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Cutting driving costs: insurance ed

By Claes Bell ·
Wednesday, April 13, 2011
Posted: 2 pm ET

The blog I wrote last week about a recent AAA study on driving costs seems to have struck a chord with a lot of people, so I thought I would follow it up by taking a closer look at some of the major expense categories that contributed to that eye-opening $8,776 figure.

Today we'll look at auto insurance. The AAA driving costs study pegs the average annual cost of insurance at $968 per year, or 11 percent of total annual cost. As you probably know, especially if you've had a teen driver on your policy, the cost of auto insurance can vary widely. Here's how AAA says it got that number:

AAA based its insurance costs on a full-coverage policy for a married 47-year-old male with a good driving record, living in a small city and commuting three to 10 miles daily to work. The policy includes $100,000/$300,000 coverage with a $500 deductible for collision and a $100 deductible for comprehensive coverage.

Of course, not everyone enjoys the benefits of a good driving record, a relatively short commute (the average is around 32 miles roundtrip, according to a 2005 ABC poll) and a favorable demographic for insurance rates. So I'd say the AAA's estimate is probably on the conservative side, especially since most households have more than one driver they're paying for.

So how do we chip away at auto insurance costs, and try to get below that $968 per year? Here are some options.

  • Shop around: If it's been a while since you've looked at your auto insurance, it might make sense to get some quotes from other providers to see if you can get similar coverage at a lower price.
  • Reduce your coverage: Reducing your coverage can be dangerous, especially if you reduce liability coverage, but it can yield lower premiums.
  • Drop collision coverage: If you have an older car and you've already paid off your auto loan, you can drop collision coverage. Especially if you won't get you much of a settlement even if the car is totaled, you can get rid of your collision insurance and save a significant amount without taking on much more risk.
  • Raise your deductibles: Raising the share you pay in the event you have an accident can lower premiums.

Looking for some more ideas on how drivers can manage their auto insurance costs, I spoke to Bill Pearse, vice president of product strategy and design for Travelers.

Pearse says the process for setting insurance rates is fairly complex, and a large and diverse set of factors is considered in the final rate quote. But he says that part of the premium is determined by the drivers' behavior, rather than the type of auto she drives.

  • Safe drivers tend to pay less than unsafe drivers. It seems obvious, but next time you're lead-footing it through a speed trap or tailgaiting another driver, keep it in mind. Avoiding speeding tickets and all types of accidents can save you a lot of money over time.
  • Drivers who buy multiple types of insurance from the same company can expect to get a discount.
  • Drivers who pay their premium upfront and in full can sometimes get a discount.

If you're in the market for a new car, there are a couple of vehicle attributes Pearse says will influence the cost of insuring your future auto.

  • Insurance loss records: The Highway Data Loss Institute keeps records of insurance losses on most U.S. car models, and Pearse says insurance companies pay close attention to a car's loss records when setting their rates. If you're considering a particular model, it's worth taking a few minutes to look it up on the HLDI database and see how it's doing.
  • Vehicle price: Pearse says auto insurance providers have been increasing the weight of a vehicle's price in figuring out auto insurance rates over the last few years. In a lot of ways that makes sense: Pricier autos are more expensive to replace in the event of a total loss. They also have more expensive parts, and thus are more costly to repair after an accident.
  • Vehicle performance: Pearse says a car's horsepower and performance characteristics have less influence on overall insurance costs than they used to, but they still have some weight.
  • Vehicle safety: Pearse says a car's safety features and safety test results play a significant role in a car's insurance costs.

These general factors aside, Pearse says there are also discounts specific to certain types of cars that can influence vehicle pricing.

  • Hybrid discounts: While it's not the norm in the industry, Pearse says drivers can sometimes get a significant discount for driving a hybrid vehicle.
  • New car discounts: Pearse says constant advances in safety mean cars rolling off the production line now are significantly safer than those produced only a few years ago, and can get a significant discount over insuring a used car.
  • Gap insurance discount for used car purchases: If you buy a used car, you should not experience the same rate of depreciation, and so you shouldn't pay nearly as much for gap insurance -- if you need it at all.

Because the process of setting auto insurance rates is so arcane and the specifics of it are closely guarded by insurance providers, Pearse also recommends getting auto insurance quotes from an insurance agent on the models you're considering.

What do you think? Am I missing anything, here? What are some other ways to reduce insurance costs?

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April 14, 2011 at 10:51 am

My two cars, 98 maxima and 05 odyssey, annual insurance cost is about $625 per car thru AAA.

I pretty much do as much as you stated. The only thing to add is the age of the car. older cars cost less to repair.

Being in AAA you do pay an annual fee, but you get the AAA discounts and the AAA annual premium back which is applied to your auto insurance (mine was over $100 this year).

Wouldn't you also drop the comprehensive coverage if you have an old car? so just pay for the liability coverage.