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 insurance not only protects your assets but also ensures financial
relief for anyone you injure, Minnesota law requires you to carry at least
30/60/10 liability coverage.
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
six percent by moving up to 250/500 coverage, and expect to save only about
three 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 couple would save about 10 percent off their total
insurance bill by increasing their 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.
Minnesota is a no-fault insurance state, and the states no-fault law
requires you to purchase minimum levels of personal injury protection
(PIP) coverage. The no-fault law was established to help ensure timely
payment of medical costs for all parties involved in an auto accident,
and to reduce the incidence of lawsuits related to auto accidents. No-fault
means PIP coverage protects you no matter who is found liable for an accident;
your own company pays even if the other driver is at fault. Also known
as basic economic loss benefits, the no-fault portion of your insurance
policy is the first to pay in the event of an accident.
PIP covers only those expenses related to medical costs, lost wages, replacement
services (such as housekeeping), and, in case of death, $2,000 of funeral
expenses. It does not cover damage to vehicles. The minimum required PIP
coverage is $40,000, an amount available to each person injured in an accident,
with $20,000 allotted for medical expenses and $20,000 for non-medical
expenses. You can choose among different deductible options and increase
your coverage level for a small increase in your overall annual insurance
If you have more than one vehicle on your policy, you can stack your
PIP benefits. Stacking PIP limits essentially pools the PIP coverage for
all insured vehicles; if you have two cars and stack 20/20 coverage,
you have what amounts to a 40/40 level of protection. The cost of this
kind of stacked coverage is very low.
If you are retired, you can ask insurers to waive coverage for the non-medical
expenses portion of your PIP coverage, resulting in lower premiums.
If your expenses exceed your PIP limits or reach certain specified levels,
you may be able to collect from the other drivers liability insurance
if he or she is found liable. You may also make a claim if you suffer certain
kinds of permanent injury, or death. Otherwise, you may not sue the at-fault
party. No-fault claims must be made within six months of an accident.
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 after
your PIP coverage runs out. But some drivers remain uninsured. And even
an insured driver may be underinsured against large losses. If you are
the victim of an uninsured or underinsured motorist, your PIP will cover
your medical bills and lost wages; and you can use your collision coverage
(if you carry it) to repair your car. But you will need additional coverage
if the medical expenses for you or other covered persons exceed these coverages.
Uninsured/underinsured motorist coverage fills this gap if you can show
that the other driver was at fault or if you were the victim of a hit-and-run
Minnesota requires uninsured/underinsured motorist coverage at least to
the 25/50 level, which generally costs less than $80 per year. All the
reasons that argue for higher limits on liability coveragewhich protects
someone elsealso argue for high limits on uninsured/underinsured motorist
coveragewhich protects you. The cost of increasing your limit for uninsured/underinsured
motorist coverage from 25/50 to 100/300 is generally small.
For an additional premium, most insurers will broaden your collision or
comprehensive 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 $40 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.
What youll pay for insurance depends not only on the coverage limits you
select but also on your driving record; your age, gender, and marital status;
where you live; the kind of driving you do; your credit record; and other
factors. Knowing these factors will give you a sense of how warmly insurance
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 couple, if the husband
had not received a recent traffic citation the couples premiums would
be $222 per year lower, 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 20 percent or more for customers who have had one accident in
the last three years, and an extra 50 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.
Men under 25 have the highest accident rates; after age 30, accident rates
drop and remain fairly constant up to age 65. Married men generally have
lower accident rates than unmarried men. And women, especially married
women, have the best records of all.
This does not mean that women or older men are better drivers than, say,
25-year-old men. They may have fewer accidents simply because they drive
Nonetheless, low accident rates result in lower premiums. If a company
agrees to insure him at all, a single 17-year-old male can expect to pay
about four times as much as a 30-year-old male, and twice as much as his
twin sister, for comparable coverage. Even 25-year-old males can expect
to pay about one-and-a-half times as much a 30 year old.
Here are a few common rating guidelines:
Rates for drivers between ages 16 and 20 decrease slightly each year (as
long as their driving records remain accident- and violation-free), then
remain the same between the ages of 21 and 24. But a few companies offer
married women relatively low adult rates beginning at age 21.
Rates for single males age 25 to 29 are often the same as for males age
21 to 24. But single females age 25 to 29 may be classified as adults.
Married males in the 25-to-29 age bracket are often offered adult rates,
and married females almost always are.
Most companies classify single males as adults at age 30, but some continue
to charge higher premiums up to age 49.
Rates for drivers over 64 are normally either the same as, or slightly
lower than, the adult rate. Some companies offer a senior discount
to drivers as young as 50.
Since youthful drivers have especially high accident rates, companies have
sought ways to identify the better risks among them to attract these youths
and their parents.
Many companies offer special rates, usually four to 10 percent lower, for
youths who have taken approved driver training courses. Studies have shown
that these courses do not produce better drivers, but, because good risks
seem to take them, they serve as a convenient screening device for the
Many companies also give a breakoften 10 to 20 percentto youths who earn
good grades (usually a B average or better). The combination of discounts
for driver training and good grades may total 15 to 30 percent of a familys
Most companies also cut premiums dramatically if a youth goes to school
more than 100 miles from home without taking a car. In addition, by agreeing
to restrict a youths driving to a single less-expensive car, a family
may be able to cut the rates on other cars it owns.
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 Twin Cities 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.
Because many companies have concluded that consumers with poor credit histories
are more likely than others to file claims, most use credit histories as
a factor in setting rates.
Using complicated secret formulas, insurance companiesor credit bureaus
on their behalfcalculate an insurance score that may be used to determine
rates, or even whether to cover a driver at all. The insurance formulas
are not the same as those used by lenders (such as banks or mortgage companies)
to calculate credit scores, but they draw on the same types of data. The
formulas vary from company to company, since different insurers (or scoring
companies) weigh factors differently.
The appropriateness of using credit histories in making insurance decisions
is a hotly debated topic among the insurance industry, consumer groups,
and state legislatures. Aware of the risk of discrimination and unfair
treatment under such practices, many states have passed, or are considering,
laws designed to protect consumers by limiting insurance companies use
of credit data. In Minnesota, insurers may not reject, terminate, or non-renew
a policy based on credit information alone; they must consider other factors
along with credit history. Several other regulations apply, but most companies
can and do use credit histories in setting their rates.
The impact of credit history on rates is dramatic. For potential customers
with poor credit, companies regularly quote premiums that are double the
premiums for customers with excellent credit.
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 quoted by insurance companies
for four illustrative profiles in four Twin Cities area locations, including
rates for the largest insurers in Minnesota.
CHECKBOOK first asked each company to provide rates, but several of them
refused: AAA, Ameriprise, Auto-Owners, Country, Encompass, Farmers, GEICO,
Horace Mann, Metropolitan, Nationwide, Progressive, and Travelers. To gather
rates for these companies, our researchers, without revealing their affiliation
with CHECKBOOK, obtained rate quotes by using the companies online rate-quoting
system or, if one wasnt available, by calling companies agents. When
we sent the rates to these companies for verification, only Ameriprise
As in our price comparisons indicate, company-to-company rate differences
are dramaticmore than $800 a year in all cases, and over $2,000 in some
The rates in our price comparisons will probably not apply exactly
to you; most readers will differ in location of residence, vehicle usage,
vehicle type, or other ways. But the rates provide a good starting point
for shopping. Companies with low rates are likely to be excellent prospects.
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 insurance agents were unable to provide accurate price quotes and
that some could not correctly answer even the most 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.
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, click
Our Ratings Tables show big differences in how customers rated companies.
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 Auto-Owners and Western Nationalthey
both received favorable ratings from more than 90 percent of shops. Allstate
and GEICO were rated lowest, receiving favorable ratings from fewer than
40 percent 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 private passenger auto insurance
complaints filed in 2010, 2011, and 2012 with the Minnesota Department
of Commerce plus a complaint rate for each company. The complaint rate
takes into account the fact that companies that do much more business than
others are likely to incur more complaints. It is calculated as a companys
number of complaints per $10 million dollars in private passenger auto
insurance premiums written.
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.
There are certain legal restraints on termination in Minnesotaby cancellation
With regard to cancellation, the law allows relatively easy termination
during the first 59 days of a policy while a company checks the accuracy
of its policyholders applications. Termination is then very difficult
until the end of the policy period. Minnesota law allows for termination
only under certain serious circumstances, such as non-payment of premium,
misrepresentation, fraud or false claim, failure to report any accidents/violations
that occurred during the last three years, failure to disclose involvement
in a lawsuit, failure to cooperate in a claims investigation, failure to
identify other household members who will be covered, health problems that
affect driving ability, or changes in the insured vehicle that make it
At the end of the policy period, termination (non-renewal) is again
relatively easy as long as the company follows certain procedures. The
company may non-renew your policy for any of the reasons stated in the
previous paragraph. Other circumstances that allow for non-renewal include
failure to provide underwriting information as requested, termination of
the insurers contract with the policyholders agent (unless the driver
is over age 65), and accumulation of points (from traffic violations).
The insurer may not base termination or non-renewal solely on credit report
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 non-standard plans. Then try the special
publicly created insurance assigned risk plan for Minnesota, the Minnesota
Automobile Insurance Plan (MNAIP). MNAIP is open to licensed drivers who
are unable to get coverage through the regular market, or who cannot get
coverage at rates that do not exceed MNAIPs. Drivers are 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.