10 Steps to Buying Auto Insurance

When it comes to auto insurance, you want to be adequately covered if you get in an accident, but you don't want to pay more than you have to. Unfortunately many people are doing just that, simply because they don't want to spend time shopping for car insurance. It's not inherently enjoyable, after all, despite how it looks in commercials featuring disgruntled cavemen and joke-cracking spokespeople.

But by doing some comparison shopping, you could save hundreds of dollars a year. When one of our editors used a rate-comparison service, he got basic coverage quotes for his two old cars that ranged from $1,006 to $1,807 — a difference of $801 a year. If you're paying thousands to your current insurance company because you have a couple tickets, an accident or an out-of-date and unfavorable credit rating, shopping your policy against others might be well worth the effort. Look at it this way: You can convert the money you save into buying something you've wanted or needed for a long time.

Step 1: Decide How Much Coverage You Need

To find the right auto insurance, start by figuring out the amount of coverage you need. This varies from state to state, so take a moment to find out what coverage is required where you live. You will find a list of each state's requirements and an explanation of the various types of insurance in "How Much Car Insurance Do You Need?" Also, check out "Little-Known but Important Car Insurance Issues," which has a glossary of basic insurance terminology. If you're a first-time driver go and compare car insurance, review this guide from the National Association of Insurance Commissioners. Now you're ready to make a list of the different types of coverage you are considering.

Once you know what's required, you can decide what you need. Some people are quite cautious. They base their lives on worst-case scenarios and insurance companies love that. Insurance companies are in the risk business, and they know a policyholder's likelihood of being in an accident, as well as how likely it is for a car to be damaged or stolen. The insurance company crunches the information it has collected over decades into actuarial tables that give adjustors a quick look at the probability of just about any occurrence. You don't have those tools at your disposal, so your decision will depend on your own degree of comfort in assuming a certain level of risk.

Experts recommend that if you have a lot of assets, you should get enough liability coverage to protect them. Let's say you have $50,000 of bodily injury liability coverage but $100,000 in personal assets. If you're at fault in an accident, attorneys for the other party could go after you for the $50,000 in medical bills that aren't covered by your policy.

General recommendations for liability limits are $50,000 bodily injury liability for one person injured in an accident, $100,000 for all people injured in an accident and $25,000 property damage liability (usually expressed in insurance shorthand as 50/100/25). Here again, let your financial situation be your guide. If you have no assets that an attorney can seek, don't buy coverage unnecessarily.

Your driving habits might also be a consideration in determining the coverage you need. If your past is filled with crumpled fenders, or if you have a lead foot, or if you make a long commute on a treacherous winding road every day, then you should get more complete coverage. Collision coverage pays for damage that your car experiences in an accident or damage from hitting an inanimate object (a tree, light post or fence, for example). Comprehensive coverage addresses damage that didn't occur in a collision — such as from fire, theft or flood. It also covers damaged windshields.

Keep in mind that you don't have to buy collision and comprehensive coverage. Let's say your vehicle is older, you have a good driving record and there is little likelihood that your car would be totaled in an accident, but a high likelihood of it being stolen. Then you could buy comprehensive coverage and skip the collision insurance.

Step 2: Review Your Current Insurance Policy

Read through your current policy or contact your auto insurance company to get the information you need. Jot down the amount of coverage you have now and how much you are paying for it. Take note of the yearly and monthly cost of your insurance, since many of your quotes will be given both ways. Now you have a figure to beat.

Step 3: Check Your Driving Record

You should know how many tickets you have had recently. If you can't remember how long that speeding ticket has been on your record, check with your state's department of motor vehicles. If a ticket or points you earned are about to disappear, thus improving your driving record, wait until that happens before you get quotes. Nothing drives up the price of insurance like a bad driving record.

Step 4: Solicit Competitive Quotes

Now it's time to start shopping. Set aside at least an hour for this task. Have at hand your current insurance policy, your driver license number and your vehicle registration. You can begin with online services. If you go to an online site to get a quote for an insurance rate, you can type in your information and begin to build a list of companies for comparative quotes. Keep in mind that not all insurance companies participate in these one-stop-shopping sites, however. If a recommendation from friends and family or other research points to a company that you think might be a winner, you can go directly to its Web site or call its toll-free number to get a quote.

Each quote form takes about 15 minutes each to complete. It might be well worth your time, since if the entire shopping process takes you two hours and you save $800, you're effectively earning $400 an hour.

When you use these sites, you might not get instant quotes. Some companies may contact you later by e-mail. Some that are not "direct providers" might put you in touch with a local agent, who will then calculate a quote for you. (A direct provider like Geico sells insurance policies directly to consumers. Other companies, such as State Farm, sell insurance through local agents.) You can learn more about the various kinds of agents here.

Step 5: Gather Quotes and Company Information

While you're researching companies, take careful notes so you can easily make price and coverage comparisons. Keep a list of:

•             Annual and monthly rates for the different types of coverage. Make sure to keep the coverage limits the same so you can make apples-to-apples comparisons for cost and coverage.

•             The insurance company's 800 telephone number, so you can get answers to questions you couldn't find online.

•             The insurance company's payment policy. When is the payment due? What kinds of payment plans are available? What happens if you're late in making a payment?

In later steps, you'll add some more information to this list.

Step 6: Work the Phones

Once you have gathered information online, it's time to work the phones. Contact those companies from which you haven't been able to get an online quote. Doing the research by phone can actually be easier and faster than on the Internet, provided you have your driver license and vehicle registration close at hand. When you get a quote over the phone, be sure to confirm the price by asking the representative to e-mail the quote to you.

Step 7: Look for Discounts

When you're making these calls and shopping online, make sure you explore all your options relating to discounts. Insurance companies give discounts for such things as a good driving record, your car's safety or security equipment and certain occupations or professional affiliations. Some companies are now offering lower rates if you enroll in "pay as you drive" plans. Some will give substantial discounts for young drivers in the family who have high grade-point averages. (You can use this as an incentive to your teen drivers and offer to share the savings with them.) Also consider using the same insurance company for home and auto policies. That will usually get you a better price. For more guidance on discounts, check out "How to Save Money on Car Insurance" and "Top 10 Ways To Lower Your Car Insurance Bill."

Step 8: Assess the Insurance Company's Track Record

You now have most of the price and coverage information that you need to make a decision. You can see which company's coverage is least expensive, but it's important to keep in mind that cheap isn't the only basis for choosing an insurer. How do you know which company is financially sound? How do you find out if an insurance company is going to treat you right — particularly in the event of a claim?

Here are some places to check to develop a clearer picture of an insurance company's track record for fairness, financial stability and customer service.

1. Use the National Association of Insurance Commissioners' Consumer Information Source to access information about insurance companies, including closed insurance complaints, licensing information and key financial data. You also can visit your state's department of insurance to check consumer complaint ratios and basic rate comparison surveys.

2. Consider contacting an independent insurance agent for additional information about a company.

3. Check out the financial strength ratings for an insurance company by referring to the ratings from A.M. Best and Standard & Poor's (registration may be required).

4. Review consumer satisfaction surveys from J.D. Power and Consumer Reports (subscription required).

5. Ask friends and family about their insurers and whether they're satisfied with them. In particular, ask them how their insurance companies treated them if they had a claim. Did they get fair, straightforward service? Or was it a hassle to get the matter resolved?

Step 9: Review the Policy Before You Sign

When you're done your research and zeroed in on a company, read over the main points of the policy. In addition to verifying that it contains the coverage you've requested and priced, it's a good idea to find out if the policy states that "new factory," "like kind and quality" or "aftermarket parts" may be used for body shop repairs, says Dennis Howard, director of the Insurance Consumer Advocate Network. If the policy has such a requirement, think hard about whether this is the company for you, particularly if you own a relatively new car that you plan to keep for a while. In this case, it's best to know at the outset that the insurer will pay for original manufacturer parts, rather than try to fight later, when you have a claim.

Step 10: Cancel Your Old Policy; Carry Your Proof

After you have secured the auto insurance policy you want, cancel coverage with your existing insurance company. If your state requires you to carry proof of insurance, make sure you put the card in your wallet or the glove compartment of your car.

Finally, here's a quick checklist to keep you on track:

•             Determine your state's minimum insurance requirements.

•             Consider your own financial situation in relation to the required insurance and consider whether you need to increase your limits to protect your assets.

•             Review the status of your driving record — do you have any outstanding tickets or points on your driver license?

•             Check your current coverage to find out how much you are paying.

•             Get competing quotes from Internet insurance Web sites and individual companies of interest to you.

•             Make follow-up phone calls to insurance companies to get additional information about coverage.

•             Inquire about discounts.

•             Evaluate the reliability of the insurance companies you're considering by visiting your state's insurance department Web site, reviewing consumer surveys and talking to family and friends.

•             Review the policy before finalizing it. Remember to cancel your old policy.

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