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If you own or lease a vehicle, every state except New Hampshire requires you to have some amount of auto insurance. And if you also drive your car for your business, you need a commercial auto policy.
While the cost of these coverages can add up, fortunately, there are tricks for solopreneurs to save money and still stay compliant and safe on the road.
What does auto insurance cover?
It’s essential to understand what auto insurance covers and why it’s crucial for your financial well-being. Auto insurance is a package of coverages that protects you against various potential financial losses, including:
Property coverage, which reimburses you for various damage to your vehicle. There’s collision coverage, which pays for repairs after getting into an accident with another car. And comprehensive pays for theft and specific non-collision claims, such as damage from a natural disaster, animal or vandal. Each coverage has a separate deductible, which is a set amount you pay before insurance coverage begins.
Medical coverage, which pays for injuries to you or your passengers after an accident. Some types pay expenses beyond medical treatment, such as lost wages and funeral costs. Medical coverage, also known as personal injury protection (PIP), is required in some states.
Liability coverage, which pays for certain expenses if you’re involved in a lawsuit. For instance, if you get into a car crash and hurt someone. Most states require both bodily injury and property damage coverages. However, the minimums vary from state to state.
You can typically also purchase:
Uninsured or underinsured motorist coverage, which is for situations when you’re in a hit-and-run or a crash with an at-fault driver who doesn’t have enough or any insurance to cover your losses.
Rental car coverage, which pays for a rental while covered repairs get made to your vehicle.
Glass coverage, which pays for cracked or broken windows.
Roadside assistance, which pays for a tow truck or other services if you get stranded in your vehicle.
Tricks to save money on auto insurance
States and auto lenders have different requirements for the auto insurance types and amounts you must purchase. However, that’s just one factor in your rate. Others include your vehicle make and model, annual mileage, driving record, age, gender and marital status. A commercial auto policy may also consider your type of business and years of experience.
While you may not be able to change certain factors that determine your premium (such as your age or years of business experience), here are eight ways to cut the cost of auto coverage.
1. Maintain good credit. You might be surprised to know that your credit plays a significant factor in how much you pay for auto insurance (exceptions include car insurance in California, Hawaii, Massachusetts, Michigan and New Jersey). Where allowed, insurers use credit-based insurance scores to gauge a customer’s potential risk and the likelihood of getting into an accident. That’s one more reason to maintain excellent scores by paying bills on time and managing credit accounts responsibly.
2. Increase your deductibles. As previously mentioned, a deductible is an amount you must pay before insurance benefits begin. The higher your deductible, the lower your premium will be. For instance, you can usually choose amounts such as $500 or $1,000. However, the potential savings for raising a deductible vary from state to state and insurer to insurer. Also, remember that raising your deductible means paying more for covered claims. So, never raise your deductible unless you’re confident you’d have enough savings to cover it.
3. Maximize potential discounts. Insurers offer various discounts but won’t always know if you qualify for some of them. For instance, if they provide a discount for being married and you don’t let the insurer know that you tied the knot, that’s a discount you’ll miss. So, ask your carrier which discounts you can get and other ways to cut your premium. Here are some typical auto discounts you may qualify for:
Multi-vehicle for insuring more than one vehicle.
Safe vehicle for having features such as anti-lock brakes and airbags.
Safe driver for having a clean driving history with no accidents.
Mileage for keeping annual mileage below certain thresholds.
Educated driver for completing a defensive driving course.
Good student for drivers up to age 26 who maintain at least a “B” average.
Occupation for working in specific fields, such as the military, medicine, or education.
Auto-pay for having your premium automatically deducted from your bank account.
Loyalty for being a customer for a certain number of years.
Homeowner for owning a home, even if you insure it with another company.
If you have a commercial auto policy, you may qualify for discounts such as having a commercial driver’s license (CDL), paying your annual policy in full instead of installments, and not having a gap in your coverage. However, maintaining a clean driving history is one of the best ways to keep commercial auto premiums low.
4. Keep a clean driving record. The fastest way to see your auto premium skyrocket is by causing an accident or getting moving violations. So, avoid distractions on the road and leave extra time to reach your destination. Being a good, alert driver can pay off.
5. Enroll in a pay-as-you-drive program. Many nationwide auto insurers offer programs that track your driving behaviors, mileage, and habits. Known as telematics, usage-based insurance (UBI) and pay-as-you-drive (PAYD) insurance, they offer discounts to policyholders considered safe drivers. Once you enroll in a PAYD program, the insurer sends you a device to keep in your vehicle that syncs with a mobile app to track your data. That allows your insurer to score you on various metrics and issue applicable discounts at renewal.
6. Bundle policies with your insurer. Many insurers reduce premiums if you purchase more than one type of coverage, such as auto and commercial or auto and home or renters insurance. It’s called a multi-line policy or “bundling.”
7. Omit unnecessary coverages. If you have an older vehicle that you’ve paid for, consider dropping collision and comprehensive coverages to save money. A good rule of thumb is not to buy them unless the annual premium is 10% or less of your car’s value. Otherwise, you’ll pay more in premiums than you could ever collect in benefits. However, as previously mentioned, liability is a requirement, and for good reasons. If you were in a severe car accident, you could get sued for a significant amount of damages. Fact is, you may need more liability than your state’s minimum. Be sure to have enough to cover the value of your personal assets — such as real estate, savings, non-retirement investments — and any business assets for a commerical policy.
8. Shop policies carefully. Every insurer evaluates you differently and offers different discounts. In other words, the price for an auto or commercial policy isn’t likely to be the same with another insurer for the same coverage. So, make a habit of comparing quotes from at least three insurance providers once a year. Remember that rates change frequently. By gathering several quotes regularly, you’ll know if you have the best offer possible for your personal and business finances.