it is worth.

Gap Protection Coverage

You may not need gap protection if you put 20 percent or more down and your loan term is short, such as for 36 months. Some consumers make the mistake of rolling their related fees and taxes into their loan and perhaps adding extended warranty coverage as well.

One way to make sure that you are not buying a car that will immediately put you underwater is by using an auto loan calculator such as the one that’s available online from Bankrate.com. Then, compare that number with what Kelly Blue Book lists as your vehicle’s depreciation rate.

As long as you owe less for your vehicle than what it is worth, then you are okay.

Buying Gap Insurance

Before you run out to buy gap coverage, you should review your loan purchase agreement as you may already have it. Such coverage is more common if you lease a vehicle than if you were to finance one. In any case, your finance company may have added that coverage with your agreement.

Indeed, some lenders require gap coverage because they know you may find it difficult to settle the difference later on.

Your current insurer may offer gap coverage, a small cost that’s added to your auto insurance bill. Contact your insurer to get a quote for the gap or actual cash value insurance.

Keep in mind that you will still have to pay a deductible and may receive less money if your car has high miles or is in poor condition. You can cancel gap coverage once you determine you are no longer upside down.

Avoid a Financial Catastrophe

Gap coverage may save you from financial calamity, enabling you to get back on your feet quickly. Without such coverage, you may find yourself unable to afford a replacement vehicle, worsening an already serious problem.

See Also — 7 Ways to Trim Car Insurance

Photo credit: La Cara Salma via Wikipedia. This file is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported, 2.5 Generic, 2.0 Generic and 1.0 Generic license.

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