How to Make a Wise Purchase of Auto Insurance

Many factors influence the decision to purchase auto insurance, but the main and most common reason is the price you are asked to pay for your auto insurance policy.

On average drivers spend about 3% of their annual on auto insurance premiums, and the premium may be higher or lower, depending on a variety of factors.

Not knowing how an auto insurance pricing system operates may cost you quite a lot of money, so here are some tips that will help you avoid an unnecessary expense.

Don’t be impressed by an extremely low premium rate:

Auto insurance is a general name for a few types of insurance.

The most basic one is Third Party Liability Insurance (or General Third Party – GTP). When the policy says "Third Party Liability", it usually means Property Damage Only – and not any bodily injury. Bodily injury is covered in most countries under other types of coverage (sometime called Compulsory Insurance, Green Card, etc.).  Many times, GTP includes limited coverage for bodily injury caused to uninsured motorists.

The second type of auto insurance is Comprehensive Cover. This means coverage against loss or damage caused to your insured auto, in cases of collision, overturning, theft and burglary. Remember, this is not an All-Risks cover, as it covers you only in specified events, as defined in the policy. The comprehensive cover will also include the GTP. Already you can understand that GTP will be much cheaper than the comprehensive cover.

But is that all?

The comprehensive cover is usually offered in two versions: Market Value and Agreed Value. Since there is a substantial difference between these two versions in the risk that the insurance company assumes, there is also a difference in the rate of premium that the company will want.

Market Value is usually not the market value; at least not what you would personally pay for the auto. It is the result of market research, based on an average of telephone-bargained sales or data received from actual sales of cars of certain types and years of manufacture. In different countries, the research is different, and you can find an agreed "price book" or even a few books with different values.

It may be the Blue Book in one country or Red Book in another. Many times, when you try to sell your car, you will get a lower price for it than the Market Value the insurance industry says that it's worth. In some cases, the opposite may occur – but most of the time, it will be quite close.

Agreed Value, however, is higher in most cases, and the insurance company will ask for a higher premium for it.
But this is not the end of the story: so far we have been discussing a "bare-bones policy" – meaning that there are no additional features added to it. These features are important – but not to everybody: towing and windscreens can be pretty expensive, but adding them to your policy may increase your premium and save you agony later on. Damage to baby seats can be high, but not if your children are already grown up.

Deductibles:

Increasing your deductible may affect your premium dramatically.  There are two basic advantages to increasing the level of your deductible:

1. If a claim costs you more than just the deductible, it may result in a future increase in your premium rate the following year. It is therefore financially wise to take a higher deductible, and ensure a better premium rate and less aggravation during future renewals.
2. The basic idea of buying insurance is to avoid financial loss that will change your life style and stability. It will not make a big difference if you have to sustain the basic deductible or twice that amount. Also, think of the trouble involved when you incur low-value damages: small damages can be repaired independently, and sometimes not be repaired at all.

So far, if you buy the right insurance program, and choose the right deductible, you can do both: compare policies properly and on similar terms of coverage.

Additional factors you should take into account:

Your driving record – a clean record means lower premiums. Accidents or traffic violations on your record will result in higher payments.
Your insurance record – if you have been insured for a number of years, you may pay less.
Your age - mature drivers are expected to have fewer accidents than less experienced drivers, particularly teenagers. Insurance companies usually charge more if you are below 24 years of age.
The car you insure – some cars are more likely to be stolen, some cost more to repair; this may substantially influence your premium.
Safety measures and devices – this factor is becoming more and more important in today's auto insurance industry. Advanced and Hi-Tech devices may reduce your premium dramatically.
Where you live – some insurance companies charge more for specific neighborhoods. The companies follow statistics, and consider the number of accidents, car thefts and lawsuits in different areas.

What should I look at when purchasing my auto insurance policy after reviewing all these factors?

Review your policy carefully. Make sure that you have included all drivers and have provided true and accurate details (age, experience).

Check if the policy offers special discounts you can enjoy (for example: if the policy owner is a lady or retired person over a certain age, or if this is a second policy with the same insurance company, which entitles you a special discount).

Don’t try to save where it is not in your best interest: if you have a child who is an underage driver (24 years old or less) you may believe you are saving money by not showing them as drivers, but when they get their own auto and are unable to provide a clean loss record and insurance experience, it will cost them dearly.

Make the premium payment for your auto insurance on time. Cancellations for non-payment can be detrimental and costly to you, and may even limit your future insurance options. If a cancellation problem arises, deal with it immediately. Most insurance companies are very understanding and will be willing to assist you in time of need.

If you are unsure about your insurance, discuss your insurance needs an agent or a broker. It is wise to have a professional who can assist you to determine the insurance company with which you wish to be insured.

Do not withhold information. Some policyholders do not disclose past claims or other material details to their insurance company when applying for insurance. If you withhold essential information and do not disclose it when purchasing auto insurance, you may find yourself paying your premium for nothing. The insurance company may reject your claim, cancel your policy and refund you any of your already paid premium payments. Insurance companies check your information, and they recheck it when a claim is submitted.

(Leslie Harracksingh is a Customer Service Officer at Sinclair Insurance Company)

Find out more about our Auto Insurance (Australia)

Receive your Instant No Obligation Quote Online for Auto Insurance (Australia)

To view and download the complete Policy Wording please click on
Policy Wording