Personal Confession 1: Insurance is my least favorite part of financial planning.
Personal Confession 2: I have ZERO interest in cars. It has 4 wheels and is a nice color? Cool.
Therefore, the topic of car insurance isn’t exactly electrifying for me. However, I recognize how enormously important it is! Lacking the right car insurance can be just as damaging as choosing a bad investment. So, let’s reveal the secrets of cheap car insurance together and learn what we need to know while shopping!
1. What’s the secret to getting the cheapest car insurance possible?
We are all required to carry car insurance before we hit the road. As a forced necessity, it’s easy to just buy the cheapest policy you can find. As a bona fide penny pincher, I fully understand this perspective.
Let’s say you’re car-insurance shopping and you get a super low quote. Awesome! But let’s explore the reasons why your quoted premium might be so low…
It Has a High Deductible
You can generally choose a deductible ranging from $250 – $1,000. If you are in a car accident and have a $1,000 deductible, you are required to pay for the first $1,000 of damages yourself. If your car needed a $2,000 repair, you would pay half and the insurance would pay the rest. If there was only $500 worth of damage, the insurance would likely pay nothing. That might leave you wondering… why did I even buy insurance again??
What I think about it: If you have a healthy emergency savings account, I’m a fan of a higher deductible. Why? Because it means a cheaper premium. Theoretically, the money you save on your premium can go towards beefing up your emergency savings. If you ever need to make a claim, you can use the money you would have spent on premiums to cover the deductible.
It Only Offers Collision Coverage
Just getting collision coverage is the cheaper way to go. It covers damages to your car in the event of a collision (seems self-explanatory, right?).
It will cover hitting another car or tree… it WON’T cover hitting an animal, falling objects (like a tree branch after a storm), fire, or vandalism. Comprehensive insurance does cover these things… because it’s COMPREHENSIVE (for once, the insurance industry uses words that make sense).
Think of how many people you know who have hit a deer. If you live in the Midwest like me, I KNOW it’s a lot. Your friends may or may not have footed the bill themselves depending on whether they paid for collision or comprehensive coverage also.
What I think about it: If you have a “junker” car, or even an older vehicle that doesn’t hold a lot of resale value, collision coverage might be fine. Reason being, there just isn’t much value to protect. However, if you have a newer vehicle or a car loan, I strongly recommend getting comprehensive coverage. In fact, most lenders REQUIRE you to have comprehensive coverage in addition to liability and collision. With no loan, you might be able to get by with just liability coverage, but I personally don’t recommend it.
Low Liability Coverage
If you are deemed responsible for a car accident, you may pay for the other party’s vehicle damage, property damage, and medical bills. So expensive! Even if you aren’t responsible, there is no guarantee that the responsible party has insurance themselves. That can also be an expensive situation.
On your policy, you will see terms like Bodily Injury, Property Damage, and Uninsured Motorist. You’ll want to be sure you know what is and, more importantly, what is NOT covered by your policy in these areas.
What I think about it: I can’t say how much coverage you specifically need. I can say that the levels do impact your premium price. Ensure the super low quote you found has comparable coverages to the other quotes you received. If it doesn’t, it’s an unfair comparison.
2. Is cheap really what you want?
You get what you pay for.
That is true with quality insurance, furniture, clothes, and even good tacos. Do you really want cheap??
I’ve heard awesome stories from people with great insurance companies. Their insurance really came through for them when they needed it most! You want an insurance agent who will fight for you. However, an insurance agent can only fight for you within the realms of what your policy allows… and a cheap one may not allow for much.
If you can find cheap car insurance that meets all your needs, then go for it! There are good deals to be found. However, be warry of any cheap policy that just seems too good to be true, because it probably is. A policy’s premium doesn’t determine its value. You must look under the hood to understand what protection it offers you!