11 Common Costly Car Insurance Mistakes

Learn how to avoid costly mistakes made when shopping for car insurance. If you're looking for car insurance that's right for you, you've got to be informed. Read on to find how to avoid common mistakes

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Getting the right policy is more than scanning for the lowest cost option. Good insurance is worth the money.

There's a lot of questions and options involved in the process. It helps to know common mistakes made by others who've shopped for car insurance. This way you can avoid falling into the same traps.

Mistake #1: Not fully understanding your coverage

Why we make it

This common mistake usually results from people not doing enough research, or not asking their insurance agents and brokers enough questions. Don’t buy coverage you don’t need. Even worse, don’t accidentally skimp on coverage you do need.

What we should do instead

Don't be shy about reaching out to a company representative for help during your decision-making process. They'll be able to help you figure out how much coverage you should buy.

Mistake #2: Failing to shop around

Why we make it

Laziness is probably responsible for some of this. It's also easy to assume that ‘all insurance companies are the same,’ or ‘all similar car insurance policies cost the same.’

What we should do instead

Check out the rates of at least three or four companies before you make a decision. Each of them may offer similar policies or services, but they're unlikely to be identical.

Each carrier can charge very different rates for identical coverage. Even if you already have car insurance, you should still shop around. Many experts will suggest that you compare multiple competing quotes when your policy is up for renewal, rather than automatically renewing. Not shopping around is a costly mistake. Start by comparing car insurance quotes to find the best rates.

Mistake #3: Assuming you’re covered

Why we make it

"Full coverage" is a vague term. Some folks think that sending a check to Allstate or Geico means they're protected from anything that may happen to their cars.

What we should do instead

Here's another situation where it pays to have a conversation with your insurance company. They can identify gaps in your coverage. They can lay out scenarios where you will need more coverage. Be selective in the coverage amounts you purchase, and only go for what you decide is sufficient coverage.

Mistake #4: Buying just the minimum amount of liability coverage required in your state

Why we make it

Who wants to spend more than they have to on anything these days? It shouldn't be surprising that a lot of people who want to keep their car insurance premiums low opt for minimum liability coverage.

What we should do instead

Do a bit of research and talk with your agent about your coverage. If you rear-end a pricey car like a BMW, a minimum coverage policy probably won’t come close to covering the damage.

Note: to learn more about why buying the minimum amount of auto insurance usually is a bad idea, read our article, "Why Legal Minimum Car Insurance is Not Enough."

Mistake #5: Not considering policy add-ons or extras

Why we make it

Again, this mostly has to do with buying just the minimum coverage. For example, you might assume that you’re entitled to a loaner car if your car is totaled. Or that your insurance will pay for you hospital bills if you get injured in an accident. That’s not always the case.

What we should do instead

Look at all documents related to your policy. Carefully review and consider any add-ons or extras offered. If you have questions about them, don't be afraid to ask.

Mistake #6: Focusing only on price

Why we make it

Too often we focus only on how much a car insurance policy will cost. One company might offer a better price for minimum coverage. Another may have a better price for higher coverage amounts. But price doesn’t tell the whole story.

What we should do instead

Look at the big picture and examine the various car insurance products in front of you. Price should certainly be part of your calculations. But so should the types of coverage, benefit levels and limits, and even the reputations and claims histories of the companies.

Mistake #7: Choosing a deductible that's too low

Why we make it

Most of us choose a low deductible because we want to avoid paying too much out of pocket after a crash. But that always leads to higher monthly premiums. The difference between $500 versus $1,000 out of pocket after an accident isn’t substantial. But you could end up saving money in the long term with a higher deductible.

What we should do instead

Put some thought into choosing your deductible. Give some serious thought to going with a higher deductible, especially if you have a history of driving safely. Get quotes for identical policies with both low and high deductibles. Then do some math. How much extra are you paying per year for a low deductible? How many years does it take for extra premium to match the difference in deductibles?

According to Kiplinger, increasing your deductible from $200 to $1,000 could cut as much as 40 percent from your car insurance bill. Doing this also will increase your out-of-pocket expenses if you have a claim. If you shift all or most of those savings to some sort of emergency fund, you should be able to minimize any issues.

Mistake #8: Paying your premiums monthly instead of bi-annually

Why we make it

Many people prefer to pay their car insurance premiums on a monthly basis rather than every six months or even just once a year. Most of us are used to paying bills monthly. And it's easier for some folks to budget for frequent smaller bills rather than infrequent bigger ones.

What we should do instead

Pay your premium in full every six months or once per year, if you can afford it. Why? Some insurance providers charge interest or other service fees if you make monthly payments. Many companies will lower your premium rate by as much as 10 percent if you pay in full.

Mistake #9: Ignoring discounts

Why we make it

Sometimes we don't know a particular car insurance discount exists, and other times it's because we haven't specifically let an insurer know that we qualify for a discount. You should inform your insurer of any new events that could result in a discount. That includes getting married, shortening your daily commute, or adding some sort of safety feature to your vehicle.

What we should do instead

Ask your agent which discounts his or her company offers, and then let them know if you qualify for any of them. Also, if you're shopping for home or life insurance, consider purchasing it from your car insurance company. You will likely get a nice bundle discount for doing so.

Mistake #10: Lying on your application

Why we make it

Some of us may simply forget to include certain information on an application, or we may assume it isn't important. Some folks purposely leave out details of their driving history while filling out applications because they think they'll sneak one by and pay less for their car insurance as a result.

What we should do instead

Tell the truth. Failing to mention relevant information (either intentionally or accidentally) like accidents, DUIs, and traffic violations on your application may earn you a great quote. However, that will come to an end when the insurer prepares your policy. They look into your driving history through both a CLUE report and your driving history, so they’ll see all of your past tickets and accidents.

Mistake #11: Not considering a company's customer service

Why we make it

This kind of thing probably just isn't top of mind for most people when they shop for car insurance. Even when it is, it's likely that a lot of folks wouldn't know where to look to find details about a particular company's claims history. But it’s gauging an insurers customer service reputation is an important step.

What we should do instead

 You should see how the company's customer service stacks up by checking out sites like the National Association of Insurance Commissioners’ Consumer Information Source (https://eapps.naic.org/cis/).

State insurance commissioner websites usually have detailed complaint reports, where you can see which companies had highest complaint rates. As an example, check out California’s car insurance complaint information.

Finally, take a look at customer satisfaction surveys from independent sources like J.D. Power and Consumer Reports

References:

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