January 8, 2010

How Understanding Coverage Levels Can Reduce Your Premium Costs

In tough economic times, any cost-saving measures that can be taken, should be. In the realm of auto insurance, understanding your coverage levels can help you keep your auto insurance premiums lower.

When determining your coverage levels, make sure to understand what you’re looking at. Carriers generally designate an auto insurance policy by two numbers with a slash between them, such as 25/50, 50/100, or 100/300. The first number represents how much liability coverage is available per person in the event of an accident. Liability coverage is what protects you from the lawsuits of others. The second number represents the total amount of liability coverage for an accident. If there are several people injured in one car, they’ll have to split the pie between them. This means that if you carry a 25/50 policy and have an accident with a driver and three passengers, the most your carrier will reimburse them is $50,000. By purchasing the lowest possible insurance coverage, you have saved money over buying a 100/300 policy.

However, be cautious when considering buying the minimum amount of coverage. In an accident involving four people, $50,000 is not going to go very far. If claims against you cost more than that, you will be forced to pay out of pocket or through your assets. So, instead of getting minimal coverage, opt to save on your premiums by looking at limits in other safer areas. You have limits on uninsured and underinsured motorist protection. You purchase this for the contingency that you may have an accident with someone who has no insurance, or has pitifully low limits of insurance. You could opt for lower limits on these coverages. Although you might still feel uncomfortable in making reducing your protection there, it is probably preferable to making a concession in your liability coverage.

When comparing one auto insurance quote with another, you can explore even more ways on lowering your premiums. If you don’t mind paying the first few hundred dollars of a loss out of pocket, you could opt for a higher deductible. For instance, premiums will be lower for a policy with a $500 deductible as opposed to a $200 deductible. If you don’t have an accident, you enjoy sizable savings at the end of the year. Like other aspects of insurance, it’s essentially a gamble. You could also save by not opting for the supplemental provisions of your first party benefits, such as enhanced lost wages benefits.

When you’re shopping for auto insurance, understanding your coverage levels can be a great help in saving you money on your premiums. Obtaining adequate, yet minimal coverage may put a good wad of cash in your wallet at the end of the year.