Turn on the TV for just a few minutes and someone will confidently tell you that they can “Save You a Bunch” on your Auto Insurance.  And, while that may be true, you can also save yourself “a Bunch” on your Auto Insurance.  There are four things you can do to save yourself some money.  I’ll cover them in a minute.  But before I do, I’d like to talk for a minute or two about some Insurance principles.

Insurance is most effective when it is purchased to mitigate risks that are catastrophic in nature and unlikely to occur.  When you buy insurance for things that are likely to occur or that are not catastrophic in nature, you set yourself up to spend more than you should.  Why is this? There are two main reasons.  First, small claims have administrative expenses that are pretty much the same as large claims.  So if the insurance company expects to pay a lot of small claims, then the premium will be higher.  Second, if something is likely to occur, the insurance company will have to charge higher fees to cover the increased expenses associated with the higher number of claims.  So, what do we do with this information?

1. Take a hard look at your deductibles.  If you have the savings available, set your deductible as high as your savings will allow, up to $1,000 if you can.  This could save you in the hundreds of dollars in premiums per year.
2. Eliminate insurance for expenses you can afford to pay.  Some examples are towing insurance and insurance to rent a car while your car is being repaired after an accident.  Again, you need to look at the amount of money in your savings and see if can cover the expenses if you have an accident or need towing.  In a lot of cases, you can accept these risks yourself.
3. Drop collision and damage other than collision (comprehensive) coverage on older vehicles.  Remember,  if you have an accident you will most likely never receive more from the insurance company than the Blue Book value of your car minus your deductible .  If your vehicle is only worth a few thousand dollars, dropping these coverages may make sense.  Certainly, you would want to drop the coverage if the annual premium you pay plus your deductible is equal to or greater than the Blue Book value of the car.
4. Consider dropping any medical coverages.  This one is less clear and in some states you may not have a choice.  But, as a member of the military you and your family already have medical coverage.  Medical coverage through your car insurance may be a duplication of coverage that you don’t need.  One thing to consider though is that sometimes medical coverage through your car insurance covers all passengers in the vehicle.  If you’re carrying folks that aren’t in your family around a lot, it may not make sense to drop this coverage.

One place you do not want to try to save money is with your liability coverage.  Remember the discussion on when insurance is effective?  It is unlikely that you will be sued as a result of an auto accident, but if you are the results could be catastrophic.  In other words, liability coverage is exactly the type of insurance you should buy.  So don’t try to cut here and in fact if you just carry the state required minimum coverage you may want to look at using the savings from above to increase your liability coverage or buy an umbrella policy.

If your liability coverage is good then you only need to decide what to do with the money you made with your 15 minute investment.  Starting a savings program to grow an Emergency Fund or an investment program for your retirement or your kids’ college might make sense.  We’ll talk about those things in the future.