How to Save Money on a Policy Without Sacrificing Coverage

Maintaining the status quo on a car insurance policy is relatively easy—you pay your premiums on time, stay loyal to the same carrier, and perhaps file a claim or two along the way. However, complexities arise when you need to switch your plan or carrier or have questions regarding the technicalities of your coverage. In these situations, delving into your policy can be perplexingly daunting without the right guidance. In what follows, you'll find a comprehensive overview of how to handle the most common questions and issues concerning your auto insurance plan, including plan modification, switching providers, and bundling plans.

Understanding the Types of Vehicle Protection

Before you can make an informed comparison of auto policies, you will need to understand the two basic types of coverage: liability only and full. Subsumed within these two categories are several more subtypes (or add-on protection) that insurers commonly offer to meet their customers' diverse needs. Which plan is right for you will depend on a plethora of factors, including your budget, state laws, and the value of your vehicle.

With liability only, the provider will pay for the damage you do to other drivers' vehicles as well as any injuries you cause other drivers. Typically comprised of two parts, liability will have a bodily injury liability and property damage liability component. The policyholder sets the limits of the liability protection according to the worth of his/her assets. The policyholder's vehicle is not protected by liability-only auto insurance. A liability-only plan is typically what drivers purchase when they have vehicles with little or no cash value, are on a tight budget, want just enough protection to comply with state law, or have enough money to repair or replace their vehicles out of pocket in the event of a collision.

On the other end of the spectrum, full coverage policies usually offer liability protection in addition to collision and comprehensive, also known as physical damage coverage. Simply put, this type of agreement covers your vehicle as well as those of other drivers in an at-fault accident. The physical damage portion will pay to replace or repair the vehicle in the event of a collision or another applicable loss, such as theft. Full coverage is far more expensive than liability-only policies in most cases. Such policies also tend to include peripheral protections, such as rental car reimbursement, medical payments, and/or roadside assistance.

Comparing Auto Policies

Since the Internet became popular, comparing plans is much simpler, quicker, and cheaper than it used to be. When shopping online for policies, you will essentially have two types of sites from which to choose: sites owned and operated by the companies themselves and sites owned and run by brokers. We've provided a brief synopsis below of why and when you might use each type of site when comparing policies.

1. Sites run by auto insurers. Because these sites are owned by a specific company that has a vested interest in selling you its policies, they do not lend themselves well to policy comparisons. If you want to compare plans using these sites, you will have to visit multiple sites, request multiple quotes, and will perhaps get one-sided, untrustworthy information. While these sites provide a nice overview of the types of products a particular carrier has to offer, they are highly inadequate if you wish to perform an apples-to-apples comparison of prospective auto policies.
2. Sites run by brokers. Brokers offer consumers the best quotes available on the product desired from a handful of participating carriers. In exchange for this service, broker sites receive commission when consumers end up purchasing protection from one of the partnering insurers. Brokers are far more disinterested, objective parties to the comparison process than insurers because they are not trying to sell you the most expensive option, nor are they trying to sell you on one particular carrier. They are simply trying to make you, the consumer, satisfied with the services their site provides. That translates into a vast selection of highly affordable policies all offered in a one-stop-shopping experience.

A Word on Instant Quotes

As you peruse the Web for the right option, you are sure to come across grand promises for instant car policies. Before you fall for this ploy, keep in mind the distinction between instant auto coverage and instant quotes. The former is, simply put, impossible—every insurer goes through an underwriting process for each applicant that takes time and research. Some insurers are faster than others at this process, but none can truly offer an instantaneous auto policy. On the other hand, instant quotes can and do exist—on sites like this you can receive up to five such quotes immediately after submitting a few pieces of basic information about you, your vehicle, and your particular needs.

How to Change Providers

You might have any number of reasons for changing providers. Perhaps you are moving out of state, getting rid of your vehicle completely, or are simply displeased with your current insurer. Whatever your reason for switching, you can make the transition a smooth and seamless one by following these tips when you change car insurers.

1. Notify your current provider. Most companies will allow their customers to cancel the agreement at any point during the term by providing written notification indicating the cancellation date. Send a letter to your insurer that clearly states when you would like your service to end. You can also call your insurer and request a cancellation form, which they will send via mail. Remember that an auto policy does not automatically terminate at the end of its term, so it's up to you to terminate your plan in advance.
2. Avoid cancellation. If you fail to terminate your current agreement and the plan renews, you must pay the premium or your insurer will cancel your protection. When cancellation occurs, it goes on your credit report and could give you a "high-risk" label as a customer that will drive up your premiums on your future coverage.
3. Coordinate your termination and effective starting dates. Lapses in service are dangerous not only because they leave you unprotected, but also because auto insurers frown upon them. A lapse, no matter how small, could raise your premiums in the future. When you're switching companies, make sure that your new plan takes effect on or before the cancellation date of your previous coverage.
4. Obtain proof of your new plan. Insurers will usually send official proof of coverage in the mail once you sign up for a plan, but they should also provide you with a temporary document in the interim. Carry the proof with you in your wallet and in your vehicle at all times. Most states require proof of insurance from drivers during traffic stops.
5. Inform the motor vehicles department, if necessary. Some states have laws that require drivers to inform the department of motor vehicles of any changes in auto insurance. The DMV may need a copy of your new insurance card for their records once you switch providers. Check with your local motor vehicles department or state department for details.

When and How to Modify

Almost every major life event will have a profound effect on your plan, which is why periodic modifications are critical. As your life changes, so should your policy. Events like marriage, divorce, and becoming a senior citizen are just a few of the situations that call for modifications. Learn when and how to modify your agreement when any of the following events occurs:

• Marriage or divorce. When you tie the knot, you and your spouse can typically save money by putting your names on the same plan. Contact both of your current providers and request a quote with both of your names on it. Choose the option that offers the lowest premiums and the most coverage and cancel the other. If you frequently drive each other's cars, make sure both of your names are listed as authorized drivers on every vehicle you own. Conversely, if you divorce, you will need to remove your former spouse's name and vehicle from your plan to absolve yourself of any financial liability.
• Adult children. When your child turns 18 and/or goes off to college, you will have to make a decision about whether to have him/her get an individual policy or continue to keep the adult child on your plan. Most carriers allow children to stay on their parents' policy as long as they are in school until they reach age 25. If you keep your college student on your policy, he/she can qualify for a good student discount with a high enough GPA.
• Retirement. Typically, when policyholders retire, they reach the age at which they qualify for a senior-citizen discount. Once you retire or reach this age (as set by your carrier), verify that you are receiving the discount. At retirement, you probably will also drive less, which means you may also qualify for a low-mileage discount. Ask your insurer about the eligibility requirements.
• Death. If you lose a spouse or partner, you may become the only insured driver in your household, which will affect your premiums. Contact your insurer as soon as possible after the death occurs to remove the deceased from your plan.
• Economic hardship. If you experience financial hardship to the point that you cannot pay your premiums, the best thing for your credit and your future premiums is to alter your policy to include only the bare minimum standards. If your plan is still unaffordable, you might need to cancel your plan and use alternative means of transportation. Keep in mind, though, that lapses will raise your rates in the future.
• Vehicle repossession. Lenders repossess vehicles when borrowers stop making payments as agreed. However, lenders can also repossess your vehicle if you do not have car protection or do not have adequate limits. If your vehicle is repossessed, you will need to make up all of the past due payments and provide proof of current insurance. In other words, do not cancel your policy if you wish to get your vehicle back as soon as possible. However, if you cannot make up the payments relatively quickly, you should cancel your plan when your vehicle is repossessed.
• Military service. If you are on active military duty, you cannot exactly pause your policy, but you do have two other options. The first is to do what anyone taking an extended leave of absence (e.g., to serve a prison sentence, travel abroad, complete a hospital stay, etc.) can do--put the car in storage and drop all coverages except comprehensive to protect it from any incidental damage. Your policy will become far more affordable, and you won't have any gaps that can lead to higher rates down the road. Alternatively, military personnel in some states may be able to cancel their policies completely while on active duty. How this will affect your future rates will depend on where you live. More than 25 states have laws in place that prohibit auto insurers from penalizing returning members of the military with inflated premiums due to lapses.
• Transfers of ownership. When you purchase a new vehicle and do not notify your current carrier, depending on where you live, the vehicle may still be covered for 14-30 days. However, you cannot still have your old vehicle, and the new vehicle cannot have been purchased for business purposes. With new cars, it's best to notify your carrier right away of the purchase and cancel the coverage on your old vehicle.

Who Is "The Insured"?

Of course, your plan covers you and your primary vehicle, but most drivers' situations are not that simple. Consumers frequently ask about exactly what their policies mean by "the insured"—a phrase carriers use to refer to the person or persons whom the policy covers. Figuring out how coverage applies and to whom can be especially difficult with unique types of drivers, such as high-risk drivers, and with drivers other than the primary driver, such as husbands, wives, and teens. Below, you'll find a list explaining how coverage applies to various types of drivers.

• High-risk drivers. A driver might be categorized as high risk for reasons including a DWI/DUI or other serious moving violation, recurring traffic offenses, at-fault collisions while driving uninsured, or a revoked or suspended driver's license. Depending on state law, most high-risk drivers must have their carriers file an SR-22 with the motor vehicles department to demonstrate proof of financial responsibility. Until the DMV receives this document from your carrier, your license will likely be placed under suspension. After the filing of the SR-22, the driver will have to carry it for a certain amount of time, which varies by state but averages about three years.
• Students. Students usually have two options to purchase protection. They can remain on their parents' policies, which is typically the cheapest option. Alternatively, students who are of the age of majority may purchase their own policies if their parents do not want the financial liability of keeping the student on their family policy.
• Teens. Insuring young drivers is notoriously costly, particularly for teen drivers. The smartest move financially is for the teen driver's parents to purchase him/her an inexpensive, safe vehicle and add the teen to their policy but authorize him/her only to drive his/her own vehicle. This will prevent premiums from skyrocketing when a teen is an authorized driver on the more expensive vehicles parents typically drive.
• Seniors. When drivers become senior citizens, they can usually adjust their policies to reflect senior and low-mileage discounts. Additionally, they might be able to reduce their liability protection if they have fewer assets in their later years.
• Spouses. Spouses with a joint auto policy will both be protected for all vehicles named provided that both spouses are listed as authorized drivers for every car. Spouses who maintain separate policies should still have coverage if they drive the other's vehicle since coverage follows the car, not the driver.
• Parents and children. The protection offered to children of driving age is basically identical to that of teen drivers. Parents should remember, however, that if one of their names is listed on their child's vehicle title, all of their assets would be vulnerable to a lawsuit for an accident in which the child is involved. To insulate against this liability, parents might want to remove their names from the vehicle title or purchase a substantial umbrella policy to supplement their basic liability protection.
• Foreign drivers. If you are a foreign driver visiting the United States, you will need to obtain an International Driving Permit (IDP) and carry it with your existing driver's license. If you plan to drive a rental car, purchase the insurance offered by the rental company. If you will be driving someone else's vehicle, the owner's coverage should still apply, but you should contact the carrier for more information. On the other hand, if you are a foreign driver who plans to reside in the United States, you can apply for a United States driver's license in your state. Obtaining a United States driver's license may take up to several months for some foreign drivers. Once you have your license, you can apply for auto insurance in the U.S.
• Business and fleets. Commercial auto insurance, also known as fleet or business coverage, is intended for businesses that own multiple vehicles that employees drive to complete errands, deliver goods, or make sales calls. Your business coverage will primarily cover the vehicles themselves, but you will need to add the name of each employee who operates the vehicle as an authorized driver. To keep your premiums down, check the driving record of employees before you authorize them to drive company vehicles.
• Guest drivers. Guest drivers often result in the most complex and confusing car insurance scenarios. Although thousands of different situations can arise when driving someone else's vehicle, the basic rule of thumb is this: coverage follows the car, not the driver. In other words, as long as you gave the guest permission to drive your vehicle, your auto policy should take care of the damage and injuries that ensue from a collision. However, not all policies will extend coverage to guest drivers, and these policies will have exclusions stipulating that fact.

What it Insures

The scope of your auto policy will depend on the nature of the vehicle it insures as well as the features you have opted to include. Classic or collector car insurance will have different stipulations from motorcycle products, for example. Likewise, the optional products you include, such as vehicle contents or glass protection, will affect what it will and will not cover.

• Classic or historical auto insurance. Also called antique or collector car insurance, these policies apply to vehicles that are usually 20-25 years old, although the age requirements vary by carrier. Most carriers require that the vehicle be a factory original with no aftermarket modifications. Because classic cars are usually not driven as frequently as traditional vehicles, collector plans tends to have cheaper premiums. A standard collector car policy may include relatively small liability limits as well as collision and comprehensive coverage. Classic auto policies may have mileage restrictions and model-year limitations.
• Motorcycle insurance. These policies offer protection identical to that of a standard auto policy—including liability, collision, and comprehensive--but typically at much lower premiums.
• ATV/quads. Because homeowners policies usually do not include these vehicles, owners can opt to purchase a separate policy that provides collision and comprehensive protection on their ATV or quad.
• RVs. Motor home insurance protects the vehicle itself, you, and your passengers. Most carriers will provide coverage for Type A motor homes, Type B motor homes (camper vans), and Type C motor homes (mini motor homes).

Do I Need Rental Coverage?

Some folks consider rental car insurance a waste of money, or even downright sketchy. But the truth is that you are the person who will determine whether it is with the investment.

If you purchased "minimum" insurance, or protection that just meets your state's minimum requirements, you're probably going to need to spend the extra money. Why? Because your plan only provides basic coverage. And you might not be protected fully with a rental car. The most common type of rental car insurance is a collision waiver, in which you're protected from damage to the car and/or theft. But if you already have a comprehensive policy, you probably won't need this. (If you have minimum limits, you very well might need it.) It's important to remember, however, that the rental policy won't protect you if you're breaking the law (meaning, speeding, driving drunk, running a stop sign, et cetera). So drive safely if you decide to purchase this coverage.

If you're a frequent flier or renter, you should mot definitely look into augmenting your existing coverage, rather than spending the $20-$30 on insurance each time you rent. That's because your personal insurance is going to be better (better coverage for the money and probably better quality, too) and it's going to be something you can always rely on. Why give yourself complete protection only on the days you're away from home? Instead, make sure you're protected at all times.

Where Your Plan Is Valid

At some point, almost all drivers end up either moving to another state, driving across state lines, or driving in Mexico or Canada. All of these scenarios affect how your existing policy will apply depending on your location. Here, we've summarized how your coverage will apply in different states and in different areas of North America.

• Driving in Mexico. Mexico requires drivers to have civil liability pr, which protects you in the event you cause bodily injury or property damage in a covered accident. However, your American bodily injury liability is not valid in Mexico. Whether the physical damage portion of your liability protection will apply in Mexico is up to your individual carrier. If you plan on driving your own car into Mexico, consider buying a short-term Mexican policy. The policy will provide you with the liability protection you need to drive legally in the country. If you plan to rent a car in Mexico, the issuer of the credit card you use to do so should provide coverage. Nevertheless, it is still a wise idea to purchase the Mexican coverage offered by the rental car company. Remember, if you have an accident and are not properly insured, you may not be able to leave the country until you have paid for the damage.
• Driving in Canada. Whether you drive your own vehicle in Canada or rent a car, your existing American plan should be valid. Of course, each carrier is different, so contact your agent to verify that your policy will protect you before you drive in Canada. When you drive across the Canadian border, you will have to show proof of insurance, so have your policy cards handy.
• Crossing state lines. How your current policy applies across state lines depends on whether you are driving through, temporarily visiting, or making a permanent move. Of course, if you are simply driving through a different state on a trip, the policy you have from your home state will protect you regardless of the state in which the loss occurs. If you plan to visit another state for several months (but fewer than six months), your current coverage should still protect you as well. If you plan on moving to another state permanently, you will need to register and insure your vehicle in that state and get a new driver's license. The amount of time you have to do so varies from state to state, but the average time allowed is about 30 days from when you entered the state.

Bundling Plans: How Different Types Interact and When to Bundle

Before you choose to bundle your auto plan with your other policies, it helps to understand how the different plans interact with one another. Auto insurance will usually protect your vehicle no matter where it is (including your home), but your home protection might take over in certain scenarios. For instance, if someone broke into your car and stole your laptop while the vehicle was parked in your driveway, your homeowner's product would probably take care of the cost of the computer. The interaction between your auto and traveler's protection is harder to predict because the latter comes in so many forms. The most popular version offers drivers protection while they are navigating foreign roads since standard car insurance does not apply abroad. Finally, with auto and health insurance, your health policy will pay for the cost of accident-related injuries unless you carry personal injury protection or medical payments coverage on your auto policy.

When to Bundle Your Policies

In the vast majority of cases, bundling multiple policies makes sense because of the very valuable multi-line or multi-policy discount almost all major carriers offer. You might receive a 20-percent discount for carrying your homeowner's insurance with your auto provider, for example. You also reap the benefits of a convenient single bill, easy renewals, and loyalty rewards, such as discounts for long-term customers. On the other hand, maintaining separate policies might make more sense in the event your auto insurer cannot offer cheaper total premiums after bundling even with the multi-line discount.

Additional Information

• Specialty Car Insurance Clarified