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How to save money on your auto insurance

You may have good reason to complain about the cost of your auto insurance, but have you tried to do anything about it? If you're resourceful and willing to do a little homework, there may be plenty of ways to lower your premium. And we're not necessarily talking chump change--a few simple steps can sometimes save you hundreds of dollars a year.

Shop around

One of your first steps should be to shop around for a better deal. Sometimes the best time to do this is when your current policy is up for renewal--especially if you find that your premium has gone up. You may be surprised to learn that premiums for the same coverage on the same car can vary widely among insurance companies, even in states that regulate auto insurance rates. That's because different companies have different ways of pricing coverage and determining rate increases. You can shop around on your own over the phone and on-line, but it's usually easier to have your insurance agent or broker do the legwork for you.

Raise your deductibles

When you file an insurance claim for loss of or damage to your car, you will probably be subject to a deductible. This is an amount that you must pay out of your own pocket before your insurance company begins to cover your losses (different deductibles probably apply to your collision and other-than-collision coverage). The higher your deductibles, the lower your annual premium. In fact, by raising the deductible for your collision and/or other-than-collision coverage, you may be able to cut your premium by 10 percent or more. The reason is simple: Increasing your deductible shifts some of the financial risk to you. If you decide to do this, though, make sure that you can afford the larger deductible if and when the time comes.

Downgrade your choice of car

New cars and top-of-the-line models typically cost more to insure than used cars and lower-end models. In addition, cars are rated on a risk scale for insurance purposes. Sports cars and other high-performance vehicles are higher risks because they are popular targets for thieves and vandals and typically cost a lot to repair. Also, statistics show that people who own flashy cars tend to drive more recklessly. Other types of cars may be considered safety risks (e.g., if they're prone to rollovers). So if you're in the market for a car, remember that you can save on insurance by purchasing a low-risk or less expensive vehicle.

Look into discounts

Depending on your circumstances, you may be eligible for one or more discounts on your auto insurance. These discounts can sometimes result in substantial premium savings, so talk to your agent about any that might apply. Here are some ways to qualify for discounts:

  • Drive less: If you drive less than a certain number of miles a year (e.g., 12,000), you may be eligible for a low-mileage discount. There are many possible ways to cut your mileage to qualify for this discount, such as taking the train to work instead of driving.
  • Drive more safely: You may be entitled to a safe driver discount if you maintain a clean driving record for a certain amount of time (usually three years). This generally means no accidents, drunk driving convictions, serious moving violations, or other infractions during that time.
  • Add safety/antitheft devices: You may receive a discount if your car is equipped with safety features like antilock brakes, automatic seat belts, and airbags. Also, antitheft devices such as car alarms and tracking systems may get you a discount because they reduce the odds of theft and vandalism.
  • Check out rates by location: If you are moving or relocating, check out rate differences among your possible new residences. Sometimes a short distance can mean a big difference in rates.
  • Keep your car in a garage: Housing your car in a garage may give you a slight break on your premium. That's because cars parked in garages are less likely to be stolen, vandalized, or struck by other vehicles.
  • Get a multipolicy/multifamily discount: You may receive a discount from your insurance company if you buy more than one type of insurance from that same company (e.g., auto and homeowners). A discount may also apply if you insure multiple cars under the same policy or with the same company.
  • Ask about other discounts: Other discounts may be available if you don't smoke, participate in a car pool, stay with the same company for a number of years, are over 50 years of age, have a covered child who attends school at least 100 miles away, or meet other conditions.

Drop certain coverages

The collision and other-than-collision portions of your policy cover damage to your own vehicle from accidents and a variety of other causes. This coverage is optional in virtually every state, so does it make sense to have it? In most cases, yes. However, if you drive an older car that's worth less than $1,000, it may be cost effective to drop this type of coverage. Why? Even if the car were stolen or totaled, the amount of money you'd get from your insurance company would be relatively small. In some cases, the amount you'd receive would be even less than your out-of-pocket costs for this type of coverage (the extra premium and the deductible). Another thought is to drop any optional endorsements you may have--weigh the cost of these items against their importance to you.

Lower coverage limits

Another way to reduce your premium is to lower the dollar amounts of certain coverages (though state minimums may apply). But be very careful. Having less than adequate amounts of insurance can be risky, especially in the area of liability coverage. You should keep your liability coverage as high as possible, because this is where you can have the greatest losses. For example, if you injure people in an accident, claims against you for medical bills and other expenses can be substantial. You might consider less coverage in other areas, but don't rush into these decisions just to save money--discuss them with your insurance agent or broker first.