How much coverage do you need?

Liability coverage is mandatory for car owners in 49 states and the District of Columbia, according to the Insurance Information Institute. But the amount of liability car insurance you buy is up to you.
"Purchase as much coverage as you can afford," says Tim Dodge, director of research and external communications at the Independent Insurance Agents & Brokers of New York. "This insurance covers you if you're legally responsible for someone else's injuries or damages. Because even seemingly minor accidents can result in costly neck or back injuries or extensive damage to a $30,000 car, it makes sense to buy a lot of liability insurance."
When you purchase only the minimum amount required by your state, your assets could be at risk if you are responsible for an accident.

"Say you hit a car that is driven by a surgeon, and his hand is broken," O'Connor says. "Your limit to cover his injuries will not even start to provide enough money. The doctor's insurance company will come to you looking for additional money. And, depending on your state law, your 401(k) and more would be in jeopardy. Your auto limit should minimally be enough to cover your net worth."

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Choose your car wisely

If you're planning to purchase an auto, think about car insurance before writing a check or signing on the dotted line. Some makes and models of cars will have a greater impact on your car insurance rate, so it's a good idea to check with an insurance agent or website before making a purchase.

For instance, "Sports cars will definitely increase your rate, while a minivan is likely to have little impact," says Michelle O'Connor of O'Connor Insurance Associates Inc. in Charlotte, N.C.

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Find and buy car insurance

When calculating the cost of a car, insurance can be a large chunk of the expense. And the price keeps going up. According to the Department of Labor, the average annual cost of car insurance increased by 5.3 percent nationwide from July 2009 to July 2010.

To seek out and secure the best deals on the car insurance you need, follow these tips.

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Finding a sweet deal on classic car insurance

Highlights

• Classic cars are better insurance deals because they are lovingly cared for.
• Some insurers restrict the car's use and want them in locked garages.
• Don't confuse sweat equity with the actual value of your car.

Do you have a classic car? If so, you're in luck. Insurance is cheaper -- and better -- than you may think.
Insurance for these babied gems only runs in the low hundreds per year, even from specialty insurers. And some classic car insurers throw in special services, such as inflation protection and trip interruption reimbursements.
Why the lower premiums? Because classic cars are often rarely driven, lovingly restored and carefully garaged, so they're better insurance risks. Definitions vary among insurers, but some insurers define them as 10 years or older; antique versions, 20 years plus.
"Many people insure their collector cars with regular insurance," says Jim Grundy, president of collector car insurance company Grundy Worldwide. He also owns pre-World War I classics like a Pierce-Arrow. "They don't investigate the insurance marketplace." For example, standard insurance rapidly depreciates collectible cars.
Dozens of specialty car insurers offer classic car insurance, though. Besides Grundy, they include companies like Hagerty, J.C. Taylor and Heacock Classic. But bigger companies like State Farm issue these policies, too. The best ones are pinned to the agreed value of the car. It's the owner's assessment of a car's worth backed up by photos and sometimes appraisals.
Agreed value offers many pluses. "There are no deductions for age, wear and tear," says Grundy. "Without that, you have no idea what you're getting."
"I wouldn't put collector cars on a general policy," says Steve Moskowitz, executive director at Antique Automobile Club of America, who owns six Oldsmobile collector cars. "I'd go with one that allows me to get specialized repairs."
Also, there are plenty of perks. For example, Grundy offers special services like towing, reimbursement for loss of enjoyment while on a trip and an on-site repair shop. "We have two mechanics on the premises," says Gundy. "Antique cars are here all the time." Many specialty insurers also sponsor car shows, even displaying their own cars. J.C. Taylor's website, for example, offers links to events, museums and other resources.
There are catches, though. Your prized car must be lightly driven, and some insurers also want the cars to be stored in locked garages. "We ask specific questions," says Paul Jakubowski, a senior underwriter at J.C. Taylor. "You're limited to being a hobbyist."
State Farm specifies that the cars it is insuring can only be driven in parades and to car shows.
That said, here are some pointers for navigating collectible car insurance.
Assess your car's value. "You can confuse sweat equity with value," says Grundy. "But, in most cases, hobbyists know the value of their cars. For someone who buys a first collector car or inherits one, it might be more complicated."
Fortunately, there are lots of resources online to help you. Auction results listed on collector car seller Barrett-Jackson's website is one. Also, hobbyists at collector car clubs can help you. "There's a group for every car make out there, including Packards," says Jakubowski.
One hard-to-price exception: unique cars, such as batmobiles. "There are hundreds out there," says Jakubowski, "and they're overinsured." In that case, appraisers can help. Also, car values vary from state to state. "A collector car sells for more in New York than in Kansas," he says.
Check rates online. For most classic cars, such as a 1967 Corvette, rates are readily available online. Simply fill out an application that takes 10 minutes, says Grundy. "Many cars fit into a box," he says. The exceptions are early antique cars, street rods and more exotic cars, like Ferraris.
"You can compare quotes," says Grundy, whose company has insured a rare Bugatti worth more than $30 million. "There's much more variation on modified cars and street rods."
Furnish backup information. Most insurers will also require photos. "We can document restorations," says Grundy. "So we can understand the quality."
State Farm also wants an agent to inspect your car. It assesses dozens of factors to make sure your car is truly a classic gem.

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Do you need an extra car repair policy?

Highlights

• MBI is an insurance contract, unlike a manufacturer or dealer warranty.
• MBI isn't new, but it has gained traction during the recession.
• Some of these extended service contracts duplicate your warranty coverage.

Want to keep costly auto repairs from breaking your budget after your manufacturer's warranty expires? One option may be mechanical breakdown insurance, or MBI, a little-known insurance product that acts like an extended warranty on new and used vehicles but with several advantages, including payment terms, that may make it a good choice for some.
Unlike a manufacturer or dealer warranty, MBI is an insurance contract between the car owner and the insurance company, overseen by state regulators and backed by state insurance guarantee funds. Think of it as auto repair insurance. Policies are available through licensed property and casualty insurance agents, credit unions, finance companies and online.
MBI isn't new, but it has gained traction during the recession as drivers keep their vehicles longer between purchases.
"We're getting more and more requests for it," says Michael Randles, president of Insurance Center Associates of San Pedro, Calif., which sells several MBI products. "I think people want to insulate themselves against future problems. They aren't getting a new car every two or three years now, and because of that, they want to get a five- or six-year, 100,000-mile policy."
A vehicle must meet certain conditions to qualify for MBI. For instance, Geico offers MBI only to its auto insurance customers, and only if the vehicle is less than 15 months old with fewer than 15,000 miles and the owner is the first title holder. Customers pay a flat $250 deductible, can renew MBI coverage for seven years or 100,000 miles, whichever comes first, and the policy is not transferable.
On the other hand, Mercury Insurance Group offers MBI on new (seven years, 100,000 miles) and used vehicles (five years, 100,000 miles) to all drivers, with deductibles as low as $25, and the policy is transferrable.
While MBI policies vary widely in price and terms, some advantages over extended warranties may include:
Broader coverage: MBI typically offers bumper-to-bumper repair coverage except for maintenance and normal wear and tear. A manufacturer's extended warranty may be limited to certain systems, such as the drive train.
Payment plan: An MBI policy may offer a periodic payment plan similar to your auto insurance; it may even be included in your auto premium if it's written through your insurer. Warranties usually involve an upfront fee included in the purchase of a new or used car. If the MBI fee is included in the vehicle financing, you could be paying interest on it. A pay-as-you-go MBI policy also may allow you to drop coverage at any time.
No in-house requirement: Manufacturer and dealer warranties typically require that repairs be performed in-house or at an authorized facility. MBI policies typically allow you to choose your repair shop, which comes in especially handy for out-of-town breakdowns.

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Transferable: MBI policies may be transferable; dealer warranties often are not.
Less risky than dealer warranties: In most cases, a dealer warranty is only as good as the dealership behind it. "With insurance, you have an agent and the state on your side," Randles says. "If it's not an auto manufacturer and it's not an insurance company, stay away. If a dealer or dealership group goes out of business, you're stuck."

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How to cut car insurance costs

How to cut car insurance costs

Are you paying too much for your car insurance? Perhaps it's time to re-evaluate your policy.Here are a number of ways to cut car insurance costs:

• Raise your deductible. Normally, increasing your deductible -- how much you pay out of pocket before coverage begins -- will lower your premium. Of course, this strategy could backfire if you get into an accident and have to pay thousands upfront. But if you and everyone on your auto insurance policy maintain a good driving record, this is easy savings.
• Drive less. Save the planet -- and money on insurance -- by carpooling to work. Most insurance companies base rates on annual mileage, so if you reduce yours there's a good chance you'll qualify for a lower rate. If you've recently moved and have a shorter commute, switched jobs or just have cut down on driving for any reason, talk to your agent about a rate cut.
• Don't overbuy. For newer cars, it makes sense to spend on collision and comprehensive insurance. Once a car is 10 years old or has more than 100,000 miles, you could easily be paying more for insurance each year than the car is worth. What's more, if it's totaled, you'll get back the car's dismal current market value, not the new replacement cost. Do the math and consider dropping all but coverage that protects you from the cost of damage to others and medical coverage you consider prudent for yourself and your passengers.
• Bundle policies. If you use different companies for your homeowners or renters insurance and car insurance, you're likely paying too much. Combining your policies often will save you at least a few percentage points.
• Use a tracking device. Progressive has a program that uses a tiny, wireless tracking device to monitor mileage and other driving habits. Careful drivers in certain states who meet specific criteria will automatically receive a discount with this company.
• Pay bills on time. Many insurance companies consider a driver's credit score when determining rates, so achieve (or maintain) good credit by paying all of your bills in a timely manner and you'll likely qualify for a better insurance rate.
• Ask about discounts. Speak with your agent to determine if you qualify for other incentives, such as good driver discounts and discounts for teenagers who meet certain academic requirements.

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A checklist to save on car insurance

Thanks to the economic downturn, more Americans than ever are looking for ways to reduce their expenses. For many, car insurance is one area that can represent savings, either by changing coverage on an existing policy or switching carriers entirely. Still, in some instances you may want to spend a little more to ensure you have adequate coverage.
Here are four changes you may want to make on your car insurance policy based on recent trends that affect auto insurance.
Check your annual mileage estimate on your policy. Since insurers rate a big part of your risk on how many miles you drive, tell your car insurance agent right away if you are driving less and your policy rate will go down without changing any coverage. At a time when many people are unemployed or have switched jobs after a layoff, the number of miles you originally estimated when you got your policy may be radically different from what you drive currently. Even if your work situation hasn't changed, you may be able to reduce your annual mileage by carpooling or taking public transportation.
Keep your credit score as high as possible. An increasing number of auto insurers are using financial credit scores as one of the factors in assessing risk and setting rates. For these companies, the higher your credit score, the lower your auto insurance premiums. If your credit has been tarnished recently, you could end up paying more when your next premium comes due, so do everything you can to keep your score as high as possible and to get it back up as quickly as you can. If you know your credit has improved, don't hesitate to ask your insurer to rate you again, since the company may not do it when your premium comes due.
Get adequate uninsured/underinsured motorist coverage. The number of uninsured and underinsured drivers is on the rise, primarily due to the increase in unemployment. Unless you have uninsured/underinsured motorist coverage on your policy, you will be stuck with the repair bill on your car and potentially your medical expenses, depending on your health insurance coverage. Spend the extra money to get as much of this coverage as possible, since even a minor fender bender in a parking lot could result in repairs that cost thousands of dollars.
Tread carefully if you drop collision coverage. Americans are keeping their cars longer -- another result of hard times. While an older car is generally cheaper to insure, some people consider dropping collision coverage altogether to save even more money. However, remember that a lack of collision coverage means you'll need to foot the entire repair bill for your car if you are at fault. Spending the extra money on collision coverage may be a better choice if it will be challenging to get the funds to repair or replace your car after a collision.

Ask the adviser

If you have a car question, e-mail it to us at Driving for Dollars. Read more Driving for Dollars columns and Bankrate auto stories.

 

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