Car Insurance Mistakes You Need to Avoid

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Whether you're buying your first insurance policy or you're a longtime policyholder, the savvy auto insurance consumer is always on the look-out for the best deals on dependable auto insurance.

No matter which state you live in or what kind of vehicle you drive, the road to the best, cheapest auto insurance is paved with a few avoidable potholes. Let us help you steer clear of the most common mistakes listed below.

Not Buying Auto Insurance

Car insurance is a contract that protects your future, which is ripe with risk and uncertainty. The consequences of an accident are always sudden, sometimes devastating but never planned or predicted. In short, the biggest of all car insurance mistakes is not to buy car insurance at all.

The responsible driver wouldn't drive without car insurance in the same way they wouldn't drive drunk. In fact, almost every jurisdiction has a state-mandated minimum of liability auto coverage that every driver in that state must purchase.

In the U.S., the minimum liability coverage costs about $1,400 a year, on average, and protects you from lawsuits if you are ever faulted for a vehicular accident that causes a third party to be injured or their property to be damaged. Compare that with owing over $14,000 for hitting another car!

The Consequences of Not Purchasing Auto Insurance

A driver will be involved in about four accidents, on average in their lifetime, so it's not hard to imagine getting into an accident. But getting into an accident, especially a catastrophic accident, without insurance can be a huge financial setback.

The average driver has four accidents in their lifetime.

If getting into an accident drives up the cost of your insurance premium, getting into an accident without insurance will cost a lot more, possibly your assets or your paycheck. And when you finally do sign up for, say, the minimum amount of auto insurance coverage, you'll be subject to higher prices because insurance companies will consider you to be a high risk driver.

If you are in an accident without the basic liability coverage, you could find yourself in a nasty, long-standing predicament, legally, financially and personally. Here are some of the grim realities an uninsured driver might face:

  • Fines and tickets

  • Suspension or revocation of registration

  • Suspension or revocation of license

  • Impoundment of vehicle

  • Lawyers fees

  • Court fees

  • Bankruptcy

  • Loss of house

  • Reinstatement fees

  • Community service or another court-ordered program

  • Higher insurance rates, including SR-22 fees

  • Jail time

Having no auto insurance is the worst mistake of all.

Of all the car insurance mistakes, not having a car insurance policy is the absolute worst. If you have a driver's license number, you should have an auto insurance policy number.

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Not Buying Enough Auto Insurance

Many auto insurance customers spend a little more money each year for add-on coverage—that is, optional coverage that is not required by state law but may mitigate exorbitant costs.

For example, some folks buy more than the state's mandated minimum dollar amount of liability insurance. Since a one-day hospital stay in California costs, on average, about $3,700 and the average car accident settlement in the U.S. is about, on average, $23,000, some Golden State drivers voluntarily choose to increase their liability limits above the state's mandated requirement, which is $15,000 for bodily injury per person ($30,000 per accident) and $5,000 property damage.

Having too little insurance is almost as big a mistake as having none at all because car accidents are expensive. Let's take a look at some of the most popular add-on auto insurance products that are currently on the market.

Full Coverage

In the long run, full coverage can easily pay for itself.

No matter how much liability insurance you possess, none of it will cover your own car if you are the at-fault driver. Full coverage insurance comprises two different insurance products: comprehensive and collision. Comprehensive insurance pays to have your car replaced if it's stolen or if you experience vehicle damage due to a falling tree, flood, fire, mob violence or some other passive damage.

Collision coverage pays to have your car fixed or replaced if your car collides with another vehicle, a tree, a fence or some other object. If your car is worth $4,000 or more, why leave that large investment unprotected? However, if your car is worth less than $4,000, buying full coverage is a mistake.

Medical Coverage

Your liability insurance does not cover any of your medical expenses if you or your passengers are injured in a car accident you caused. Medical coverage or personal injury protection (PIP) would pay for associated medical bills after your health insurance reaches limits

Ask a licensed agent about auto insurance medical coverage or PIP. It makes sense when you consider that, for example, the cost of a broken leg these days can cost anywhere from $17,000 to $35,000.

Uninsured/Underinsured Motorist Coverage

It is rather shocking how many uninsured drivers are on our highways and streets. For example, 29.4% of Mississippi drivers and 25.5% of Michigan drivers are on the road with zero insurance, according to the Insurance Information Institute.

Uninsured/underinsured motorist coverage can help to pay for injuries, lost wages, pain and suffering, and property damage when an at-fault driver has no insurance or not enough insurance. It's a mistake not to add this inexpensive coverage, especially if you live in a state with a high rate of uninsured drivers.

GAP Insurance

Your new truck or car starts to lose value when you drive out of the dealership's lot. According to the Insurance Information Institute (III), most cars depreciate by 20% in the first year. GAP coverage pays for the difference between the amount left on your car loan and the market value of your car. So, GAP protection really comes in handy when your relatively new vehicle is seriously damaged or totaled. According to the III, you should think about GAP protection if:

  • Made less than a 20 percent down payment

  • Financed for 60 months or longer

  • Leased the vehicle (carrying gap insurance is generally required for a lease)

  • Purchased a vehicle that depreciates faster than the average

  • Rolled over negative equity from an old car loan into the new loan

Umbrella Coverage

For a few extra dollars a month, umbrella coverage protects you when your liability insurance falls short: It's like a safety net under your safety net. Most insurers require that you increase your liability limits first, before they will sell you an umbrella policy.

Fairly inexpensive compared to other insurance products, this type of coverage is a must-have for anyone with assets to protect.

Having Too Much Insurance

Of all the car insurance mistakes, this one might be the easiest to miss. In short, your car insurance should reflect the stages and changes in your life. What was once the applicable insurance policy for your exact situation at 28 years old probably won't be so applicable when you're, say, 63.

Most companies will give you a different policy rate for these events:

  • Your student driver leaves home and buys their own car.

  • You get married.

  • You buy a house or a house in a different zip code.

  • You get divorced and move to an apartment.

  • You've improved your credit score.

  • You get a new car that has a slew of safety and anti-theft devices.

  • You get a new job, and your commute is now shorter.

  • You turn 65 and retire.

All of these events signal a change in your insurance needs, and your premium rate would change accordingly. It's always a smart move to review your policy once a year to see if there's room for savings.

SmartFinancial can help you compare rates for free. All you have to do is enter your zip code on this page and answer a few questions. You'll have an auto insurance quote within minutes.

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Not Getting All Your Insurance Discounts

Car insurance discounts are a great way to save money.

Auto insurance discounts are offered to entice customers and reward good, safe behavior on the road. Some discounts can save you up to 20% on your annual premium. You should always ask your licensed auto insurance agent about what discounts you may qualify for.

  • Military
  • New car
  • Automatic digital payment
  • Lump-sum payment
  • Multi-car
  • Multi-policy
  • Affiliations
  • Student Driver
  • Good Driver
  • Driving education courses
  • Low mileage discount
  • Good grades
  • Anti-theft devices
  • Safety devices

Not Shopping Around

Besides not buying any car insurance at all, the biggest auto insurance mistake of all is not shopping around and comparing policies and prices. Your insurance rate is based on a complicated calculation of your overall risk profile, which is determined by your age, gender, marital status, driving record, insurance history, location, credit score, the vehicle's make and model, as well as other factors. Every insurer has its own formulas for weighing risks, and rates fluctuate daily, and you'll never know which will offer you the best price if you don't comparison shop.

Using artificial intelligence, machine learning and proprietary algorithms, SmartFinancial can pinpoint the right company and the right policy out of all the companies and policies in your area. This customized service is totally free of charge, so enter your zip code below or call 855-214-2291 to speak with a live agent.

Not Telling the Whole Truth on Your Application

Before buying car insurance, you'll have to fill out a car insurance application. When an insurer is considering underwriting such a large investment as a car, it wants to know what level of risk it would be taking on. When filling out your car insurance application, provide accurate details about your personal information.

Not telling the whole truth on your auto insurance application could result in your insurer refusing you coverage when you need it most. Or, they may charge you a higher rate. For example, if your college student wrecks the family car on summer break, you probably won't receive compensation from your carrier if you failed to mention that driver on your application.

Further, insurance companies have a way of finding things out, not just with public records and consumer reports, but also with internet searches and private investigators. If you don't tell the truth, you may be setting yourself up for a charge of insurance fraud.

Not Asking Questions

It is up to you to ask questions. First, make sure you are dealing with a licensed insurance agent by asking to see an agent's license. Next, ask about the ins and outs of different policies and coverage options and go over each discount the company offers to see if you're eligible for any of them.

Do plenty of online research, talk to family members, friends and colleagues about their insurance experience and use an insurance comparison website to make sure you're buying the right policy.

Staying with One Company out of Blind Loyalty

Why do drivers stay with the same auto insurance company? Once again, you are a free agent—you can change your insurance company any time you want. If you want to save money on your vehicle insurance premium, there is cheaper insurance out there.

For example, if you're thinking of buying collision and comprehensive coverage, which covers theft and any damage to your car, that's a great time to start looking around to see what other companies have to offer. However, never cancel your old policy until your new policy is active.

Choosing the Wrong Deductible Amount

A deductible is the agreed-upon dollar amount you must pay before you'll receive compensation from your carrier for your losses. Liability coverage does not have a deductible but collision and comprehensive coverages do. Most car insurance companies offer a range of deductible options, from as low as $250 and as high as $1,000.

Choosing a higher deductible will lower you monthly premium but you'll have to pay more towards repairs if you have an accident. On the other hand, a lower deductible means that you don't have to dip into your savings after an accident. drivers

Filing Too Many Claims

Perhaps the biggest car insurance mistake is filing too many claims. Not only will your rate increase dramatically, your insurer may drop you for being too high a risk. It's always harder to find another insurer after getting dropped. So, pick your battles and only file a claim that you cannot pay for on your own.

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