The first step in shopping for auto insurance is to decide on the types
and levels of coverage that will keep risk to an acceptable level for a
reasonable annual premium. You will have to choose from a broad range of
auto insurance coverage options. In terms of the amount of coverage, keep
in mind that the purpose of insurance is to protect you from losses you
cant afford to cover yourself. When you buy more insurance than you need,
you are simply wasting money.
When you injure someone else, or damage someones property, you may be
legally required to pay for the loss. Your home, your savings, and even
your future wages are vulnerable.
Liability coverage pays the amount for which you may be liable for bodily
injury and property damage to othersup to certain limitsand covers legal
fees incurred in your defense. Bodily injury claims can include wage loss,
medical expenses, rehabilitation costs, and pain and suffering. Property
damage can include damages to someone elses car, building, or other property.
Liability coverage generally protects you, your spouse, other members of
your household, and anyone else who drives your car with your expressed
or implied permission. But any liability coverage has payout limits, and
if the damages for which you are found liable exceed those limits youll
have to pay out of pocket. Determine what limits you can live with, keeping
in mind that the higher the limits the higher the premium.
Your policys limits are usually expressed as a set of three numbers each
representing a multiple of $1,000 divided by diagonal lines. For example,
a 100/300/50 policy pays a maximum of $100,000 for bodily injury to one
person, a maximum of $300,000 for total bodily injuries when more than
one person is hurt in an accident, and a maximum of $50,000 for property
damage in a single accident. Some policies are written with a single limit,
say $300,000, and will pay up to this limit even if only one person is
injured or only property is damaged. Because of its greater flexibility,
single-limit $300,000 coverage is worth somewhat more than 100/300/50 split-limit
Since your liability insurance not only protects your assets but also ensures
that there will be financial relief for anyone you may injure, California
law requires you to accept a minimum level of financial responsibility.
You can meet this obligation either by carrying at least 15/30/5 liability
insurance or by posting a $35,000 bond with the Department of Insurance.
Be aware that if you drive without liability insurance, or buy a policy
with minimum coverage amounts, most companies will treat you as a person
who takes unnecessary risks and charge very high premiums for future coverage.
To protect their assets from catastrophe, most drivers buy liability insurance
and insure above the legal minimum. Drivers who possess substantial assets
(or anticipate substantial future assets) have the strongest incentives
to purchase substantial liability coverage: They have the most to lose;
they are the most attractive targets for lawsuits; and they may receive
the least sympathy from juries.
Although coverage with higher limits costs more, cost increases are often
modest. As this figure shows, policyholders with 100/300 bodily injury
liability coverage (and $500 deductibles for collision and comprehensive
coverages) can expect their total annual premium to increase by only about
10 percent by moving up to 250/500 coverage, and expect to save only about
four percent by moving down to 50/100 coverage. And for most drivers, doubling
the limits of property damage coverage from $50,000 to $100,000 costs very
little. Most consumers consider these extra costs a small price to pay
for increased peace of mind.
If you want to protect your assets and future income from claims in excess
of $500,000, consider an umbrella policy that supplements the liability
protection provided by your auto and homeowners policies. In addition to
protecting you from claims for bodily injury and property damage, an umbrella
policy will protect you against suits for other types of injuriessuch
as libel, slander, defamation of character, false arrest, and invasion
of privacywhich are not covered by your auto or homeowners policies. Before
selling you an umbrella policy, insurance companies may require you to
increase the liability coverages in your auto and homeowners policies to
the maximum offered.
Collision and comprehensive coverage pay to repair or replace your car
following an accident, regardless of who is at fault. This coverage is
not required by law, but if your vehicle is financed your lender may require
you to purchase it.
Collision coverage pays for the damages your car suffers when it runs into
something. Comprehensive coverage pays for damage to your car from almost
all other causesincluding vandalism, explosion, fire, wind, and collision
with animals. It will even pay if your dog chews up the upholstery. Comprehensive
also pays if your car is stolen.
Both collision and comprehensive pay only up to the actual cash value of
your car. If you want to cover additions to your carvideo screens, an
upgraded sound system, a special paint job, or other featuresyou will
have to pay an extra premium.
As the cars value diminishes, the price of comprehensive and collision
coverage declinesbut only during the first few years of the cars life.
The collision premium for a 10-year-old carfor which an insurance company
would pay almost nothing in the event of a complete lossis about the same
as for a six-year-old car. So collision coverage becomes increasingly wasteful
as your car ages.
Collision and comprehensive coverages are sold with deductiblesthe amount
you agree to pay out of pocket before you can collect from the company.
You save by taking a high deductible because it helps the company avoid
the paperwork of processing small claims. In general, the best course is
to take as high a deductible as you can afford to lose without seriously
disrupting your life.
This figure illustrates the considerable savings yielded by high deductibles.
For example, the sample policyholder would save about 10 percent off her
total insurance bill by increasing her collision and comprehensive deductibles
from $500 to $1,000.
The virtues of substantial deductibles are more obvious insofar as you
may not even choose to file claims for under $1,000 or so. Filing small
claims might lead a company to cancel your coverage or raise your premiums.
Medical payments coverage takes care of medical bills if any member of
your family is injured in an auto accident, or your funeral expenses if
death results from such an accident. Whether a family member is driving
your familys car, driving a rented or borrowed vehicle, riding as a passenger,
or is struck by a car while walking, you can collect these medical payments.
Moreover, medical payments protect passengers who ride in your car. Most
important, payment is made regardless of fault, with limits on the amount
stipulated in your policy.
Most of the expenses that would be paid by your medical payments coverage
will be paid by your familys health insurance policy. Since medical payments
coverage is relatively inexpensive it is reasonable to buy a minimal amount
of coverage to fill in possible gaps in your health insurance and to help
cover medical expenses for your passengers who may not have health insurance.
But beyond that, you may do better to spend your money on liability insurance
or on a more comprehensive health insurance policyto protect you and your
family from any disease or injury that might befall you, not merely from
injuries that involve automobiles.
If you are the victim of an accident in which another driver is at fault,
you would expect to be compensated by that drivers insurance company.
But despite mandatory coverage laws, many drivers remain uninsured. Also,
even an insured driver may be underinsured for large losses. If you are
the victim of an uninsured or underinsured motorist, you can use your collision
coverage (if you carry it) to repair your car, or your medical payments
or personal injury protection coverage (if you carry them) for medical
bills. But you will need other coverage if your losses exceed these coverages
and to compensate you for pain and suffering. Uninsured/underinsured
motorist coverage fills this gap if you can show that the other driver
was at fault or were the victim of a hit-and-run driver. Insurance companies
must offer this coverage, but you are not required to purchase it.
All the reasons that argue for higher limits on liability coveragewhich
protect someone elsealso argue for high limits on uninsured and underinsured
motorist coveragewhich protect you. Increasing your limit for uninsured
and underinsured motorist coverage from 25/50 to 100/300 generally costs
less than $50.
For an additional premium, most insurers will broaden your coverage to
include reimbursement for renting a car while your own car is being repaired.
Given that even a modest level of coveragetypically $30 per day with a
limit of $600 per claimusually costs $50 to $75 per year, our advice is
to decline it altogether, since the additional premiums over time are very
likely to exceed any benefits you will collect.
Towing coverage covers the costs of towing your vehicle; emergency road
service coverage pays the labor charges for any repairs that can be made
at roadside (such as changing a tire or jumping a battery). Some insurance
companies offer only towing coverage, others both towing and road service
coverage together. Most companies offer these coverages for about $10 to
$20 per year, and a few companies charge nothing for towing coverage. Under
many policies, this optional coverage will reimburse you only for $25 per
claim, but for $3 or $4 more per year you can get coverage for up to $75
per claim. Though towing and road service coverage is inexpensive, an auto
club membership that includes towing and road service could be a better
deal if you would use other club benefits.
California law sets out rating factorsthat is, how a drivers characteristics
may influence premiums. Under state regulations, companies are required
to give the greatest weight in determining rates to three Primary Factors:
driving record, number of miles driven annually, and length of driving
experience. Beyond these factors, companies are allowed to use Secondary
Factors in determining rates (below we describe many of the secondary
factors). The average weight of secondary factors must not exceed the weight
given to the primary factors in the companys premium calculations. Note
that because the average weight of the secondary factors is considered,
the individual weights of some secondary factors may be greater than those
of the primary factors.
Knowing the factors insurance companies consider will give you a sense
of how warmly companies are likely to greet your requests for coverage
and what changes you could make in your life to lower insurance rates.
Your driving record is very important. Industry data indicate that an individual
who has had two accidents in the past two years is almost two-and-a-half
times more likely to have an accident in the coming year than someone who
has had no accidents. Similarly, the accident rate for individuals with
two traffic violation convictions in a three-year period is twice as high
as the rate for drivers with no convictions.
Its not surprising, then, that your previous driving record has a big
impact on your auto insurance premiums.
This figure shows that, for one illustrative driver, if the policyholder
had received a recent traffic citation her premium would be $461 per year
higher, on average. With some companies, one traffic violation wont affect
premiums much; but with others, one ticket incurs big penalties.
Previous accidents are even more costly than tickets. Most companies charge
an extra 35 percent or more for customers who have had one accident in
the last three years, and an extra 90 percent or more if theyve had two
accidents. Many companies wont even insure drivers with poor driving histories.
Most companies consider the driving records of everyone who will be driving
your car or cars. Therefore, if you have a perfect driving record but your
spouse has had violations or accidents, you may not qualify for the preferred
rate. Different companies treat driving records differently for families
with more than one car. Some companies will charge a higher premium only
for the car driven primarily by the driver with violations and/or accidents,
while others will pool the points from the violations and accidents and
spread them over all the cars, or assign the driver with the worst record
to the highest cost car.
In California, insurers are not allowed to use age as a factor in setting
rates, but they can consider years of driving experience. The longer you
have been driving, the lower your premium. This hurts younger drivers as
well as older drivers who did not start driving until later in life. Younger
drivers should ask about, and take advantage of, any discounts for driver
training courses or good grades (companies often give discounts to drivers
with a B average or better) in school. Studies have shown that driving
training courses do not produce better drivers, but, because careful drivers
tend to enroll in them, it serves as an identifier of better risks. Most
companies also offer discounts to married drivers.
Some localities present more chances for accidents, experience a higher
incidence of auto theft and vandalism, or have higher repair costs or medical
and legal charges than others. As shown in our price comparisons, these
differences sometimes result in higher auto insurance rates in some parts
of the Bay Area than in others.
Insurance companies charge more for insurance on cars that are relatively
expensive to replace and repair, or prone to damage and theft. Some companies
charge extra for, or refuse to insure, high-performance cars because their
owners may be less responsible than other drivers.
Your insurance premiums may also be slightly reduced if your car is equipped
with safety devices or anti-theft features. But these discounts are usually
very smalltypically only one to three percent of the total premium.
Premiums are higher for drivers who put a lot of miles on their cars, but
surcharges for high-mileage drivers and discounts for low-mileage drivers
typically are small.
Companies also consider the number of cars they are insuring for a family.
The second car usually costs considerably less than the first because companies
assume you will drive each car less than you would drive a single car.
If you have had a lapse in insurance coverage at any time in the last five
yearsincluding for non-payment of premiumexpect your rates to skyrocket.
Insurers view potential customers who have had insurance lapses as high-risk
policyholders and most will not offer them their lowest rate plans.
Similarly, many insurance companies will not offer their lowest rate programs
to potential customers who have recently maintained liability coverage
limits below the 300/100/50 level.
If you have been loss free with your current company for a while, consider
any longevity discounts your company already offers or will offer in the
future. Many companies offer discounts of five to 10 percent for three
years of coverage without an at-fault accident, and may increase the discount
at six years and nine years. Another benefit of longevity is that your
current company might examine your entire history with it when deciding
whether to re-assign you to a higher risk category (and charge you higher
premiums) if you have accidents, whereas a new company might examine only
your driving record in the last three years. Some companies dont raise
their rates for policyholders who have had clean driving histories for
a long time.
Many insurance companies offer lower rates if you insure both your car
and your home with them. Some knock off five percent, 10 percent, or even
more from either the auto or homeowners rate, and some knock off a percentage
From a consumers point of view, this dual-policy pricing is an undesirable
practice because it makes shopping more difficult; to find out the exact
savings you could realize by switching companies, you have to shop for
both types of coverage at once. And these discounts usually arent large
enough to have a major effect on the relative rankings of companies.
There are two main considerations in choosing among auto insurance companies:
amount of premiums and quality of service. But also consider a companys
record on terminating policyholders and a few other factors.
Our price comparisons show annual premiums for most of the auto insurers
writing new policies in California. Each year, the California Department
of Insurance asks insurers to provide annual premiums for a selection of
hypothetical policyholders living in various parts of the state. Our price comparisons report the premiums for standard coverage for five profiles
in seven Bay Area locations.
Company-to-company rate differences are dramaticmore than $1,000 a year
for every case, and thousands of dollars for most cases.
The rates in our price comparisons will probably not exactly apply
to you; most drivers will differ in terms of location, vehicle usage, vehicle
type, or other ways. But the rates provide a good starting point for shopping.
Companies with low rates are good prospects.
Focus even more tightly on your best prospects by using the Department
of Insurances website (go to www.insurance.ca.gov and search for Premium
Comparison Survey). Select a profile that is close to your own in terms
of driver experience, driving record, and other variables, and you will
be able to obtain premiums for the available companies.
Once you have identified a few prospective companies, begin shopping on
the Web; many company websites will provide quotes. Or use the websites
to locate agents. Then ask each agent to quote a price for the coverage
you want. Before shopping, make a list of the coverages you plan to purchase.
Independent agents who sell policies offered by many companies can provide
quotes from various companies. But policies from some companies are not
available through independent brokers or agents; to get these companies
rateswhich often are the lowest availableyou have to obtain a quote from
a company website or contact company agents directly.
When contacting agents, you may have to push hard to obtain reliable information.
When we researched our article on homeowners insurance, we found that
many agents were unable to provide accurate price quotes and that some
could not correctly answer even basic questions about coverages. For auto
insurance, we find that most agents can quote accurate rates, but problems
still exist. Some agents quote wildly inaccurate rates, while others persistently
push more coverage than requested.
Most insurance companies write auto policies by assigning prospective customers
to tiers determined by their driving and credit records. When dealing with
agents, make sure you ask whether you qualify for the best rates companies
offer, and, if not, why you dont.
If you have so many accidents or violations that it is difficult for you
to qualify for coverage, you are entitled to buy insurance through the
states assigned risk plan. Rates in the assigned risk plan are often triple
or more what youd pay for a preferred policy.
Companies underwriting policieswhich drivers get the best rates, which
pay more, and which they wont insure at allhave enormous impact on insurance
rates. Unfortunately, companies are not required to publicly disclose their
Consider price in relation to the quality of service companies provide,
especially their claims-handling service. Our Ratings Tables, for the
largest insurers in the area, provide three types of information about
service: a survey of policyholders, a survey of auto body shops, and an
analysis of complaints.
Our Survey of Policyholders
We asked area consumers (primarily CHECKBOOK and Consumer Reports subscribers)
who had recently made auto insurance claims to rate their companies inferior,
adequate, or superior for simplicity of claim procedures, adequacy
of claim payment, and other elements of service. Our Ratings Tables
show what percentage of policyholders rated each company superior on
each element. (For a further description of our policyholder survey and
how its results and our other research results should be interpreted, here.)
Our Ratings Tables show big differences in how customers rated companies.
For example, at the time of our last full, published report, Amica and
USAA were rated superior for speed of claim payment by more than 85
percent of their surveyed customers. In contrast, Ameriprise, Farmers,
Mercury, and 21st Century received superior ratings from fewer than 60
percent of their respective customers.
Asking the Experts: Auto Body Shops
We also asked area auto body shops to rate the insurers poor, fair,
good, very good, or excellent on treating their customers (car owners)
fairly. Our Ratings Tables show the percent of surveyed shops that
rated each company good, very good, or excellent, and the number
of ratings each company received.
Surveyed shops gave high marks to CSAA, Firemans Fund, Mercury, State
Farm, and USAAthey all received favorable ratings from at least 85 percent
of shops. Allstate, GEICO, and Progressive were rated lowest, receiving
favorable ratings from fewer than half of the shops.
Another way to assess quality is to look at the number of complaints filed
against each company with state insurance departments, compared to its
volume of business. While policyholders might rate a company less than
superior if its deficiencies are minor, filing a formal complaint with
a government regulatory agency presumably reflects serious dissatisfaction.
Our Ratings Tables report the number of justified private passenger
auto insurance complaints filed with the California Department of Insurance
in 2009, 2010, and 2011, the most recent years for which data were available
at the time of publication. To be considered justified, a complaint must
meet certain criteria established by the California Code of Regulations
and usually involves an insurers acting against insurance regulations
or in some way breaching the insurance contract. Our Ratings Tables
also report a justified complaint ratio for each company, which takes
into account the fact that companies that do much more business than others
are likely to incur more complaints. It is calculated as the number of
justified complaints per 100,000 exposures, generally defined as vehicles
covered by the policy.
You want to be confident that a prospective insurer will not terminate
your coverage or dramatically raise your rates because of accidents or
traffic violations. Termination by your company at best is inconvenient
and at worst can force you to pay rates hundreds of dollars higher when
you find a new company or enroll in a special plan for high-risk drivers.
California places certain legal restraints on termination. The law allows
cancellation or non-renewal of an issued policy only in cases of fraud/misrepresentation,
non-payment of premium, suspension or revocation of license or registration,
or substantial increase in the hazard insured against. An insurer may not
non-renew coverage solely based on age or the fact that there is an outstanding
claim on the policy.
The procedures for termination generally involve sending a notice to the
policyholder at least 20 days before the termination date (10 days in the
case of non-payment or during the first 60 days of a policy). Notice of
non-renewal must occur at least 30 days prior to the policy expiration
date. The policyholder has the right to know the reason(s) for termination
In fact, except in cases of non-payment of premiums, termination is relatively
rare. Accordingly, we dont recommend spending more than an extra $100
or $200 per year on a company with a particularly good record of sticking
by its policyholders through a string of accidents or violations. And you
shouldnt have to pay even that, since some of the lowest priced companies
receive high ratings on our policyholder survey on their termination practices.
The survey asked policyholders who had filed claims to rate their companies
on not unreasonably cutting coverage. The results appear on our Ratings Tables.
Some individualsusually the young and those with records of accidents
or violationsfind it difficult to locate a company to insure them.
If you are one of these high-risk individuals, the only solution is to
shop. Try several of the major groups and ask to be considered for their
preferred, standard or nonstandard plans. Then try the special publicly
created assigned risk plan for Californiathe California Automobile Assigned
Risk Program (CAARP). Under this arrangement, drivers who are not eligible
for even non-standard rates are able to buy insurance. Eligible drivers
must apply with the help of an agent who is a Certified Producer with CAARP,
and are then assigned to regular insurance companies. Each company is assigned
a pro rata share of policyholders according to its share of business in
the state, and the policyholder pays the same premium at whatever company
he or she is assigned to.
Dont assume that once you have been turned down by a preferred company
you must turn to a high-risk company or the assigned risk plan. Companies
standards for accepting new policyholders vary widely and change constantly
as their rates and volume of business change. To enhance your chances,
remind agents that you or members of your family have other business with
their companyfor instance, a homeowners policy or automobile policies
for other drivers. On the other hand, dont stop shopping even after you
are accepted by a preferred company. High-risk companies or the assigned
risk plan sometimes offer better rates. If you must join the assigned risk
plan at a very high price, look for other coverage after a year.
Recently, several insurers have begun to advertise new policy features.
When considering these features, be aware that some can be useless, and
others need to be carefully evaluated on a cost-benefit basis.
As an example, several companies heavily promote accident forgiveness.
With this option, if you have an accident, your premiums wont change.
Considering that your premiums might increase by 15 percent to more than
100 percent, depending on the company, as a result of having just one at-fault
accident, this type of coverage plan might seem like a pretty good deal.
But usually youll have to pay an additional premium for accident forgiveness
(and most other advertised add-ons), and with some companies you pay $75
or more per year to buy it.
When you consider what the insurance companies are offering customers,
accident forgiveness actually is a somewhat bizarre option: Companies are
offering you regular insurance against losses and claims you might sustain
because of an accident, and also offering insurance against the risk of
them drastically raising your rates if you actually have an accident.
Because many of these plans dont even take effect until drivers have had
an accident-free policy with the insurer for five years, policyholders
end up paying hundreds of dollars in extra premiums before they can benefit
from the planand they would benefit then only if they have an accident.
Some insurers waive their accident-free waiting period, but charge a lot
more for the feature.
Are add-ons like accident forgiveness, disappearing deductibles, and amnesty
for traffic tickets worth the extra cost? If you have a clean driving record,
you probably wont have an accident that would raise your premiums for
a long time, if ever. If you have a checkered driving history, the chances
are higher that you will have a future accident, but the price youre already
payingand the extra price youll pay for accident forgivenesswill be
much higher than what a good driver pays. You have to decide whether even
a substantial increase in premiums as a result of an accident or accidents
would be a catastrophe. If not, dont insure against it; insurance is to
protect you from catastrophes.