The right insurance at the right price

Kiplinger's Personal Finance Magazine, July, 1998 by Kimberly Lankford

Reshopping your insurance policies may sound unexciting, but it can produce a couple of pretty exciting results: You could save money--maybe a lot of money--and you may discover some weak links in your coverage--bare spots that could lead to financial disaster.

When it comes to insurance, generalizations go just so far. Policies are priced specifically for you based on the kind of risk the insurance company thinks you pose. Plus, no company consistently charges the lowest rate for everyone. So the only way to tackle the project is to roll up your sleeves and start dialing the phone--or surfing the Web (see "Surfing for Policies," on page 88). But first, arm yourself with the facts that can help you figure out how much insurance you need and how to get a better deal than you're paying for now. We've made the process as painless as possible.

To demonstrate the kind of savings many people can expect, we also did a complete insurance makeover for three families (see the boxes on the following pages). Deena and Robert Stuart, a Colorado couple with a 4-year-old daughter and another child due this summer, could save almost $400 a year. Jim and Diane Matteson, a Connecticut family with a teenage driver and a son in college with a car could save nearly $1,000. Gerhard and Gale Kappe, an Oak Park, Ill., couple with two boomerang kids at home, could save more than $1,700.

We saved them money on some of their policies, then made recommendations for insurance with a better fit--a tuck here to decrease coverage they may never use, a lift there to make sure they're not exposed to surprise liabilities. You, too, could end up using some of the savings from your makeover to beef up crucial coverage.

Calling several car insurance companies for quotes is smart because you may find huge price variations for the exact same coverage. For example, Geico quoted $915 per year for the Stuarts' current level of coverage; Farmers quoted $1,710. Some companies--such as Nationwide Direct--wouldn't cover the Stuarts at all because family members had been involved in two accidents within the past three years, even though one wasn't the Stuarts' fault. If you don't shop around, you could end up with a high rate from a company that has received a slew of claims from the other Jeep Cherokee-driving, long-distance-commuting 35-year-olds who live on your block.

HOW TO GET A GOOD DEAL. You may be out of luck finding a better deal than you have now if you have any recent tickets or accidents.

If your record is clean, check into companies' claims service as well as prices. You don't want a company that hassles you when you make a claim, then hikes your rates. Ask friends for recommendations, and see if your state insurance department keeps a complaint record, which may be available on its Web site. For example, in New York State, which ranks companies based on the number of complaints as a percentage of their average auto premium, TIG, Chubb and Liberty Mutual score well. Companies at the bottom of the list tend to be small.

Get a list of each company's discounts (starting with your current insurer), whether you qualify for them or not. Then you can see, for example, whether it's worthwhile to get an alarm system or if there's extra incentive for your teenager to improve his grades.

Geico offers typical discounts: 27% off if you've been accident-free for five years, up to 25% off for insuring more than one car, more than 10% off for drivers over age 50 who take a defensive-driving course and 8% off for members of any of 70 alumni and professional groups.

HOW MUCH YOU NEED. Playing with your collision and comprehensive deductibles usually reaps the biggest reward. Raising your deductible lowers your premium and discourages you from submitting small claims that could eventually cause the company to raise your rates. (Your deductible is usually capped at $500 if you have a car loan.) If you change your deductible after you've paid your premium, the insurer prorates your premium and sends you a check.

Drop collision and comprehensive coverage entirely if your car is worth less than $1,000 or if the coverage costs more than 6% of the car's value. Because insurance companies will never pay more than the car's depreciated value minus the deductible, your largest possible payout might be tiny. Dropping collision on the Mattesons' 1987 Peugeot, which is worth only $1,300 in good condition, according to Kelley Blue Book (www.kbb.com), would save them $197 per year--the amount they're currently paying for collision with a $500 deductible on their USAA policy.

Don't skimp, however, on liability coverage, even if your state minimum requirement is low. Liability coverage protects you against other people's claims for medical expenses, lost wages, pain and suffering, and property damage if you cause an accident. Most agents and companies recommend buying at least $100,000 per person, $300,000 per accident and $50,000 for property damage. Or, if your company offers it, get a combined liability limit of at least $300,000, which increases your coverage if only one person is injured. Some companies, such as the Hartford, charge less for policies with higher liability limits.