If you decide to purchase and own a car, paying premiums for car insurance needs to be factored into the total cost of ownership. Depending on several factors, car insurance can be expensive. Unless you live in Mississippi, New Hampshire or Virginia, state law requires everyone who owns and operates a car to purchase liability insurance or show some other form of financial responsibility.
Car accidents are expensive, not only for individuals but for society as well. If you're on the hook for medical expenses, legal fees, and property damage, the grand total can be sky-high. Motor vehicle crashes are a leading cause of death in the U.S. More than 2.5 million drivers and passengers were treated in emergency departments as the result of being injured in motor vehicle crashes in 2012. A National Highway Traffic Safety Administration (NHTSA) study from 2014, shows motor vehicle crashes have an $871 billion economic and societal impact on U.S. citizens.
Plan ahead and be realistic about the amount of car you can afford. It’s important to keep in mind that in addition to your car payment, gas costs and maintenance, you’ll need to have enough funds in your budget to cover monthly car insurance premiums. According to Kelley Blue Book, the estimated average price for new light vehicles in the United States was $32,307 in May 2014, up 2.1 percent from May 2013. Used car prices averaged approximately $18,000 in June 2014. That’s a difference of over $14,000 between purchasing a new versus used automobile.
So, how much can you afford? Interest.com, a leading personal finance site, recommends using a "20/4/10 rule." This rule contains the following guidelines:
Instead of purchasing a car you’ll need to lease or finance, consider buying one you can afford to purchase outright. This will lower your car insurance payments as you’ll no longer be required to carry both collision and liability coverage.
Shop around and compare car insurance quotes from multiple insurance companies. Remember to ask for a list of all discounts provided. Sometimes car insurance companies offer discounts you may not be aware of.
In addition to claiming all the discounts you may qualify for, another way to save on auto insurance premiums is to determine what your state’s minimum levels of liability coverage is and match it. Most insurance agents won’t recommend this as car values and medical costs increase every year, making having the bare minimum coverage a risky bet. If you’re willing to take this risk and can locate an agent willing to write the policy, it can drastically reduce your car insurance payment.
If you've fallen on hard times—and you're not alone—don't treat your auto insurance as an optional expenditure unless you can give up driving altogether. For most Americans, this isn't a realistic option. If you have to, temporarily trim down the policy you have to the bare essentials, but don't forget to increase them as soon as you can afford it.
Compare car insurance quotes from top insurance companies and find out how much you could save.