Smart Buying Essentials

Car Insurance

Ugh - Car Insurance! The only thing worse than paying for it is not having it when you need it.

Car Insurance is the price you pay to protect yourself, your passengers, and your car against unexpected losses. It's required by law, and if you've ever insured a vehicle, you know it makes up a formidable portion of your total ownership expense. Unlike depreciation, car insurance is a very visible expense - your car insurance bill is a regular visitor to your mailbox.

Although you pay a single auto insurance premium, you're actually protecting several entities: your vehicle (the collision and comprehensive part of your bill), and yourself and others (the bodily injury and property damage portion).

In most cases, where you live and the type of car will determine the price of your collision and comprehensive coverage. The price of your bodily injury and property damage coverage (also known as "liability" coverage) depends on your driving record, as well as who you are, where you live, and how much you use your vehicle.

Even though enhanced vehicle safety, a drop in thefts and fewer drunk driving incidents have helped lower premiums in recent years, car insurance is expensive. But by shopping around, eliminating coverage you don't need, and by getting no more than necessary on the rest, you may be able to trim your premium by hundreds of dollars.

Liability Coverage (about 60% of your premium)

When it comes to insuring yourself against damage or harm to others, you certainly don't want to skimp, leaving yourself vulnerable to a lawsuit that could take away your assets. Most states require you to buy bodily injury and property damage liability coverage. While you may be able to satisfy the law with bodily injury coverage that pays $20,000 for each person you injure, up to $40,000 per accident, and property damage coverage that pays $5,000, these are minimum figures.

Most insurance advisors recommend bodily injury coverage of at least $100,000 a person up to $300,000 an accident, and property damage coverage of $50,000. If your net worth is more than $300,000, you should carry coverage of $200,000 a person and $500,000 an accident, and perhaps an "umbrella" policy that will bolster coverage even further. A $1 million umbrella policy will typically add $120-$150 to your yearly bill - which you could offset by choosing a higher collision deductible.

You also won't want to skimp on uninsured or underinsured motorist coverage. This pays for injuries to your passengers and for expenses health plans don't cover if you are involved in an accident with an uninsured driver. Keep in mind that one in ten drivers across the country has no auto insurance.

On the other hand, don't buy more coverage than your net worth requires. If you don't own a home and you've wiped out your bank account to put a down payment on a new Hyundai, you may not need that $1 million umbrella policy.

Collision and Comprehensive Coverage (about 40% of your premium)

Many people can also save on other parts of their policy. Collision coverage pays for damages to your car caused by an accident, while comprehensive coverage pays for damage to your car caused by other risks, such as theft or fire. Unlike liability coverage, collision and comprehensive coverage is often subject to a deductible - an amount you must pay before you can make a claim.

Having a high deductible can save you substantial sums on the collision and comprehensive portion of your total insurance bill. For example, one insurer charges $99 a year more for a policy with a $300 deductible than for one with a $500 deductible. This means you'd pay almost $100 per year to save, at most, $200 if you have an accident. Instead, if you put that $100 in the bank each year, you'd soon have enough to pay the full deductible in the event of a collision. Or you could use that $100 to boost your liability coverage.

Because you don't want to collect on minor mishaps and risk raising your premiums, you'll want a high deductible anyway. Collecting $50 beyond a $250 deductible to replace a $300 cracked windshield could prompt the insurer to raise your total premium.

Other Coverages

Medical coverage pays hospital and doctor fees for the driver and passengers. But if your health insurance already covers these costs, you may not need medical coverage included with your auto insurance.

If you live in a state with no-fault auto insurance, you may be required to buy personal-injury protection that covers your medical bills. But you may be able to cut some of the costs for this coverage if your heath plan covers you in an auto accident.

There are a number of other minor types of auto insurance, such as towing coverage. If you're a member of an auto club that provides towing service, you may not need the additional towing coverage.

Car Insurance Symbols

Insurers use a car rating system to determine the premium price for collision and comprehensive coverage.

In many systems, every car is given a rating symbol between 1 and 27; the higher the rating number, the more costly the premium. All things being equal, two identically priced cars will have the same car insurance rating.

However, insurance companies often loathe the cars most of us love - luxury and exciting high-performance cars - and these cars may be subject to surcharges. In addition, some cars are more expensive to repair or are more likely to incur extensive damage in a collision. And some cars are more - or less - likely to be stolen; the Highway Data Loss Institute says cars with especially low theft claims are larger four-door family sedans as well as station wagons, while cars with especially high theft claims include high-performance convertibles. So ratings are adjusted for these risk factors.

Car Insurance rating figures used in this book are based on "Insurance Symbols," with the rating for a particular vehicle adjusted for any special risk factors.

Shop Around for Car Insurance

The car insurance business is essentially a gigantic bookmaking operation that bets premiums against the probabilities of having to pay out on an accident or injury claim. Except in a handful of states where bureaucrats set the rates, it's up to each insurer to develop its own probabilities and set its rates accordingly. Rates and underwriting guidelines will reflect what market segments an insurer wishes to target and how efficiently the company is managed.

All of which says, rates for the same driver and car can vary dramatically from company to company. If you live in a state with competitive auto insurance rates, start shopping by obtaining a quote from one of the major firms in the industry - State Farm, Allstate, Farmers, Nationwide, and USAA, are among the largest. Then contact an independent agent who can query other companies for you. You can also get comparative auto insurance rate quotes on the World Wide Web from companies like InsWeb corp. (http://insweb.com) Compare them all. You'll find that premium prices can differ by as much as 50% for the same coverage.