Is Your Insurance Policy Good Enough?

After a crash is too late to find out if your insurance policy is good enough. Here's how to buy the right coverage now.

Savvy shopping for insurance requires a little more effort than many people tend to give it. Too many consumers simply grab the first price they come across or accept routine rate increases without digging further for a better deal. It is important to compare not only the price but the coverage and exclusions among carriers.

You don't want to find out after you file a claim that the new policy you purchased with the excellent premium does not include a type of coverage that you had with your previous carrier. "It really pays to shop around," Dick Luedke, spokesperson for State Farm Insurance, told MSN Autos. "Premiums for exactly the same coverage can vary substantially from carrier to carrier."

Studies performed by Progressive Insurance between 1999 and 2004 reveal that six-month auto insurance rates vary significantly between companies, from an average low of $481 to an average high of $586 across the country. This means the same driver could receive a quote of $1,256 for a six-month auto insurance policy from one company and a quote of $775 for the identical policy from another company. Another Progressive study reveals that only 20% of survey respondents said they had shopped around for better insurance rates in the last six months. "Call around a lot," suggested Scot McCartney, "Don't always grab the first quote you get. Make several calls, ask the same questions and be sure to get quotes on exactly the same coverage from each carrier."

It pays to mix it up

Call a couple of the larger carriers (State Farm, Allstate, Nationwide, SAFECO, etc.) and then check with a couple independent agents and phone-based carriers, such as GEICO or Amica, just to make sure you've covered your bases.

If you prefer to shop on the Internet, a number of services offer online price quotes. Web sites give you quick access to a number of quotes without ever picking up the phone. However, as convenient as they are, it's still advisable to consult other more traditional sources as well.

What to look for

When buying auto insurance, it's important to consider not only the price, but also the carrier and the coverage. As with any product, the value of a low price is quickly forgotten when you find out that the service or the quality of the product is not what you expected. The old saying, "It's too good to be true" applies for insurance premiums as well. If the premium seems too low, be sure that you are getting all the coverage you need. Check out the agent you'll be working with, advises the California Department of Insurance. Do you know and trust them? Also look into the insurance carrier itself. Is it a well-known and established company? Does it have the financial strength to pay its claims? You can obtain background and financial information on an insurance carrier from your state's department of insurance. When talking with insurance agents, don't hesitate to ask a lot of questions. In addition to learning what coverage is offered and how much it costs, also ask about how claims are processed. Too often, people don't learn about the process until they have to make a claim. Knowing beforehand ensures you choose a carrier whose claim process is most convenient and appealing to you.

Don't forget to ask friends, neighbors and family who they are insured with and whether or not they like the service they receive. Often, they can provide personal examples of what went wrong and what went well when they had to file a claim.

Factors influencing rates

If your current rates seem particularly high (or low), you might want to know why. Indeed, if your rates (or quotes) are high, altering your lifestyle or vehicle choice can have a big effect on the rates you pay.

While criteria may vary slightly from carrier to carrier, according to State Farm's Luedke, the major determining factors fall into four basic areas:

• You. Your age, gender, marital status, driving record and record of prior claims play a major role in determining your risk level and therefore the premium you will pay. Traditionally, males under 25 years of age represent the highest risk, while married, middle-aged, non-smoking mothers represent the lowest.

• Where you live. Living in an urban area typically triggers higher rates due to increased incidence of theft and accident claims -- both of which are statistically higher in and around cities.

• Your vehicle. The type of vehicle you drive greatly affects the rates you pay. Vehicles that have a high frequency of claims (sports cars) or are expensive to repair (luxury cars, SUVs) are prone to higher premiums. However, larger vehicles tend to be safer in collisions, which sometimes offsets costs.

• How you use your vehicle. Statistically, the more miles you drive, the greater chance you have of being involved in a crash. High annual mileage will result in higher premiums.

Another way to reduce your premium is to increase the amount you self-insure by increasing the deductible amounts on the property damage coverage for your own vehicle. These deductible amounts on your comprehensive and collision coverages may be limited if you have the vehicle leased or financed, so check your financing contract before raising your deductibles too high.

Deciphering the code

Once you've begun researching insurance coverage, it won't be long before you come across liability limits displayed in an X/Y/Z form. These are the maximum limits of coverage for bodily injury or property damage that you become legally responsible for.

For example, 100/300/50 means you're covered for a maximum of $100,000 bodily injury per person, $300,000 bodily injury per incident and $50,000 property damage per incident.

You may also see the liability limit stated as a single amount, called a combined single limit. This limit is the total amount available for a single occurrence, without per person or property damage sub-limits. The advantage of a combined single limit is that if there are only minor injuries but considerable property damage, the total liability limit, not just the sub-limit amount, is available to satisfy a property damage claim. Conversely, if one person is injured severely, the entire liability limit is available to satisfy a claim by that one person, rather than just the per-person limit.

When setting your limits, make sure to set them high enough to protect yourself against possible lawsuits. The more assets and income you have, or the more earning potential you have, the higher liability limits you should consider. If you become legally responsible for bodily injuries or property damage in excess of the liability limits of your policy, your personal assets or future earnings may be required to satisfy your obligation.