Reducing your Auto Insurance Premium

I’m always surprised by the insurance agents out there who simply write an auto policy for their clients, but never really explain that policy. Or worse, the agent just transfers the existing policy into their care, but never really goes over it. The policy arrives in the mail and the insured drives around thinking everything is fine and counting on their agent to watch over them. Then, an accident happens and suddenly the insured discovers there isn’t rental car reimbursement or there isn’t any collision coverage or, worst of all, there isn’t enough liability coverage.

The question is, of course, how does one read an automobile policy?

If you have what is commonly referred to as “full” coverage, you have both liability and physical damage coverage on your car. Liability covers injuries and damage to a second party that were caused by an at-fault accident. Liability is offered in both a split limit and a combined single limit format. Split limit liability means that there are separate limits for bodily injury and for property damage. Split limits are usually described as 25/50/25, 100/300/100, 250/500/100 or something similar. In the case of 100/300/100 limits, you have $100,000 for bodily injury per person, $300,000 per accident, and up to $100,000 for property damage to the other party in your accident. In the case of combined single limit or CSL coverage, the limit for individual bodily injury, per accident bodily injury, and property damage are the same. Liability limits are often what are used to determine the amount if a lawsuit is filed.

The words “liability coverage” also loosely refer to uninsured and underinsured motorists coverage in Wisconsin, where auto insurance is not mandatory. Uninsured motorist, also known as UM, is on all Wisconsin policies. If you are hit and injured by an uninsured driver in an uninsured car, UM limits will give you coverage for your injuries. Some companies offer UM for property damage as well, but most do not. Underinsured motorist works in a similar way, offering coverage for your injuries when the at-fault driver’s limits are too low and are eventually used up. If your liability limits for at fault accidents are only 25/50/25, you do not qualify for UIM.

Physical damage is the coverage on your policy that most people are familiar with. It’s the coverage that is used to repair your vehicle. Collision is used for just that. Most of the time it applies to at fault accidents, but it can also be used when there is no UM for property damage on your policy. If you are not at fault, the accident should not count against you in rating and your insurance carrier will go after the at fault party to recoup your deductible. Comprehensive coverage is used for damage to your car due to incidents that are from something other than collision. In fact, some carriers refer to the coverage as “other than collision”. If you have a broken windshield, your car gets vandalized or stolen, a tree branch falls on it, or you hit a deer or other animal, you’ll be using your comprehensive coverage for the repairs. There is usually a deductible involved, but the claim doesn’t generally count against your premium.

Most people are worried about their physical damage deductibles and they keep their liability limits low in order to have low deductibles and still save on premium. The thing is that having higher liability limits offers you more protection in the lawsuit-crazy world we live in. Raising physical damage deductibles will save you premium without compromising your liability protection. In the long run, it’s cheaper to pay slightly higher premiums and bigger deductibles at the time of loss than it is to come up with several thousands of dollars to cover what your liability limits couldn’t.

Talk to your agent and ask about your insurance coverage no matter what state you live in. Ask what your current limits are and have them explained to you. Ask for quotes to raise them to at least 100/300/100 or higher if you’re not already there. Increase your deductibles to counter any premium increase. Also, ask about umbrella coverage to increase your liability coverage even more on both your auto and home and find out if you qualify. Ask your agent to educate you as well as to protect you. That is, after all, what your agent is there for.