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Comparing Auto Insurance Policies

You've just bought a new car, and now you need to insure it. Or maybe you already have auto insurance, but you're looking to make a change. How do you cut through all the sales jargon and find a policy that suits you at a good price? Knowing how to compare policies is a big piece of the puzzle.

Compare similar policies

Comparing auto insurance policies makes the most sense when the policies you're comparing are similar. The more similar they are, the more useful your research will be. Fortunately, the personal automobile policy is a fairly uniform contract that's used throughout the industry. This means that policy exclusions, limitations, and other provisions shouldn't vary significantly between policies. But you have some leeway when it comes to choosing your coverage. For example, collision coverage for your vehicle is optional in virtually every state. Medical payments (med pay) and uninsured motorist coverages may also be optional, depending on where you live. You can also choose the limits of your coverage in each area of auto insurance, though you can't have less than state law requires.

Before you start comparing policies, ask yourself how much liability coverage you need to protect your home and other assets in case of an accident. If med pay is optional, do you need this type of coverage (and how much) if you have good health insurance? Do you need collision/other-than-collision (also known as comprehensive) coverage if you drive an older used car? Should you have the same limits of uninsured motorist coverage as liability coverage? The answers to these and other questions will allow you to determine your particular auto insurance needs. This is an important first step because you'll then be able to compare policies that provide the same types and amounts of coverage. It's best to have a qualified insurance professional help you make these decisions.

Compare premiums

The premium is obviously important when you're comparing policies. After all, your main goal is to get the coverage you need at the lowest possible price. This is especially true when you're on a tight budget, though no one wants to pay more for coverage than necessary. You should get premium quotes from at least three reputable insurers and compare the results. Before giving you a quote, a company representative will ask you a series of questions about the coverage you're seeking and other matters. If you're working with an agent or broker, he or she will select the insurance companies and provide them with your information. Another option is to use an independent on-line quote service.

The quotes you receive will depend on the types and amounts of coverage you want. There are also many other factors that a company may use to reach a quote, such as your age, your gender, your marital status, where you live, what type of car you drive, how much you drive, your driving record, the amount of your out-of-pocket deductibles, how many people will be covered, and any discounts you may qualify for. But even though different companies use similar variables to price coverage, don't expect their quotes to be the same or even close. Annual premiums for the same coverage can vary by hundreds of dollars among companies. That's because each company's rates are based on its own priorities, customers, and claims-paying history.

Don't stop there--price isn't everything

If the quotes you get are for policies that provide basically the same coverage, the lowest-priced policy may very well offer the best value. However, that's not always the case. Sometimes a more expensive policy may actually be a better deal when you look at issues other than cost. Though auto insurance policies are standardized to a large extent, you should still compare the provisions and features of the policies you're considering. It's also important to learn as much as you can about the companies behind the policies. If you compare only premiums, you might end up regretting it down the road. Here are some good questions you should try to answer with the help of an insurance agent or broker:

  • How long has the company been selling auto insurance?
  • How do independent rating services (e.g., A. M. Best, Standard & Poor's, Weiss) rate the company based on financial stability and other factors?
  • What information can your state's insurance department give you about the company? Many states keep records of the number of consumer complaints made against a company.
  • What level of customer service can you expect from the company? For example, does the company have a reputation for paying claims in a timely manner?
  • How long do you have to file a claim after an accident, theft, or other covered loss? This is usually specified in the policy.
  • What steps do you have to follow throughout the claims process? For example, can you choose your own repair shop or do you have to use one chosen by the company?
  • Will the company cancel your policy if you miss a premium payment, or will it just send you a late notice?
  • Does the company offer the extra endorsements you're looking for (such as towing and labor or increased coverage for rental cars), and at what additional cost?
  • Does the company offer the same (or better) discounts as its competitors (discounts can also vary widely among insurers)?