Help me wade through the morass of auto insurance!
October 6, 2006 11:31 AM   Subscribe

What auto insurance (type/coverage) do I really need?

I live in Oakland, California and am shopping for auto insurance for a new 2006 Chevrolet Aveo. I've had a succession of junkers prior to this car and been able to get the minimum state requirements (liability). But now, since it's a new car and I'm financing part of the cost, I guess I need to get comprehensive and collision, right? I have no real assets so I'm not all that concerned about being sued and am comfortable with a high deductible. I'm also a good driver, have no accidents or moving violations, and have very good credit. I'm a single 38 female.

In the past I've had insurance through AAA and they still seem to be the cheapest by far. So a couple of questions:

1. Why do insurances quotes vary so much?
2. What type of coverage do I need?
3. Is it okay to get the minimum coverage or am I really setting myself up for trouble down the road (no pun intended)?
posted by otherwordlyglow to Work & Money (12 answers total) 4 users marked this as a favorite
Check the lease/borrowers agreement with your bank, commonly they have stipulations (ie, my bank says I can't have over $500 deductables, and I need certain levels of coverage).

Since your bank is going to mandate the insurance, a quick call to them might be your quickest (and most accurate answer).

With most secured loans you need full coverage. If you took an unsecured loan, you may not need full coverage.

Specific Answers:
1. Between companies? Progressive caters to the new driver croud, the DUI croud, and will insure anyone. So they are more money. Some companies give you discounts for having your housing insurance with them,etc. Geico doesn't have offices, and has stricter guidelines, so they are commonly cheaper. Its all a numbers game. If they can provide service cheaper (ie, no offices, shitty service, etc) they can offer it cheaper. If they think you have a low chance of an accident, they will give you cheaper rates. Two companies might see (for example) a 26 yr old with one speeding ticket VERY differently. If you have a 100% clean record, and are over 25, there shouldnt be huge differences.

2. Call your bank.

3. Like anything in life, you are taking risks. Decide what risk you can tollerate. What are the odds you are going to blow into a school bus full of kids, causing it to explode, and killing 5 students and injuring 50 others? No insurance will 100% cover a catostrophic situation like that.

I carry full covg, 100k/300k, $500 deductables.
posted by SirStan at 11:44 AM on October 6, 2006

Being 38/f your quotes should all be reasonably similar. AAA does tend to give rates to long time members with clean records though.
posted by SirStan at 11:45 AM on October 6, 2006

As often as people decide to "not report" small accidents they're at fault in, I'm not sure what the appeal of a low deductible is. Take as high of a deductible as you can afford to pay out in a pinch (and, apparently, are allowed by your bank) and drive well.
posted by Doctor Barnett at 12:28 PM on October 6, 2006

Former insurance agent here (but I am not your agent, so grain of salt, and when you get insurance, have your agent answer every single question you have until you are satisfied - if they don't, then you need to get another company). Maybe I can shed some light on some of your questions.

1. Insurance rates vary from company to company based on losses they perceive they will incur from insuring you. To most people it means they want the cheapest insurance, but what it actually means is if you get a high quote from Company A and a low quote from Company B, that's Company A's way of saying "We don't want to insure you, you're too big a risk." Additionally, usually companies whose agents work on commission are cheaper - a comissioned agent can offer you a low rate right off of the bat, but in four months when he or she needs a new roof or something, their pay raise will most likely come in the form of a higher payment for your insurance. Of course this will vary on how long you've been with your company and what kind of history you may have with them. Rates vary for about a million other reasons/statistics, too.

2. You might know some of this already, but I thought it best to explain it anyway.

You need at least the minimums and normally no higher than a $500 deductible on comprehensive and collision when you've a bank loan to pay on. Usually you want your comprehensive to be lower, because this covers your glass damage, (broken windshields can be common), and acts of nature (tree falls on it, you hit an animal, etc).

The minimums in CA are 15/30/5 - this means you have a total of $15,000 per person you hurt in an accident that is your fault. That is limited to a total of $30,000 per accident. The $5,000 is for property damage that you cause in an at-fault accident (be it property damage to another car, a house, a fence, lightpole, boat, whatever).

Though you may not have any assets to be sued for, you are liable for whatever damages you cause above and beyond those limits, so if you hit and total Dr Joe Schmo's new Porsche which is valued at $40k, and you have the minimums, you're responsible for that other $35k that your insurance won't cover. Or if you hit a van full of Girl Scouts and their injuries exceed $30k. If you own a home, you especially want higher than the minimums.

3. Insurance is a gamble. You are betting on whether or not you will be hit or hit someone in your vehicle. The company is betting that you won't ever have to use it. The coverage you need depends on how well you think you need to cover your ass. The best thing you can do right now is to at least get a quote for higher coverage; usually the difference between the minimums and a step higher is a few bucks a month.

Oh, and congrats on the new car!
posted by sephira at 12:38 PM on October 6, 2006

Take as high of a deductible as you can afford to pay out in a pinch

Yes, but be sure to actually compare the premiums for different deductibles; my insurer offers a $2500 deductible, but the discount from the $1000 deductible is miniscule, to the point of it only being worth it if I didn't plan to file a claim in 40 years or something.

To the OP:

I have no real assets so I'm not all that concerned about being sued

This is sort of a common misconception. Yes, haing few assets helps protect you from frivolous lawsuits, but you are legally required to pay for all damage you cause to others' persons or property. Legal minimums in CA are 5k for property damage. Let's say you rear-end one of those nice new high-end Mercedes or Porsches roaming around the Bay Area. You have easily just done over 5k in damage, and are personally responsible for every penny your insurance doesn't cover. The person you hit's insurance company WILL sue you if you don't pay in full for the repairs.

That said, absolutely do check the insurance requirements of your lender. Sometimes these are as high as 100/300/50, $500 deductible, which will more than cover you, and sometimes as low as $1000 deductible, no requirement for liability.
posted by trevyn at 12:48 PM on October 6, 2006

Your car loan is going to have a requirement that you carry sufficient coverage to pay them off if the car is totaled. Aside from requirements from lenders if you have a loan you can do what you like with comprehensive coverage. There's certainly a good case to be made for self-insuring. If you put a lot of money down and can afford to save the money, select a high deductible.

For liability, however, please stop cheaping out. If you're in an accident where someone is injured you can quickly and easily be pushing the limits on $100,000 per person limits. The $5 or 10k you can sometimes get and meet state requirements are woefully inadequate to the reality of medical care these days. If you have inadequate coverage you can very easily find yourself in a situation where you're looking at losing your home.

The key to any insurance purchase is to realize that prices tend to follow a roughly exponential growth curve, a la the blue line on this wikipedia article, albeit a more steep initial curve. As you increase your amount of coverage the growth is pretty reasonable, till you find the more or less magic number where suddenly adding 20% more coverage jumps your rates 60%. Your goal should be to figure out where that curve suddenly jumps and be there.

Deductible amounts operate the same way. Switching from a $250 to a $500 might yield a big savings but from $500 to $1000 not so much.

Don't hesitate to make an insurance agent provide you with quotes based on a dozen different coverage levels. Odds are good this is the most work they're ever going to do for you since they're writing the policy and the company who is underwriting is who you'll deal with if you ever have to collect. If they're to damned lazy to do some work up front to get your money, move on - they'll be a pain every time you have to make a small change later on. (I'm lookin at you, Bob of State Farm in South Miami)
posted by phearlez at 12:58 PM on October 6, 2006 [1 favorite]

Yes, haing few assets helps protect you from frivolous lawsuits, but you are legally required to pay for all damage you cause to others' persons or property.

Trevyn's right and one more thing - just because you don't have any assets NOW doesn't mean you won't have some later. In a slam-dunk case there's no reason for them not to sue you and get a judgment which they can then sit on forever. In California they're good for 10 years and can then be renewed if still not satisfied by then. And they can charge you 10% interest along the way.

So you could find yourself having your wages garnished (which employers just love dealing with) for the rest of your life and unable to ever get another car or home loan.
posted by phearlez at 1:04 PM on October 6, 2006

Response by poster: Wow. All SUPER helpful. I love MeFi. And no, I don't want to cheap out and totally see the point of having adequate insurance. I guess I don't want to be *over*-insured, was really my point.

And yet another reason to be happy that the real estate market in the Bay Area will keep me a renter forever - no real estate assets!
posted by otherwordlyglow at 1:17 PM on October 6, 2006

I don't know how California auto insurance works, but if you don't automatically get uninsured motorist coverage with your policy, you REALLY should get some. I was hit twice in one month by uninsured drivers, and if I didn't have the coverage, I would have been out of luck and out of thousands of dollars.
posted by Flakypastry at 2:00 PM on October 6, 2006

One other thing to consider, and this is very important is the fact that most insurance companies out there base their rates on 'insurance scoring' which uses your credit score to assess your risk. I understand you said you have good credit, but because insurance scoring is such an arbitrary metric even persons who have excellent credit get burned by this system. I worked for an insurance company for a few months before I found other work and the most frequent and angry customers were those who had poor insurance scoring yet excellent credit. This system is so poorly thought out and implemented that at least two states have instituted proceedings against insurance companies for using it. Please look up insurance scoring on the internet and read all you can about modifying your information to be a good 'insurance scoring' candidate. Just depending on good credit will not be enough. To the best of my knowledge, American Family is the only company currently not using that system, and also experiencing substantial growth. Could there be a connection?
I am not recommending American Family by the way, just making an observation.
posted by mk1gti at 5:25 PM on October 6, 2006

On a Chevy Aveo, I would definitely get gap insurance if you don't already have it. Like many Korean-built cars, the resale on them doesn't hold well, especially in the first few years. So if you financed most or all of it, chances are that if the thing gets totaled, the insurance settlement will *not* cover what you still owe on the car. Gap insurance covers that "gap". Typically that comes from the company that financed the car, but your insurance agent may sell it as well.
posted by Doohickie at 10:40 PM on October 6, 2006

I'll second the gap insurance recommendation, adding it on does practically nothing to your premium and is very good peace of mind, especially if your car is in a severe accident. Not having it could be a real 'gotcha' later on down the road.
posted by mk1gti at 10:21 AM on October 7, 2006

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