Monthly Archives: November 2016

How To Tell If Usage-Based Car Insurance Is Right for You

Plug-in devices that monitor aspects of an auto insurance customer’s driving are nothing new. And it’s nearly impossible to miss the commercials touting the savings that good drivers might enjoy if they try out their carrier’s usage-based programs.

But what is still only whispered about are the potential downsides: surcharges for bad driving. Most auto insurers go out of their way to insist that their driver-monitoring programs exist only to reward safe drivers and that the worst outcome for trying one is that drivers don’t get the advertised savings. And even then, insurers say, drivers will gain valuable feedback and be able to make positive changes in their driving.

But in spring 2015, Progressive announced that it would begin charging some members of its Snapshot program a surcharge for aggressive driving behaviors.

Dave Pratt, Progressive’s usage-based insurance business leader, said Snapshot 3.0 currently exists in Missouri, Indiana, Iowa, Nebraska, Texas, Utah, Wisconsin, Illinois, Ohio and Oregon.

“Because insurance is regulated at the state level, the full rollout will take time and vary based on the Department of Insurance in each state,” Pratt said.

As of now, Progressive is the only major insurance carrier moving away from the reward-only model of usage-based insurance programs, which are all still voluntary. Progressive explains that the surcharges will help them give good drivers even lower rates.

Other major insurers continue to insist that the usage-based programs will only reward good drivers and will not punish bad drivers. Justin Herndon, an Allstate spokesman, said that adding a surcharge is not something the company has considered for its smartphone-based Drivewise program. Nationwide Insurance has no plans to impose a surcharge on members who enroll in its program, said company spokeswoman Alison H. Emery.

Assessing Driving Habits
We all want to believe we are good, safe, conscientious drivers and that usage-based insurance would only benefit us. However, with the potential for surcharges now in play, drivers must be able to carefully assess their driving before signing up. Though very few members of these programs are currently subject to potential surcharges, Progressive’s change seems to foreshadow more changes to come.

J. Robert Hunter, director of insurance for the Consumer Federation of America, said he believes that within four to six years, usage-based insurance will be the norm, and any driver who opts out will pay more. Robert P. Hartwig, president of the Insurance Information Institute, agrees.

“Most vehicles in the not-too-distant future will be manufactured with advanced data recording technology devices,” Hartwig said, although he believes opting out will still be an option.

Major auto insurers with usage-based programs include Progressive’s Snapshot, Allstate’s Drivewise,State Farm’s Drive Safe & Save, National General Insurance’s Low Mileage Discount, Nationwide Insurance’s SmartRide and Metromile. All offer general information about what kinds of driving behaviors are likely to earn customers a discount. While no company would offer precise details about how discounts and surcharges are calculated, most made it clear that they look at the whole picture of a driver’s behavior behind the wheel over a period of time.

Below is a checklist to help drivers determine if a monitoring device might be a good financial decision for them. It’s a good idea to use this checklist for at least a week and be honest, especially with regards to hard braking, which seems to be one of the biggest factors in how rates are calculated. The Insurance Information Institute’s Hartwig explained why:

“Frequent hard braking suggests that the driver is consistently driving in a manner that is inappropriate or at a speed that is excessive relative to prevailing driving conditions, thus increasing the likelihood of an accident,” he said.

For best results, keep this checklist in your car and makes notes at the end of each trip.

Driving Assessment Checklist:

  • Times driven between the hours of 12 a.m. and 5 a.m.
  • Hard braking (decreases in speed of 7 mph per second or greater)
  • Quick accelerations (increases in speed of 9 mph per second or greater)
  • Speeds exceeding 80 mph
  • Total mileage

Once you’ve tracked your behaviors for at least a week, take a careful look. It will be easy to see if you’ve exceeded the mileage limits. If you drive fewer than 12,000 miles a year (about 230 miles a week), you will likely get some savings. For most companies, exceeding 15,000 miles a year (280 miles a week) won’t lead to any savings. It could lead to surcharges for Snapshot 3.0 customers.

Keeping speeds under 80 mph is also a simple task. However, David Bakke of Money Crashers, emphasized that if you have recent speeding tickets, that could be reason enough to decide that usage-based insurance isn’t a good choice for you.

If you drive in the early morning hours, you’re unlikely to be a candidate for savings in a usage-based plan. That’s because data from the National Highway Traffic Safety Administration and Allstate’s own data shows 12 a.m. to 5 a.m. to be the most dangerous time to be on the road. Driving then creates the highest risk of a customer filing an insurance claim. Allstate’s Justin Herndon said the company doesn’t make exceptions for people who have to drive during these hours: shift workers, for example.

While most insurers indicated that aiming for zero incidences of hard braking is the best bet for savings, they know that perfection isn’t always possible.

“Progressive recognizes that there are occasions in which a driver must brake hard to be safe,” Pratt said. That’s a sentiment echoed by other auto insurers with usage-based programs.

Is Tracking Good for Consumers?
The Consumer Federation of America likes the idea of risk-based pricing, Hunter said. The tracking of driver behavior “should signal to people to drive more carefully, which is what insurance pricing is supposed to do. We hope this signals a move away from socioeconomic pricing (charging more for drivers with less education, lower-paying jobs, not owning a home, bad credit, etc.).”

But Hunter urged consumers to demand absolute transparency about what the companies are monitoring and what they’re doing with the data. He cites as cause for concern Allstate’s recent patenton a blood-pressure-monitoring steering wheel and statements by the company’s CEO that Allstate will consider selling customer information to corporations. Allstate insists that selling data will help customers save more money and that the company honors “customer control over the distribution of their personal information.”

Hartwig said that the monitoring of driving behavior also could improve road safety overall.

“The feedback customers receive based on their driving behavior provides customers with a unique opportunity to modify their behaviors,” he said. “By reducing or eliminating those behaviors that elevate risk, consumers will not only reduce their insurance premiums but will also benefit because they will be less likely to be injured in an accident. They’re also less likely to injure others or damage the vehicles or property of others.”

Tips to Save Money on Car Insurance

 There is a very good chance that you are — this very moment — paying too much for your car insurance. There is an even better chance that you could get a better rate, from another insurance company, than you could from your existing insurer.

So why not take an hour or so and review your policy for potential savings? Or, if you’re fed up with the high insurance rates from your current insurer, shop around for a new company.

The Internet has created increasing competition between car insurance companies. It is easier than ever for consumers to shop for low insurance rates, to analyze coverage and compare premiums. Still, studies have shown that people don’t shop around for insurance in the same way they might shop for a new car. Also, people tend to stay with the same car insurance company for years. Why not prove these studies wrong? Put the power of the Net to work for you and save money in the process.

You can save on auto insurance in five ways:

  1. Make sure you get all discounts you qualify for
  2. Keep your driver’s record clean and up-to-date
  3. Adjust your coverage to assume more risk
  4. Drive a “low profile” car equipped with certain money-saving safety features
  5. Shop around for a good, low cost insurance provider

First, let’s look at the discounts you might qualify for. Discounts fall into a number of categories:

  • Low-risk occupations
  • Professional organizations
  • Combined coverage
  • Discounts for safety features
  • More risk assumed by driver
  • Discounts for senior citizens

Low-Risk Occupations

Insurance is a numbers game. Adjustors collect information about what types of people get into accidents. Over the years they see a trend. Drivers that work as engineers tend to get into fewer accidents. Why? It would be fun to speculate about the reasons (pocket protectors — need we say more?) but the insurance companies don’t really care about that. All they know is that, in fact, engineers are a low risk. Since there is less chance that they will wrap their cars around the trunk of a horse chestnut tree, they charge engineers less for insurance. Simple.

But you say you are a teacher instead of an engineer? You might still be in luck. There may be discounts for teachers. You never know unless you ask — and unless you shop around. Not all insurance companies are the same.

Professional Organizations and Auto Clubs

Have you ever been about to pay $100 for a hotel room, only to discover that a AAA discount saves you 15 percent? Now you’re paying $85 and feeling proud of yourself. It’s similar in the insurance business. Affiliation with AAA — and certain other professional organizations — will lower your rates. You should check with your employer to see if there are any group insurance rates. At the same time try checking directly with the insurance company representative when you inquire about the cost of policies.

Combined and Renewal Discounts

A big source of savings is to insure your cars with the same company that insures your house. Make sure you ask if combined coverage is available. This will lower your payments on your car insurance and make your homeowner’s policy cheaper too.

It’s also important to make sure you are getting a “renewal” discount that many car insurance companies offer. This is a discount given to people who have been with the same insurance company for an extended period of time. If you have carried insurance with a company for several years, and not had an accident, your insurance company likes you. Think about it. You paid them a lot of money and they didn’t have to do anything except send you bills and cash your checks. True, they were ready to do something if you got in an accident. But you didn’t get into an accident so they’re happy and want to continue their relationship with you. A renewal discount is a good incentive to urge you to return. And it’s a good reason for you to stay with them.

Discounts for Auto Safety Features

Auto safety features will also lower your payments. Heading the list of money saving safety features is antilock brakes. Certain states — such as Florida, New Jersey and New York — encourage drivers to buy cars with antilock brakes by requiring insurers to give discounts. Check to see if you live in such a state, or if the insurance company you are considering gives a discount for this feature. Automatic seatbelts and airbags are also frequently rewarded with insurance discounts.

Assume More Risk

Two powerful ways to bring your coverage down is to assume a higher risk. This is done in two ways. The most dramatic reduction can be realized by dropping your collision insurance on an older car. If the car is worth less than $2,000, you’ll probably spend more insuring it than it is worth. The whole idea of driving an older car is to save money, so why not get what is coming to you?

Another way to redesign your policy — and save money in the process — is to ask for a higher deductible. The deductible is the amount of money you have to pay before your insurance company begins paying the rest. In other words, you pay for the little dings and bumps and let your insurance company pay for the heavy hits.

For example, a common deductible amount is $500. This means if an accident you’re in causes $1,500 worth of damage, you pay $500 and the insurance company pays $1,000. You could, however, set your deductible to $1,000. This still covers you against heavy losses, but it may decrease your monthly premium by as much as 30 percent.

As a final note, if you are being strangled by high insurance costs, keep this in mind when you go car shopping next time. The more expensive and higher-performance the car is, the higher the premium will be. This is particularly true of cars that are frequently stolen, or are expensive to repair. The insurance company keeps this in mind when setting its insurance rates for this vehicle. Shop for a low-profile car and get your kicks in other ways. You’ll love the savings you’ll see on your auto insurance.

Should You Get Credit Insurance When You Buy a Car?

 For most of us, buying a car is the second largest financial transaction we’ll make, next to buying a home. And we’re likely to get loans to finance our car purchase. In the fourth quarter of 2014, 84 percent of new cars purchased were financed, according to Experian Automotive.

If you’re financing your car purchase through a dealership, it’s also likely that the finance and insurance manager will offer you warranty and insurance products, such as an extended warranty, gap insurance or tire-and-wheel protection. The F&I manager might also offer credit protection, which is meant to cover your car payments should you be unable to pay them yourself because of layoff, injury, illness or death.

The most venerable of these products, with an almost 100-year history, is credit insurance. Consumer groups have long been leery of credit insurance products, which are offered not just for cars, but also for credit cards and other consumer loans. Often, the consumer groups contend, the products are expensive and unnecessary. Further, there have been instances of lenders forcing the credit insurance on consumers.

“It’s often very expensive when you compare it to the benefits,” says Chris Kukla, senior vice president with the Center for Responsible Lending, a nonpartisan, nonprofit organization focusing on consumer lending, based in Durham, North Carolina. Further, he says, the credit insurance policies are “riddled with exclusions.”

Payout rates (the premium dollars paid compared with the amount paid out in claims) are typically low. That’s because the money is going to commissions, he says.

There are some decent providers of credit insurance, such as credit unions, Kukla says, but it’s tough for consumers to know which products are worthwhile and which ones are rip-offs. To protect themselves, potential buyers should look for coverage they can afford that specifically addresses their financial concerns and which comes from a reputable insurer. The insurance department in your state is the place to check in order to see that the company is licensed and legitimate, says automotive expert Lauren Fix.

The three most common types of credit insurance coverage are:

Credit life: This pays off all or some of your loan if you die during the time you’re covered.
Credit disability: Pays on the loan if you become ill or injured and can’t work during the time you’re covered. It’s also sometimes called credit accident and health insurance.
Credit involuntary unemployment: Pays a specified number of monthly loan payments if you lose your job through no fault of your own, such as in a layoff, during the coverage term. It’s also known as “involuntary loss of income” insurance.

None of these coverages is required with a car loan. You can’t be denied credit if you say no to a credit insurance offer, Kukla says.

Payment Protection: A Newer Product
A more recent type of credit protection is called debt protection, which might also go by such names as debt cancellation, debt suspension or payment protection. Federal law allows national banks, most state-chartered banks and credit unions to offer this benefit without involving an insurer. The bank or credit union fills that role.

Debt protection provides benefits that are similar to credit insurance. It’s typically offered when you sign your loan papers.

A New Approach: The Walkaway Program
The Great Recession of 2007-’09 had a devastating impact on consumers and brought car purchasing to a near standstill. Who could feel comfortable buying a new car if there was a good chance you’d lose your job tomorrow? The recession has had “a major impact on the psyche of the car buying public,” says Steve Klees, senior vice president at EFG Companies in Irving, Texas.

In the midst of the recession, EFG partnered with Hyundai to offer the Hyundai Assurance program, introduced to consumers during the 2009 Super Bowl. It offered people the peace of mind to buy that new car. If you lost your job within a year of buying your new Hyundai, the automaker promised, it would take the car back. By the time that program ended in 2011, 350 people had returned their vehicles.

While Hyundai Assurance is gone, EFG makes available a similar product, called Walkaway, which is available through 350-400 dealerships, banks and credit unions across the country. When an involuntary job loss or other triggering event happens, the program releases customers from a car lease or loan obligation. Typically, the dealership, credit union or bank pays for the first year of coverage. After that, customers have the option of purchasing the coverage package for $395. There are no underwriting guidelines or restrictions except that the purchase price of the vehicle must be less than $75,000. “That’s probably 99.9 percent of all cars,” Klees says.

Klees says the “sweet spot” for Walkaway is with customers ages 25-40 — not surprising given that this group is least secure in their job situation, compared with other groups. Klees, a 35-year veteran of selling credit insurance and other add-on products, says purchasers of traditional credit insurance tend to be older.

What To Ask Yourself and the Lender
The popularity of debt protection products has been on the wane over the decades. In a long-term study for the Federal Reserve, the percent of people who said they purchased debt protection coverage in 1977 was 63.9 percent. In 2012, that dropped to 22.7 percent.

If you are interested in a debt protection product, the Center for Responsible Lending suggests that you purchase the products through a credit union or bank, where the rates may be lower. Compare any dealership price quote and terms to ensure you’re getting the best deal for comparable coverage. Also, the National Association of Insurance Commissioners advises you to ask these questions before you buy:

  • What’s the premium? Will it be financed as part of the loan? And will that increase your loan amount so you’ll have to pay additional interest?
  • Can you pay the premium monthly instead of financing the entire premium as part of your loan?
  • What’s the loan payment minus the credit insurance?
  • Will the insurance cover the loan’s full length and amount?
  • What are the limits and exclusions on payment of benefits?
  • Is there a waiting period before the coverage becomes effective? If so, how long?
  • With a co-borrower, what coverage does he or she have? What’s the cost for that coverage?
  • Can you cancel the policy? What kind of refund is available? Are there any penalties?

It’s also wise to see if you have other insurance that might eliminate the need for a credit insurance contract in association with your car purchase. A term life insurance policy would provide benefits in the event of your death. Your employer may make disability coverage available. Check with your insurance agent to see what your current coverage would provide before you buy credit protection.

If at any point you feel pressured to buy credit insurance, it’s best to simply walk away and consider your options in a pressure-free environment. In the words of the National Automobile Dealers Association, “once you sign the contract, you are legally obligated.”

Four Steps to Switching Car Insurance

 Could you save hundreds of dollars by switching your car insurance? It is a question worth asking yourself at least once a year. By doing a little research now, you may be able to find a comparable insurance plan at a better rate with another company, and save money. But you have to make sure you take the appropriate steps to switch, because you don’t want to have a lapse in coverage.

Jeanne Salvatore, senior vice president at the Insurance Information Institute in New York, suggests asking yourself if you’re happy with the cost, coverage and service of your current policy each time it comes up for renewal. “If the answer is ‘yes, yes and yes,’ then stay with them. But if you’re not sure, it’s a good opportunity to shop around,” she says.

Here are four key steps to take when it comes to switching car insurance:

1. Review your current driving situation.
Take note of your driving circumstances as well as the needs of other drivers in your household. Do you have a newer model car? Do you commute several miles each week to work? Do you have recent traffic tickets?

According to the National Association of Insurance Commissioners (NAIC), your potential new insurance company may ask you all of these questions as part of the underwriting process. You’ll also likely be asked about the number of drivers on the policy, your driver license information, and the insurance coverage and limits you’d like to purchase.

Take a look at your existing auto insurance policy. Knowing what you currently have will make it easier to create apples-to-apples comparisons with the rates you receive from different insurers. An easy way to do this is to study your current policy’s declarations page, says Vaughn Graham, president of Rich and Cartmill insurance company in Tulsa, Oklahoma.

“The declarations page describes the insurance you have, including the amount of coverage as well as coverage limits, and the amount of your deductible,” he says. When you’re more informed about your current coverage, it can help you become a smarter shopper.

2. Shop around.
Once you’re familiar with your current policy, it’s time to look for alternatives. A good first call is to your current insurance agent or the insurance company itself (some insurers, such as Geico and Progressive don’t work with agents). Even if you’re not happy with your existing policy (if you think the premiums are too expensive, for example), ask if there are ways to lower your rate for the same amount of coverage, says Salvatore. You may be eligible to receive discounts you’re not getting.

Here’s a list of common insurance company discounts, according to the NAIC:

  • Having safety devices in the car, such as anti-theft features
  • Having a good driving record
  • Driving a low number of miles a year
  • Having multiple cars on the same policy
  • Being a student who gets good grades
  • Insuring both your home and car with the same provider

While you’re reviewing discounts, be aware that switching to a new provider could affect discounts you already have with other types of insurance. For example, if you’re already getting a homeowner’s and car-policy rate reduction from your current provider, and you then move your car insurance to a different company, you may lose the discount you receive for homeowner’s insurance. It may make more financial sense to stay where you are, or switch both policies to a new provider that will give you a rate reduction for both.

In addition to speaking to your current agent or insurance company about your options, you can look online to research potential companies and obtain quotes. It is also a good idea to get referrals from family members, colleagues and other people whom you trust, Salvatore says. If they have had to file a claim with the insurer, they could tell you in person about their customer service experience.

If you’re currently buying through an independent agent who represents multiple insurance companies, you have a few more options. “You can go to them and say ‘I’m happy working with you, but I’m not so happy with this carrier’ and explain why,” Salvatore says. “Ask if they can suggest another carrier.”

A good agent should be able to offer you customized choices to fit your needs, adds Graham. “There is no one-size-fits-all solution. We’re all a little different.”

3. Don’t skimp on coverage.
As you receive quotes, make sure the insurance coverage and deductibles mentioned are satisfactory. Just because a rate quote may be lower than what you’re currently paying, it doesn’t mean it’s a better deal if the coverage is lacking, Graham says. If you’re not sure how much coverage you need, discuss your needs with insurance company representatives, and ask for guidance.

For example, if you have significant assets, you may need more than just the state minimum for bodily injury liability insurance. The same is true for property damage coverage. The retail price for an average new vehicle could easily top $30,000, but in many states, the minimum property damage coverage required is only $25,000. If you were responsible for a loss and did not have enough insurance coverage, you’d likely be on the hook for the difference. “Many of those limits are often inadequate and not near enough to meet today’s exposures to price of vehicles,” Graham says.

Though it’s important to have ample liability coverage, if you drive an older model vehicle that is paid for, you may choose to opt out of some optional types of coverage, such as collision and comprehensive insurance, in order to keep premiums low.

Collision insurance pays for the physical damage your vehicle receives if it collides with another object, such as a tree or another car. Comprehensive insurance pays for damage to your car from causes other than a collision. This could include vandalism, broken glass, fire and theft. If this coverage is more than your vehicle is worth, you could skip it to lower your rates. Just understand that you would then be paying for these losses out of your own funds if such damage did occur. People who live in areas prone to such natural disasters as floods, high winds and earthquakes might want to think about retaining their comprehensive coverage, experts say.

Another way to get a lower premium is to ask for a higher deductible. If you are willing to pay $1,000 out of pocket for a claim instead of $250, you could lower your rates. But make sure you can afford the higher deductible in the event that you suffer an insurable loss.

4. Notify your old and new providers.
After conducting all your research (and with a bit of luck), you may well find a company that offers good coverage at a lower rate. You may be willing to switch, but before you sign a new agreement, call your state’s department of insurance to learn if the company is permitted to do business in your state. You can also check out business-rating companies A.M. Best and Standard & Poor’s to check out the company’s financial stability. (Standard & Poor’s requires free registration before you can see company ratings.) It’s worth the extra time to spend before you agree to pay hundreds of dollars on a new policy.

Once you’ve verified that the new provider can do business in your state and appears financially stable, it’s time to make the switch. “When you are ready to cancel your current policy, let all parties know in writing, so that there is no gap in coverage,” Salvatore says.

If you end your existing auto insurance policy before it expires, you may receive a partial premium refund, depending on the terms of your agreement. However, you should continue paying for your old policy until the new coverage is confirmed in writing. Otherwise, the old policy could be dropped for non-payment before the new policy starts. And in most states, driving without proper car insurance coverage is against the law. “It may be easier to wait and have your new policy start when the old one expires,” Salvatore says.

Make it a priority to review your insurance policies on a regular basis. Household driving situations change often, and so do state laws that could affect the price of your premiums. By taking some time each year to do some car insurance research, you can make better decisions and pay the best possible prices for the best amounts of car insurance coverage.