Auto Insurance, Lowered

Auto insurance is an important aspect of protecting your assets, and parts of it are required by law, at least in New Jersey. However, there are ways to lower your monthly payments while still getting proper protection. You don't need to shell out a fortune each month.

The first step is to call an independent insurance agent. An agent can check many companies' prices to find you the cheapest one.

There are a few companies that only sell directly to consumers, such as GEICO, State Farm, and Allstate. After you get a quote from an agent, you can call those companies as well. This way you know you covered all your bases. For my own insurance, I got a quote from GEICO-which can be significantly cheaper for those with good driving records— and then asked an agent for a quote. The agent told me he couldn't match it, so I went with GEICO.

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Discounts

When calling for a quote, mention any possible dis-count, including being part of AAA, having a car alarm, being a student or teacher, wholesale club memberships, etc. Google "discounts for car insurance" before you call, and then, when on the phone with an agent, run through all of them. Even if you don't know if they'll give a discount for it, it doesn't hurt to ask.

In my case, when getting GEICO insurance, I asked how much I would save if I bought Berkshire Hathaway stock (the stock of the company that owns GEICO-I had heard about a discount with it). They told me I would save $30 a month. I bought the stock, which cost $390 at the time. After 13 months (13 × 30), the stock paid for itself, so I got a free stock, and I continued to have a monthly $30 discount. That adds up.

GEICO, in general, will either be very high or very low, depending on your driving profile. So call them first to get a quote and then see if an agent can offer a lower quote. You can also ask the agent if having any specific security features (like a car alarm) will give you a discount. It may be worthwhile to purchase it.

It may pay to go with a random insurance-as long as it's legitimate— if they have some sort of plan that can give you the best discount. I used Plymouth Rock for a while because they gave me a teacher discount. I heard about it from a friend and called them, as they only sell directly to the consumer.

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Save Money

Paying in full at the beginning of the plan can save you a lot of money. This is one expense I often use a credit card for. I have to pay it anyway, as it's a fixed expense, and I can earn a significant amount of points, so it's worth it.

If you don't own your home, bundling renter's insurance with auto insurance means your renter's insurance ends up being practically free.

Finally, occasionally (like about once a year), I check my insurance prices again. If I get a quote that's cheaper than what I'm currently paying, I call my current company, tell them the quote I got, and let them know that I'll switch unless they match it. If they can match it, then I get a discount for little work; if not, I switch.

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Auto insurance broken down

When you sign up for auto insurance, the numbers and options can be overwhelming and con-fusing. For many years, I didn't understand the different coverages I was paying for. It's important to understand them so you know where to save and where to spend.

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Liability insurance:

State mandated. This covers damages to someone else's property when the responsibility for hitting the other vehicle is yours.

When purchasing liability insurance, you'll usually see two numbers like 100,000/300,000 or three numbers like 100,000/300,000/100,000. The first number is the maximum medical bills per per-son, the second is the maximum medical bills per accident, and the third is the maximum property damage.

The state minimum is 25,000/50,000/25,000. Purchasing this minimum coverage gives you lower premiums, but then you run the risk of a much higher payoff in case of an accident.

It's generally advised to get enough of each type to cover your net worth in case of being sued. For example, if you have $50K in savings, $20K in assets (car, etc.), and $20K in student debt, then your net worth is $50K, so you would get $50K in liability coverage and $50K in property damage.

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PIP

(personal injury protection): State mandated. This is no-fault insurance, as it covers your own and your passengers' medical bills regardless of who's at fault for the accident. The state minimum is $15K per person injured.

If you have private health insurance, such as through your job, it may offer primary coverage, allowing you to take the minimum PIP and lowering your premiums, but check with your health insurance company before taking on risk.

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Comprehensive and collison:

Optional. This covers your car if it gets damaged due to your own fault.

Collision insurance covers driving-related hazards like crashing into other cars, poles, guardrails, ditches, trees, or potholes or skidding on ice and crashing.

Comprehensive, also optional, covers damage to your car that collision doesn't cover such as theft, hail, colliding with a deer, floods, etc.

If it's a cheap car, the premiums may be worth more than the car itself, so buying collision coverage wouldn't be recommended. However, it's important to cover a loss you can't afford to pay for. So if your car is worth $15K, for example, and you can't afford $15K out of pocket, it makes sense to have collision insurance.

It's also usually required if the car is financed, since the lender wants the insurance company to guarantee that in case of damage, it will be paid.

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Deductible for comprehensive and collision:

The deductible is the amount you need to pay out of pocket before insurance kicks in and covers the rest. If your deductible is $500 and the damage is $2,000, then you'll pay $500 and insurance will pay the other $1,500.

How high of a deductible should you purchase? The general advice is to make it as high as you can afford to pay out of pocket. This will give you lower monthly premiums.

I raised mine from $500 to $1,500 since that's the maximum amount I'm comfortable paying in case of an accident. I saved $144 over six months.

According to economists Richard Thaler and Cass Sunstein in their book Nudge, "Policyholders would save about $100 per year on premiums by increasing their deductible from $500 to $1,000. Of course, if they have a claim, they will have to pay up to an additional $500. So they would have to have a claim once every five years to break even... But claims occur much less often than that...only about 5 percent of policyholders make claims each year."

According to this study, people average one claim every 20 years, so the additional $500 paid will be covered by the $2,000 saved ($100 per year x 20 years).

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Uninsured/underinsured:

State mandat-ed. Covers bodily injury and property if the other driver's insurance isn't high enough to pay for the damage

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The laws here are for New Jersey. Check your state laws for anywhere else.

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