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If you own or lease a vehicle, all states except New Hampshire require you to have a certain amount of auto insurance. And if you also drive your car for your business, you need a commercial automobile policy.
While the cost of these covers can add up, luckily there are tips for solopreneurs to save money while staying compliant and safe on the road.
What does car insurance cover?
Understanding what car insurance covers and why it is crucial to your financial well-being is essential. Auto insurance is a set of coverages that protects you against a variety of potential financial losses, including:
Goods coverage that reimburses you for the various damages suffered by your vehicle. There is collision coverage, which pays for repairs after having an accident with another car. And comprehensive coverage for theft and specific non-collision claims, such as damage caused by natural disaster, animal or vandal. Each cover has a separate deductible, which is a fixed amount you pay before the insurance cover begins.
Medical coverage, which pays for injuries sustained by you or your passengers after an accident. Some types pay for expenses beyond medical treatment, such as lost wages and funeral expenses. Medical coverage, also known as Personal Injury Protection (PIP), is required in some states.
Responsibility coverage, which covers certain expenses if you are involved in a lawsuit. For example, if you have a car accident and injure someone. Most states require both bodily injury and property damage coverage. However, the minimums vary from state to state.
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You can usually also buy:
Uninsured or underinsured motorist coverage, which covers situations where you are involved in a hit-and-run or an accident with an at-fault driver who has insufficient or no insurance to cover your losses.
Rental car coverage, which pays for a rental while covered repairs are performed on 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 stuck in your vehicle.
Tips for saving on car insurance
States and auto lenders have different requirements for the types and amounts of auto insurance you need to carry. However, this is only one factor in your rate. Others include your vehicle’s make and model, annual mileage, driving record, age, gender, and marital status. A commercial auto insurance policy may also take into account your type of business and your years of experience.
While you can’t change some of the factors that determine your premium (like your age or years of business experience), here are eight ways to lower the cost of car insurance.
1. Maintain good credit. You might be surprised to learn that your credit plays a big role in how much you pay for auto insurance (exceptions include auto insurance in California, Hawaii, Massachusetts, Michigan, and New Jersey). Where permitted, insurers use credit-based insurance scores to assess a customer’s potential risk and likelihood of having an accident. It’s all the more reason to maintain great scores by paying bills on time and managing credit accounts responsibly.
2. Increase your deductibles. As mentioned earlier, a deductible is an amount you must pay before insurance benefits begin. The higher your deductible, the lower your premium will be. For example, you can usually choose amounts such as $500 or $1,000. However, the potential savings from increasing a deductible varies from state to state and insurer to insurer. Also remember that increasing your deductible means paying more for covered claims. So never increase your deductible unless you are sure you 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 example, if they offer a discount for being married and you don’t let the insurer know you got married, that’s a discount you’ll be missing out on. So ask your carrier what discounts you can get and other ways to lower your premium. Here are some typical car discounts you may qualify for:
Multi-vehicle to insure more than one vehicle.
safe vehicle to have features like anti-lock brakes and airbags.
safe driver to have an accident-free driving history.
Mileage to keep the annual mileage below certain thresholds.
Educated driver to take a defensive driving course.
Good student for drivers up to age 26 who maintain at least a “B” average.
Occupation to work in specific fields, such as the military, medicine or education.
Automatic payment to have your premium automatically deducted from your bank account.
Loyalty for being a customer for a number of years.
Owner to own a home, even if you insure it with another company.
If you have a commercial auto insurance 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 having no gap in your coverage. However, maintaining a clean driving history is one of the best ways to keep commercial auto premiums low.
4. Maintain a clean driving record. The fastest way to see your auto premium skyrocket is to cause an accident or get infractions in motion. So, avoid distractions on the road and allow more time to reach your destination. Being a good, vigilant driver can pay off.
5. Join a pay-as-you-go program. Many national car insurers offer programs that track your driving behaviors, mileage and habits. Known as telematics insurance, usage-based insurance (UBI) and pay-as-you-drive insurance (PAYD), they offer discounts to policyholders considered safe drivers. Once you sign up for a PAYD program, the insurer sends you a device to keep in your vehicle that syncs with a mobile app to track your data. This allows your insurer to rate you on various metrics and issue renewal discounts.
6. Consolidate policies with your insurer. Many insurers reduce premiums if you buy more than one type of coverage, such as auto and business insurance or auto and home or renters insurance. This is called a multiline or “bundling” policy.
7. Omit unnecessary covers. If you have an older vehicle than you 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 the value of your car. Otherwise, you will pay more in premiums than you could ever collect in benefits. However, as mentioned earlier, accountability is a requirement, and for good reason. If you were involved in a serious car accident, you could be sued for a significant amount of damages. The fact is, you may have more liability than your state’s minimum. Make sure you have enough money to cover the value of your personal assets – such as real estate, savings, non-retirement investments – and any business assets for a commercial policy.
Related: How to save on your business insurance during a crisis
8. Buy policies carefully. Each insurer rates you differently and offers different discounts. In other words, the price of an automobile or commercial policy will probably not be the same with another insurer for the same coverage. So get into the habit of comparing quotes from at least three insurers once a year. Remember that rates change frequently. By regularly collecting several quotes, you will know if you have the best possible offer for your personal and professional finances.