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How to Keep Your Car Insurance Payments Reasonable

Published Jul 18th 2007, 4:21pm by Jody DeVere in Featured Articles

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Buying car insurance can be a painful learning experience. Finding the best rate is just the beginning of your education. Your first challenge is to understand how the automobile insurance industry works. This business is remarkably tight-lipped about its inner workings.

As with all-things-financial, your credit score counts. If you have good credit, you pay less for car insurance. This is because the insurance industry has found a direct correlation between credit scores and the likelihood you will file a claim. This insight is informed by the financial stability of those who maintain good credit. The car insurance gurus use your credit information to calculate your “insurance risk score,” an important factor in the rate you will be quoted.

Damage Your choice of vehicle definitely affects your premium. The auto insurers have a rating system for every car make and model based on its initial cost factored with safety and theft data. The insurance industry keeps these ratings to themselves, but there are sources for the information. Try an Internet search.

You’ll also pay less for your insurance if you can pay in full. Installment plans always come at a cost. The smaller your payments and the more numerous your billing periods, the more you will be paying. After all, the “installment plan” is a loan and usually involves extra costs.

It stands to reason that bad drivers always pay more for insurance. The industry standard calls for increasing your premium by 40% over the base rate after your first at-fault accident. If your base rate is $500, you’ll be paying $200 more after that accident. In most states, your insurance will go up if and when you receive a moving violation by Officer Friendly.  Safe drivers with no claim history or “points” from traffic tickets pay the least for their car insurance.

Believe it or not, your friends can saddle you with higher insurance payments. If you lend your car to another and that person crashes, you will be the one filing the claim with your insurance company. You will be responsible for the deductible amount, and your rate will almost certainly go up due to your claim. Even worse, if your friend is uninsured and causes damage that exceeds your policy limits, you will be liable. The injured party can and, usually with the help of an aggressive lawyer, will come after you. Best policy? Don’t lend your car to anyone.

Let’s say you are in an accident and your car is considered “totaled.” You may well expect to receive a settlement from your insurance agency sufficient to replace your car. Don’t count on it. The auto insurance industry does not go by the standard Kelley Blue Book list of car values. They compile their own information based on regional information that they believe is the lowest replacement cost. They figure in a depreciation factor, too, based on mileage and an assessment of your car’s condition prior to the accident.

Should you find your insurance company’s valuation of your “totaled” car to be low, you can try to negotiate with the insurer. This is where your record keeping comes in. Let’s say you follow the maintenance schedule for your car to the letter and get oil changes frequently. Make copies of your receipts and present them to your insurance agent. If you customized your car with extra equipment and insured the car to reflect your investment, include proof of the upgrades.  You can also obtain quotes to replace your car. If they differ from your replacement offer, submit them as further proof of a higher value.

One other tip: you may not owe sales tax on your replacement car! Twenty-eight states require auto insurers to pay for the sales tax when your replace a totaled vehicle with a new car: (AK, AZ, AR, CA, CT, FL, GA, HI, IL, IN, KS, KY, MD, MN, MO, NE, NV, NJ, NY, ND, OH, OK, OR, SD, VT, DC, WV, and WI).

Finally, when you switch insurers, don’t forget to cancel your current coverage. Even when you are at the end of your coverage period, you must notify the company, usually in writing. Should you just ignore the bill as your way of telling the insurance company you no longer want their service, they will send you another bill, noting the premium payment is due. When you don’t pay it, the company will indeed cancel your insurance, but for nonpayment, and that goes on your credit record. Remember what we said about having good credit?

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