Personal Finance Tips

The main thing to understand about discounts is the thinking behind them. The insurance companies want to encourage you to act in ways that favor them. If you are contrary and do the opposite, you will probably cost them money so your premium rates will be higher. Let’s take a few examples and see how it works. Obviously the point of insurance is that, if you have one of those unfortunate accidents or someone steals your vehicle, you get to claim money from the insurance company. From the insurer’s point of view, this is bad news. It wants to be able to treat all your cash as profit. The more it has to pay out, the more it should raise premiums. Except, at some point, you throw up your hands and say, “We’re not going to pay that.” So a balance has to be struck. The insurer wants all the safe drivers like you, and aims to discourage all the drivers with bad records – they are the ones who get the really big premium hikes. Although loyalty bonuses go some way in the right direction, there are more ways in which the insurer can save money. It all starts with the make and model of vehicle you are driving.

Risk assessment is done by the actuaries. These are the math wonks who collect details of every accident reported in the US. This is not just the data from claims on vehicle insurance. This is every incident reported to the police, attended by the firefighters or ambulance crews, or dealt with through claims on health insurance. Put all this together and the actuaries can tell you the probability of an accident in any make and model of vehicle, given its color, whether it was fitted with any additional features, who it was driven by, the time of day or night, whether the driver and passengers were badly injured, so on. Yes, it’s that detailed. Turning this around, if you drive a vehicle that’s statistically unlikely to be involved in an accident or stolen, your premium will be lower than average. Put a safe driver in a safe car and the chances of the insurer having to pay out are small and the profit is higher. Everyone is happy. So how do you find out which are the safest vehicles with the lowest premium rates? Well, you start with http://www.safercar.gov/, a site run by the National Highway Traffic Safety Administration. This allows you to get the safety ratings from all the tests carried out by the NHTSA. There’s a guide published at http://www.nhtsa.dot.gov/staticfiles/DOT/NHTSA/Vehicle%20Safety/Articles/Associated%20Files/2009_Insurance_Costs_Comparison.pdf which is also helpful. Finally, the Insurance Institute for Highway Safety publishes its own list of safe vehicles at http://www.iihs.org/ratings/

The safer the vehicle you drive, the greater the discount on the premium rate. So when you are filling out the questionnaire for those auto insurance quotes, aim to have a safe vehicle. If you vehicle is not safe and you cannot afford to change it, try to upgrade it by fitting safety features. Look at the questions asked in the questionnaire and talk to insurance agents to find out what features save the most money. Similarly, fit better locks and any systems making your vehicle more difficult to steal. Anything you can do to reduce the risk of a claim will be reflected in low rates in the auto insurance quotes you receive.

Statistics are a wonderful thing when they tell you what you want to hear. So, it’s great to know some makes and models of car now go further on less gas. It’s bad news to hear young men have the highest accident rates because that means they pay the highest premiums. It’s good news to discover drivers in the age range of 55 through 74 have the lowest accident rates. Once drivers pass 75, their eyesight and reflexes are failing. Even though they may drive more slowly and take great care, their accident rate rises fast but never quite reaches the young male rate. So, in theory, reaching the magic age of 55 should see your premiums falling (or not rising when all the younger drivers get a premium increase). But life is never completely fair. Most of the time, you have to push to get your rights. That’s why it always pays you to get multiple quotes and, even more importantly, check the detail of what discounts are on offer for the older driver.

Let’s start with a simple rule. If you have retired and now drive less, you should be paying less. Look for the monthly/annual mileage options and check the one that applies to you. Looking slightly wider, some insurers offer even bigger discounts if you are prepared to offer proof of low mileage. The majority just ask you to call in every month to check your odometer. But there are new deals coming online if you are prepared to allow technology in the vehicle. There are black boxes that monitor how far you drive and where you drive. The discounts are significant if you avoid peak times during the day and do not drive later at night when the accident rates are higher. For those who live outside city centers, driving in areas where the accident rates are lower is rewarded.

Then there are the discounts for those who go back to school. The AARP offers driver safety courses around the country. You can find the course nearest to you by using this address: http://www.aarp.org/VMISLocator/searchDspLocations.do. Anyone is entitled to attend but the insurance discounts usually only kick in for those aged 55 or more. Note that, in thirty-six states, going through one of these classroom courses gives an entitlement to a premium reduction. Twelve states require insurers to discount the premiums for drivers going through a safety course online. It is up to you to contact your insurance company to find out what the rules are on driver improvement or safety courses for your state. This is particularly important if you do not live in a state where the discount is mandatory.

But there is going to come a time when there are warning signs of possible danger. If you have some “close calls” or misjudge parking or driving in tight situations and scrape or dent the paint work, it may be time to drive less. This gets more obvious if other drivers start honking at you. Car insurance is all about balancing risks and costs. If you are finding it difficult to see the road signs or react more slowly when you need to brake, difficult decisions are looming. As you age, the car insurance quotes will slowly show premium increases to reflect the growing risk. At some point, you will feel the cost is too much and let the young ones in your family drive you around. Staying independent is only a good thing if you stay alive.