What Makes Car Insurance Cheaper?
There are several ways to save money on car insurance, including the most popular method of shopping around and comparing rates from insurance company to company. Other methods that allow consumers to obtain cheaper insurance policies require making changes to the policy that will alter the actual protection the driver will have in the event of an insurable event.
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Legal Requirements
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Legally, drivers are required to demonstrate financial responsibility for any damage or injury they may cause while driving. While the legal minimum varies from state to state, the basic requirement is liability insurance, which only protects the driver from loss associated with damage to other people's property or injuries, and does not include the driver's own vehicle. Drivers who are financing or leasing a vehicle typically enter into a legally binding contract requiring them to purchase a full coverage insurance policy, which is considerably more expensive.
Types
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The most expensive insurance policy is a policy containing a variety of protection coverages, often referred to as full coverage. Full coverage insurance includes liability in addition to comprehensive, collision and uninsured motorist protection.
Comprehensive insurance covers the driver's own damage in a collision as well as any medical costs associated with a collision. This coverage insures any damage to the driver's own vehicle, other vehicles the driver may operate, theft of the vehicle or disasters, including fires and floods.
Collision insurance covers damage to the driver's vehicle no matter who is at fault, covering damage caused when another vehicle or object collides with the driver's vehicle. This coverage will protect the driver's vehicle even if the other driver does not have insurance.
And, if the vehicle that hits the driver's car is not insured, uninsured motorists insurance will pay for the damage. This insurance will cover the vehicle, even if the collision is a hit and run accident.
With each type of coverage eliminated, the cost of the overall insurance policy decreases. Drivers wishing to have the cheapest policy will eliminate all but the basic coverage, which is liability.
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Coverage Levels And Limits
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Even when a policy is pared down to the basic requirement of the law, which is generally liability, the limits of the liability policy may be decreased to the minimum to garner a cheaper policy. When selecting the limits of coverage for liability insurance, divers must be aware that if the damage caused is more than the limit of the policy, the driver is financially responsible for the excess, which could create hardship intended to be warded off by the policy. For example, some states have a minimum of $5000. If the damage in an accident for which the driver is responsible is $10,000, the driver must pay $5000 out of pocket. This has nothing to do with any deductible that may be in place.
Premium
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The amount that must be paid each month (the premium) is determined by the type of coverage as well as the amount the driver is willing to pay (the deductible).
The premium will typically decrease as coverage types and limits are decreased, but shopping around from company to company can also garner a lower overall policy price, which will decrease the monthly payment.
Deductible
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Deductibles may be set by the purchaser of the insurance policy and are not subject to review of the car's lessor or other creditor. The deductible is the amount that must be paid before the coverage applies. For example, if the loss is $2,500 and the deductible is $500, the insured must pay $500 before the insurance company pays the remaining $2,000.
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References
- Photo Credit Coche accidentado image by quicolopez from Fotolia.com
