11 Common Costly Car Insurance Mistakes

Learn how to avoid these 11 costly mistakes that consumers make when shopping for and buying car insurance.

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If your goal is to obtain both the types and amounts of car insurance that are right for you, your vehicle, and your budget, you've got to be as informed as possible.

Obtaining the right policy is about more than taking a couple of minutes to find the lowest cost option. You want a policy that's going to provide you and your loved ones with an ample amount of protection without breaking the bank. You need to ask a lot of questions and you've got to carefully consider the many options in front of you before you go to sign on the dotted line.

One way to accomplish all of the above is to learn about the most common mistakes—like the ones discussed below—that were made by the many consumers who shopped for car insurance before you, so you can avoid falling into the same traps, and so you can purchase a plan with rates and coverage that are right for you.

Mistake #1: Not fully understanding the coverage you need or already purchased

Why we make it: Both of these common mistakes usually result from people not doing enough research, or not asking their insurance agents and brokers enough questions. Before signing the deal those questions need to be asked.

What we should do instead: Don't be shy about reaching out to a company representative for a little assistance early on in your decision-making process. They'll be able to help you figure out how much coverage you should buy. Second, write down all of the information you gather during these interactions and then refer to those notes when it comes time to weigh all of your options. Both of these activities should keep you from being surprised by not having enough coverage after an accident.

Mistake #2: Failing to shop around

Why we make it: Laziness is probably responsible for some of this, although nearly as responsible is the widely held notion 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. Carriers can charge very different rates to insure the same driver. If you already have car insurance, you should still shop around. Many experts will suggest that you obtain a number of competing quotes whenever your policy is up for renewal, as opposed to automatically renewing your existing one. Not shopping around can be a costly mistake. Start by comparing car insurance quotes to find the best rates.

Mistake #3: Believing that just because you have some amount of auto insurance, you and your vehicle are covered in any situation

Why we make it: This mistake probably owes its existence to the ease with which people like to toss terms like "full coverage" around in discussions about car insurance. As a result, some folks think that just because they send a check to Allstate or Geico every month, 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 someone at the company that sold you your car insurance policy. He or she will be able to tell you if there are any gaps in the coverage you're currently paying for. Your current insurer will be encouraging in laying 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 and types of 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 too surprising that a lot of people who want to keep their car insurance premiums as low as possible opt for the minimum amount of coverage required in their state.

What we should do instead: Do a bit of research and talk with your agent about your coverage. It’s important to understand that if you rear-end a pricey car like a BMW, it's a good bet that a policy with only the legal minimum coverage 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 add-ons or extras

Why we make it: This mistake is closely aligned with the one above, which has to do with buying only as much car insurance as is legally required. This mistake also includes all of us who fail to look into how we may be able to benefit from having more than one insurance policy with the same company. A related mistake a lot of us make is that we fail to see if our existing policy, or one we're thinking of buying, will pay for a rental if our own car is damaged or totaled in an accident.

What we should do instead: Review all of the documents related to any car insurance policy you're considering purchasing. Carefully review and consider any add-ons or extras that are offered to you during this process. And if you have questions about them, don't be afraid to ask.

Mistake #6: Focusing only on price

Why we make it: Thanks in large part to the marketing efforts of various companies, consumers have been conditioned to focus mainly on how much a car insurance policy will cost. One company may be able to offer a better price for minimum coverage, while another has a better price for higher coverage amounts.

What we should do instead: Look at the big picture and examine the various car insurance products in front of you. Price should be included in your calculations, but so should the types of coverage, benefit levels and limits, and even the reputations and claims histories of the companies. Make sure you compare quotes to get great rates on a policy from a reputable carrier.

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 if we're involved in a crash. The problem with that is it'll likely cause us to pay more for premiums every month. The difference between $500 out of pocket and thousands of dollars’ worth of savings on your premium over the years makes a higher premium worth it.

What we should do instead: Give some serious thought to going with a higher deductible, especially if you have a history of driving safely. According to Kiplinger.com, 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: There are all sorts of reasons someone might choose to pay their car insurance premiums on a monthly basis rather than every six months or even just once a year. One of them is that most of us are used to paying bills monthly. Another is that it's easier for some folks to budget for smaller bills that have to be paid regularly rather than bigger ones that have to be paid less often.

What we should do instead: Pay your premium in full every six months or once per year, if you can afford it. The reason is that some insurance providers charge interest or other service fees if you make monthly payments. Some 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 it's because we don't know a particular 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, such as 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. If you find yourself in the market for a new type of coverage like buying life insurance for the first time, you should consider purchasing it from the same company that provides your auto coverage, as you will likely get a 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 various details of their history while filling out these applications because they think they'll "put one over" on the company in question and pay less for their car insurance as a result.

What we should do instead: Tell the truth. Failing to mention relevant information like accidents, DUIs, and traffic violations, either intentionally or accidentally, on your application may earn you a great quote. However, that will come to an end when the insurer digs into your background in order to finalize your premium payments. Even if you get away with your lies or forgetfulness, your coverage could be called into question if they come to light after you make a claim.

Mistake #11: Not considering a company's claims history

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. That's too bad, because knowing how an insurer will react if you file one or more claims can be useful information when you're comparing and contrasting a bunch of different insurance carriers.

What we should do instead: The most obvious piece of advice related to this mistake would be to ask someone who works at the insurance company you're considering choosing what will happen if you make a claim. You also should see how the company's customer service stacks up to the competition's by checking out sites like the National Association of Insurance Commissioners’ Consumer Information Source (https://eapps.naic.org/cis/). Also, perform a real-world test of the company's customer service by dialing its toll-free number or sending it an e-mail.

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