When it comes to buying car insurance, what you don't know can cost you. Believing some of the most common myths may prevent you from getting the best deal on your car insurance.
Myth 1: Shop for a car first, worry about the insurance later.
To decide whether you can afford to buy a particular car, you first need to know how much the insurance to cover that car is going to cost, says Deane Silke, vice president of Fiesta Auto Insurance, an insurance and tax preparation franchise. Not all cars cost the same to insure, Silke says, and some may be beyond your budget.
Car insurance premiums vary depending on the make, model, body type, engine size and vehicle age, as well as the driver's age, traffic record and credit history, says Loretta Worters, vice president of the Insurance Information Institute.
"In addition, the car's sticker price, the cost to repair it, its overall safety record and the likelihood of theft may also affect your rate," Worters says.
Myth buster: Check insurance rates for your dream car before you commit to any deal.
Myth 2: Loyalty to your current company assures the best rate.
Unfortunately, longevity with an insurance company doesn’t guarantee anything, Silke says. "The rate an insurance company charges will go up or down based on the overall profitability the company experiences with a particular product line," he says.
Your insurance premium may be hiked to make up for higher-than-expected losses, increased underwriting expenses or decreased investment income, Silke says. On the other hand, some insurance companies may drop their rates if their financial figures look good, he says.
Myth buster: Shop for the best rates before you renew your car insurance policy.
Myth 3: Your insurance agent will tell you about all of the discounts you can get.
As in every profession, insurance agents have varying levels of experience and expertise, Silke says, and some may not be familiar with all of the available discounts. You may need to unearth discounts on your own:
- Car insurers offer discounts for features that reduce the risk of injury or theft, Worters says. These include daytime running lights and anti-theft devices.
- Many drivers over age 55 who complete an accident prevention course may qualify for a car insurance discount of up to 10 percent (typically for three years), Worters says.
- If you've got a student driver on your car insurance policy, you can save 10 percent to 20 percent if that student earns good grades, says Kevin Alsup, vice president of insurance at Foundation Financial Group in Florida.
Myth buster: Ask questions and do your own research to uncover discounts.
Myth 4: You'll save money by buying just the minimum amount of liability insurance required by law.
All but two states (Iowa and New Hampshire) require you buy a minimum amount of liability coverage for your car. "Chances are that you will need more liability insurance than the state requires because accidents often cost more than the minimum (liability) limits," Worters warns.
If you have a car crash but purchased only the minimum amount of liability, you're likely to pay more out of pocket for accident damages than your car insurance premiums would have cost, experts say.
"The insurance industry and consumer groups generally recommend a minimum of $100,000 of bodily injury protection per person and $300,000 per accident," Worters says.
Myth buster: Scrimping on liability may cost you more in the long run.
Myth 5: Insurance covers you if your car is stolen, vandalized, or damaged by falling tree branches, hail, fire or flood.
You need to buy both collision and comprehensive coverage to fully protect your vehicle from all types of damage. But, as Worters points out, comprehensive and collision coverage are optional, not mandatory. Lenders frequently require drivers to buy comprehensive and collision coverage as a condition of a car loan.
Drivers of older cars sometimes drop comprehensive and collision coverage to cut costs, Worters says. "If a car is worth less than $1,000 or less than 10 times the insurance premium, purchasing the optional coverage may not be cost-effective," she says.
Myth buster: Buy both collision and comprehensive coverage for complete protection.