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Ask the Experts - Bob Wood, Ph.D.

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Posted on September 24, 2014 by Candace Baker

Candace Baker

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Are car insurance companies really able to save drivers as much as they advertise?

Yes and no. The "savings" result from the advertising company quoting their minimum coverage rate versus an industry average rate. What they say is true to a point; however, the cost of a comparable level of coverage across companies will most likely be similar.

 

Why are car insurance prices so different from state to state?

Several factors determine the cost of insurance coverage. These include:

• Traffic levels and population densities: The more crowded the roads, the higher the number of accidents and, hence, the higher the cost of insurance.
• Weather conditions: People living in states with more extreme weather risks (for example, the risk of hurricanes along the Gulf Coast) will pay higher premiums than those in states with less extreme weather events.
• The cost of living: Individuals living in states with higher costs of living pay higher insurance premiums. The cost of car repairs and treatment for injuries suffered in accidents increases the cost of insurance.
• State laws: Mandatory levels of coverage and other restrictions will increase the cost of insurance in those states.

What are the most important things to look for when shopping for car insurance?

• Who is driving: How much and how often is the vehicle driven? Where is it driven? What is the driver's age and driving record? These and other personal factors affect the cost. Some companies offer policies that provide discounts for good drivers, low-mileage drivers, and other factors.
• The reputation of the company: The cheapest provider is more often than not *not* the best choice. Ensure that the company has good customer reviews and ratings.
• Discounts: It is common knowledge that most companies offer discounts to drivers with good driving records or based on vehicle type and safety features. What is not as commonly known is that some companies offer discounts to drivers belonging to certain organizations (AAA, for example) and to those who "bundle" their auto policy with other policies.
• The type of coverage needed: Almost all states require liability insurance; collision, comprehensive, and uninsured motorist coverages are optional in many states. With the cost of windshields, it is often a good investment to purchase insurance coverage for damages to the windshield. The general rule is to carry as much insurance as one can afford.
• Deductibles: Deductible levels and insurance costs are inversely related—the lower the deductible, the higher the premium. Good drivers can often save a significant amount by choosing a higher deductible.

What advice would you give to someone shopping for car insurance for the first time?

In advance:

• Determine state-required minimum coverage(s).
• List vehicle type and safety options.
• Assess risk tolerance—what level of deductible is comfortable?

Shop around:

• Ask about discounts.
• Ask about "special" coverages (windshields, for example).
• Ask questions—do not assume.
• Get personal recommendations and review online ratings.
• Purchase the best "fit," remembering that the lowest cost is not always the best option.
• Review and compare policies on an annual basis.

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