Don’t fall into 4 car insurance pitfalls

Like gas and maintenance, car insurance is one of the additional costs of owning a car. It’s also a confusing topic. With so many car insurance companies and coverage options, it can be difficult to decide which to choose.

The reason you get insurance in the first place is to protect yourself from potential financial problems in the event of an accident. Therefore, it is important to watch out for car insurance traps that could put you at risk.

1. You are getting less coverage than you need.

It’s tempting to reduce your car insurance coverage to lower your premiums. If you have more coverage than you need, that’s okay. For example, if you own an old car that isn’t worth much, paying for full coverage may no longer be worth it.

But don’t overlook important coverage just to save money each month. If you have a new car, you should get full coverage. You don’t want to have to pay out of pocket if your money runs out or gets stolen.

Liability coverage is another area where choosing the cheapest option is not a good idea. You may be able to waive $30,000 of liability insurance to meet your state’s legal requirements. However, if the accident causes $50,000 in damages, you could be sued for what your insurance does not cover.

2. Choose a deductible you can’t afford

Another way drivers can reduce their insurance premiums is by choosing a higher car insurance deductible. The higher your deductible, the lower your premium, and vice versa.

A high deductible isn’t necessarily a bad thing, but an unaffordable deductible is. You must pay your deductible before the insurance company will pay for your damages. If your claim after an accident is $10,000 and your deductible is $1,000, you must pay that amount before your insurance pays the remaining $9,000. If your deductible is $2,500, you would pay $2,500 and your insurance would pay the remaining $7,500.

This also determines the threshold for when insurance will cover an accident. If your insurance has a $2,500 deductible, that means you’ll pay out of pocket for an accident that costs less than that.

Whichever deductible you choose, make sure you have enough money saved to cover it. The higher your deductible, the more money you should have in your emergency fund.

3. Let your car insurance expire.

In car insurance terms, a lapse refers to owning a car without coverage. Car insurance can lapse if you miss a payment, although it usually doesn’t happen immediately. Insurance companies give you a grace period to catch up. Otherwise, that’s when the problems start. Here are some of the possible consequences of letting your car insurance expire:

• You cannot receive compensation in the event of an accident.
• Your insurance company may notify your state’s Department of Motor Vehicles. This can result in fines and even suspension of your driver’s license.
• You may have to pay higher rates when you re-apply for insurance. Drivers who maintain continuous insurance, even for short periods of time, have lower insurance premiums than those who do not.
• If you currently have a car loan or lease, letting your insurance lapse is a violation of that contract. The lender may require you to take out insurance, which is usually costly, or even repossess your car.

4. Lying to your car insurance company

Insurance companies use the information you provide to set your premiums. Some drivers stretch the truth or outright lie to save money. They may underestimate the number of miles they drive per year or skip a few pesky tickets.

You should never do this. First of all, it’s a scam. Once your insurance company knows this (and they tend to be good at this), they may take you on as a customer. If we determine that you have provided false information, we may decide not to pay the claim.

All of these car insurance pitfalls may save you a little money upfront, but can end up costing you a lot more later. There are many legitimate ways to save on car insurance, including visiting the best car insurance companies regularly, taking advantage of discount opportunities, and completing a defensive driving course. Stick to the safe method to save money while getting the coverage you need.

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