In August 2012, a New Jersey woman was charged with third-degree insurance fraud because she allegedly had been lying to her car insurance company since 1999 — and it was all so she could save a little money.
Maria Schebece, 42, purchased a car insurance policy as a single woman living in a household with no other registered drivers. In actuality, however, Schebece was married and living with her husband, a registered New Jersey driver, authorities say. Because she never disclosed her marital status or her husband’s poor driving record, Schebece carried an insurance policy that was significantly cheaper than what she otherwise qualified for, officials allege.
Experts say this story should serve as a warning to drivers: While saving money on car insurance is important, there are some things you never should do to cut your premium.
“People do foolish things all the time when getting an auto insurance policy,” says Kevin Lynch, an assistant professor of insurance at The American College in Pennsylvania. “But it’s often a classic case of being penny wise and pound foolish. If you want to save money, buy cheaper toilet paper. Don’t skimp on car insurance. More often than not, you’ll pay more in the end.”
In no particular order, here are six common corner-cutting tactics that should be avoided.
1. Don't lie about where you live.
Since an insurance company calculates the risk of driving in your city and bases rates on that assessment, higher-density cities will be more expensive than suburbs or sprawling rural areas. According to Richard Arca, insurance specialist at automotive website Edmunds.com, the most common cheat used by policyholders is listing a false city of residence.
“Most people have a friend in a nearby town with lower crime rates and use his or her address on the insurance application,” Arca says. “Since everything is done by mail and online, this might seem like a cheat you can get away with. But the truth can be discovered easily by the insurance company’s fraud investigators.”
Another term for this practice is “rate evasion,” says Mike Barry, a spokesman for the nonprofit Insurance Information Institute. Sometimes, it involves a policyholder telling his or her insurance company that the vehicle is parked regularly in a cheaper county or city.
“If you lie about where the car is garaged or most often driven, the insurer can say you committed material misrepresentation on your application, and that can be enough to deny paying out a claim you might make in the future,” Barry says.
2. Don't eliminate comprehensive and collision coverage.
Comprehensive insurance covers things like theft or a tree falling on your vehicle, and collision covers damages you incur on your own vehicle during an accident. For vehicles less than 10 years old, getting rid of these two types of optional coverage (which often account for just 10 percent of your total monthly premium) can be costly in the long run.
“You have no control over something like a tree falling on your car or getting a ding in your windshield,” insurance consultant Dan Weedin says. “And these types of damages, which would otherwise be covered by comprehensive insurance, can add up.”
Barry says: “They’re inexpensive options, but they cover a multitude of sins. That’s why more than 80 percent of drivers choose to get it.”
Drivers with vehicles valued under $5,000 could consider dropping collision coverage if they want to save a few bucks, Barry says.
“Anything more severe than a fender-bender could cost $2,000 to $3,000 to repair, and collision won’t matter in that case because you’ll need a new car anyway,” Barry says.
3. Don't get rid of uninsured / underinsured motorist coverage.
Uninsured or underinsured motorist coverage pays for injuries to you and your passengers, as well as property damage, when an accident occurs with a driver who's at fault and either doesn't have insurance or doesn’t have enough insurance.
A handful of states require drivers to purchase this coverage, but most do not. As a result, Barry says, a lot of drivers don’t think it’s necessary to buy these add-ons. They’re incredibly important, however, and this is the last place you’ll want to cut corners.
“One in every seven drivers is uninsured, and dropping this coverage is not an effective way to save money,” Barry says. On average, he says, uninsured/underinsured motorist coverage costs an additional $50 a year. “If you get into an accident with an uninsured or underinsured driver, you will really regret it if you don’t have this,” Barry says.
4. Don't lie about your annual miles driven.
One of the many factors insurers use in determining rates is by asking drivers how many miles they travel each day. The more miles you drive, the more you’re going to pay for insurance. But this doesn’t mean you should fib about it.
“There’s a misconception that insurance companies can never find out your actual number of miles driven,” Arca says. “But if you tell your adjuster you have a 20-mile commute, and at your next state emissions test the results that are sent to the DMV show your car packed on more mileage than what you claimed, you may be contacted by your insurance company and possibly dropped.”
5. Don't intentionally leave driving-age children off your policy.
If there’s a teenager living in your house and that teen occasionally drives the family car, he or she must be on the insurance policy — even though it means paying a little more in monthly premiums, criminal defense attorney Shane Fischer says.
“This can result in dropped coverage if there's an accident, since it may be considered a … misrepresentation when you applied for coverage,” Fischer says. “Also, courts won't force an insurance company to pay out a claim if the insurer can prove that you lied just to get a cheaper rate.”
6. Don't put your girlfriend's or boyfriend's car on the policy you have.
According to Billy Van Jura, a New York insurance consultant and agent, this is one of the most popular ways that drivers try to save money on car insurance, as it gives the covered motorists a multipolicy discount. However, some factors could cause trouble.
“For example, to whom is the car registered to? Do you know if your boyfriend had an accident you are responsible for? And what is his or her driving record in general,” Van Jura says. “Not only can these unknowns cause a big problem in your household, it can also cause your rates to go up.”