Finance Tips

Do you remember the Blues Brothers? They were unstoppable. They were “on a mission from God”. Seems like almost everyone standing behind the counter in the rental agency is a Blues Brother when you come into collect the vehicle. They always want to sell you something, usually additional insurance. The most common special offer is loss damage waiver (LDW). It sounds such a good idea to have complete cover against any loss caused to the vehicle while under your control. The magic word is “waiver”. You are excluded from liability even if you drive the vehicle off the end of a pier and it sinks without trace (hopefully without you still inside it). The only problem is this good idea can seriously damage your bank balance when the final bill comes in. That hourly or daily rate just got heavy. So when should you add LDW? The answer is deceptively simple. If you do not own another vehicle and have no insurance cover in place, it may be a good buy. But most insurance policies on your own vehicle cover you while driving a rental. So it all comes down to the extent of that cover on your own vehicle.

To get the maximum discount in these hard economic times, most people have been pushing up the deductibles. In many cases, the potential losses can be managed to keep to the low end. It’s your vehicle. You can talk to the repair shop and get all the work you want done at the best price. But when it’s a rental vehicle, everything is out of your hands. The rental company has no interest in protecting your bank balance. It pays top dollar to get the vehicle repaired and sends you the bill. No searching around to find the cheapest replacement parts and lowest price body shops. Everything is top of the range and then comes the kicker. It’s called the “loss of use” charge. You are expected to cover their estimated loss of profit while the vehicle is off the road. And guess what. If you are paying their loss of profit, they have no incentive to rush the repairs. They can take their own sweet time and, in most cases, you pay – most private policies do not cover loss of use charges. Some credit card companies offer limited cover, but read the small print before relying on it. Limited cover means very little actual money will ever be paid out.

If you are only renting for a few days, it’s probably worth paying for LDW. It may not be cheap car insurance, but it protects you. But if the end bill is going to be too high, trust to luck and your own insurance policy. Hopefully, your own cheap car insurance policy will give you enough of a buffer against claims Remembering, of course, that only the best private policies cover you against the dreaded loss of use charges. If nothing else, all this bad news should give you the incentive to drive like your wheels are passing over egg shells. Drive as safely and carefully as possible. If you are going to break some eggs, make sure the damage is minor and the losses are small.

The easiest way to understand how an insurance policy works is to think about gambling. You are about to drive your vehicle out on to the public roads and you make a bet with the insurance company. If you can do this without having an accident, you lose the premium. If you have an accident, the insurance company pays your losses. So, as with a field of horse about to set off round the track, the bookmakers check the records of each horse. How many times has it run and placed. This gives them a basis on which to set the odds. In theory, everyone has access to the same information so you decide whether to place the wager depending on the fairness of the odds quoted. Well, it’s exactly the same with drivers. The insurers make a risk assessment of you as a driver. What make and model are you driving? How many miles a year do you drive? How many years of experience? How many tickets and claims? This profiling gives them the odds of an accident and the company sets the premium rate to quote you. You also know your own track record and have a good basis on which to decide whether to pay the premium.

Unlike a conventional bet, you can decide to self-insure a part of the potential liabilities. This is done through the so-called deductible where you pay the nominated amount before the insurer has to contribute. So if the claim against you is for $800 and you have a deductible of $1,000, you pay the whole of the $800. But if the claim is for $1 million, you only pay $1,000 and the insurance company loves you like a brother. The majority of traffic accidents are minor fender benders and the repair costs are usually low. If no-one is injured, self-insurance is a cost-effective option, i.e. the amount you save on the premium covers the likely payments of claims. But you should consider the issues carefully before accepting the maximum deductibles. Suppose you have a bad run of luck and, in the space of a year, you are involved in three accidents where the claims exceed the deductible. Now you have to find the deductible multiplied by three as a cash sum and your premiums will go up because you have proved yourself a bad risk. Can you afford the pay this lump sum without breaking the bank? Given your premiums are going to rise, do you still want to pay the maximum deductibles in the future?

Planning is all about the worst case scenarios and hoping for the best. There are good discounts for increasing the deductible. There are also good discounts for insuring more than one vehicle or combining both car insurance with home insurance. Because you cannot guarantee you will never have accidents, you should decide what discounts you can find and how much you are prepared to pay if the worst happens. Do not simply buy the cheapest car insurance you can find. In many cases, these policies do not give a good value-for-money cover against liabilities. Shop around and buy the policy that gives you the best protection at a price you can afford.

Doesn’t it feel sometimes that when it comes to auto insurance it’s like playing the game no one tells you how to play it right and where the rules are written without your consent? Well, to ease the situation, here are some auto insurance rules most insurance companies won’t tell you about.

1. If your credit rating is good you will have better rates.

Most of the insurance providers, whether big or small, use credit information to determine the rates you will be charged with. That’s because numerous studies have shown that there’s a direct link between a person’s credit rating and the probability that the very same person would file an insurance claim. Those who have poor credit scores tend to file claims more often than drivers with good credit reports. And we know how insurance companies don’t like insurance claims.

Tip: If your credit report is not that good, don’t haste with buying auto insurance. First, make sure you have settled all your debts and closed unused credit lines. After doing this wait for a month and your rates will be much lower than you would expect.

2. The model of your car affects your premiums.

Insurance companies don’t disclose the exact methods they use to calculate their rates, but your car make and model certainly plays an important part in the equation. All insurance providers have charts on all car models and their respective insurance cost based on theft rates, repair costs and overall safety.

Tip: Try purchasing a car with reasonable repair costs, good safety scores and low theft rates in your area in the first place. This will always give you the chance of having cheap car insurance.

3. Bad driving means higher rates.

Most insurance companies will raise your rates up to 40% of the initial premium you’ve paid if you have a single at fault accident. However, not all companies follow this rule.

Tip: There are insurance providers that have higher tolerance for first-time accident drivers. So when you purchase your cheap auto insurance policy or ask the provider if they have such incentives and what are their rules.

4. If your friend borrows your car and ends up in an accident you will still have to pay higher premiums.

It doesn’t matter who was driving the car if it was with your own consent. It will be you who will file the claim and this will eventually lead to increase in your premiums.

Tip: In case you didn’t give consent on using your vehicle your friend will be liable for the accident. However, if he or she doesn’t have own insurance or the damage resulted exceeds the amount of coverage contained with his or her policy the other party may come to you in order to settle additional medical and repair costs.

5. Official cancellation is required when switching providers.

You are free to cancel your policy any time you feel the need to. All that is required is to inform your current provider in written form.

Tip: After you have searched for cheap auto insurance and chosen another provider you can simply contact your insurance agent and inform him that you want to cancel your current policy from a certain day. In most cases the company will send you a filled out form where only your signature will be required.

The market for insurance in the US is somewhat unusual. In most every other line of business, companies are allowed to compete with each other across state lines. This helps to keep pricing and the quality of the product to higher levels and protect the consumer. But, the insurance industry is licensed and regulated state-by-state. There’s no such thing as a federal insurance policy. You have to buy a policy written by a company licensed in the state where you live. This is frustrating because, if you live near the border, your friends and colleagues at work probably tell you how little they pay or complain you have the better deals. Either way, it’s not very fair. Worse, the companies often decide not to set up in all fifty states, but pick and choose where they will operate. The result is that many states only have a small number of licensed insurance companies. Because there is no real competition, their premium rates tend to be high. This produces a big political divide. In Republican states, this is the free market at work and no intervention is necessary. If you do not like this, move to another state which has lower rates. In Democratic states, there is more interest in protecting consumer interests. Some states have intervened in their local markets to introduce “managed competition”. Needless to say, this has outraged the insurance industry and the insurance agents who survive on the commission earned from the insurers. There have been heated debates between the lawmakers. Where the local Department or Office of Insurance has produced new rules, they have been referred to the local courts. Who would have thought helping millions of average people to save money on their premium rates would produce so much heat.

Anyway, the latest state to surface in this national debate is Massachusetts. In some ways, this state is also slightly nonstandard because of the dominance of the local agents who handle about 80% of the insurance business. Agents have more to lose if the markets are opened up to competition (and sites like this offer a direct line to insurance companies without having to go through an agent). Not surprisingly, they have been the fastest to the courts in the fight to protect their income. We have just had the decision of the Massachusetts Supreme Court on two rule changes made by the state’s Insurance Commissioner Nonnie Burnes (she has since retired to a university post). Let’s start with the effect of the move to open up the state to competition. Before the rule changes, there were nineteen insurers writing auto insurance policies. Twelve more companies have now entered the markets. In most cases, premium rates have been stable as insurers cut their costs and accepted a reduced profit. But agents have been hit because the opportunities to earn commission have been reduced.

The Massachusetts Supreme Court has supported the reforms, finding the effect of managed competition is sufficiently beneficial that it should represent the prevailing public policy in the state. Put another way, the judges think the many consumers should pay less rather than the few corporate officers and stockholders earn excessive profits. Because one of the agent’s automatic rights to a commission has disappeared, they will be looking to recover their losses in other ways. There are two morals to this story. The first is that, if you want to find cheap auto insurance, support the lawmakers in those states who promise to introduce more competition into the car insurance market. Secondly, always get your auto insurance quotes through a site like this and avoid agents who earn commission.

If you have a student driver at home and need cheap car insurance for young drivers, you must perform some steps in this regard with the active participation of the younger. They should be clarified to a young friend; cheaper auto insurance is only given to certain attributes, which they must obtain a driver.

Importance of classes conducted by the insurance company should be attended by the student drive, where they learn aspects of different makes driving safer. They give instructions to identify the condition of roads and ways to avoid the wrong. They are given to understand the rules of basic safety driving through rush hour in the city and the precautions a driver should take the night while driving. Young students can also learn good manners not to function in a situation much more profitable and safe driving advice.

A good value in the school is one good way to become eligible for substantial discounts in the amount of premiums students. This is known as the GPA or average value. In fact, show the quality of students and to be recognized as a discount. Note good education means a better discount and this is one good way to cheap car insurance for young drivers.