Reducing your Auto Insurance

With the U.S. economy officially now in a crisis state, all of are looking to cut costs whenever and wherever possible. And since car expenses represent a good-sized part of our annual cash outlay, that's an area always worth exploring to see if we can ferret out some possible savings.

One auto-related expense that could offer room for a trim is car insurance. Indeed, according to insurance-industry experts, there are various ways to tweak your coverage to yield up to a 50 percent cut in your annual insurance costs. That is, as long as you're aware of the potential risks.

Reducing your auto insurance by 50 percent is an appealing proposition that can definitely be accomplished, according to a consumer insurance Web site that offers online quotes and articles.

How? Well, the web site says you could do this by:

1) Dropping your liability limits from "recommended" limits of 100/300/50 down to 25/50/10. (Many states have minimum liability limits of 25/50/10, but some require higher or lower minimum coverage depending on where you live)

2) Dropping your collision and comprehensive coverage.

3) Keeping collision and comprehensive, but increase your deductible to $1,000 or more.

4) Dropping your uninsured motorists (UM) coverage.

Regarding point No. 1 above -- dropping your liability limits -- the trick is knowing how low you can go without leaving yourself vulnerable, with too little protection in the event of an accident.

It's important to weigh the potential cost of dropping your car insurance to a bare minimum, says Amy Danise, an auto insurance expert, because such a move could open you up to significant financial risk in the event of a serious accident. Whether to make such a cut can depend on your circumstances. Whether to make such a cut can depend on your circumstances.

"If you cause a major accident that involves significant bodily injury, then very low liability limits may not cover that," says Danise. "So, if you have money in the bank and a house, once your low-liability coverage is exhausted, you're still personally liable, so you could be sued, and you might lose all those assets.

"Now, personally, I believe that most people are better served by carrying higher limits," advises Danise. "But in the current economic environment, with people losing their jobs and struggling to pay their bills, some of them have to make hard choices - like maybe deciding between more generous insurance coverage and paying the rent."

"So we came up with some of these suggestions as a way for people to temporarily cut their costs, perhaps until their economic situation improves," she explains. "Maybe people could cut back on their liability while they are out of work, and then restore it when they get another job."
Cutting collision coverage is not so fraught with risk, however, especially if you own an older vehicle.

"As cars get older, their values obviously decline, and you may reach a point where the actual cash value is low enough that it is no longer makes economic sense to maintain that collision coverage," offers Danise.

Danise says she sees this fairly often. "You definitely want collision and comprehensive coverage when the car is new, but many people don't review their policies very often. So, a few years go by, and they're still paying for things they don't need, like collision coverage on that older vehicle."

Another factor to keep in mind when you decide to increase or decrease your coverage is that "when you buy $100,000 worth of coverage, you pay a certain set amount for that," explains Danise. "But you can double that amount of coverage without doubling your premium - because the first $100,000 worth of coverage costs more than the second $100,000 worth of coverage.

You're essentially getting a 'volume discount' for that second $100,000 worth. So be sure to ask your insurer about how much more you would actually have to pay for that extra coverage."

Some consumers find that a good way to cut their insurance premiums is to just do their due diligence and comparison shop - and switch from one insurance company to another based solely on price.

However, before you make that leap, it behooves you to check your new insurer's track record, says Danise. Many states report "complaint ratios" that reveal the relative number of consumer complaints against each insurer.

"So we recommend that consumers visit their state insurance Web sites, where most states list 'complaint rankings' that show the number of complaints for insurance companies," she says.

"You want to make sure you don't get one with a poor record for handling customer complaints."

"You won't receive more value for your insurance dollar if your new company has poor customer service."