Car Insurance Rates - Scam or Not?

Auto Insurance Rip-Off Affects Consumers
Auto insurance companies are in business to maximize profits by increasing rates and reducing claim payouts. Every action taken by these companies is aimed at one or both of these objectives. Sometimes intentional abuses occur.

Insurance-buying consumers have objectives that are in direct opposition — low rates and a fair no-hassle claim process — and must take personal initiative to avoid abuse, get fair service, and save money.

What can we do? The following tips show you how to look for common car insurance problems that can cost you money — and what to do about the problems when you find them.

Watch your options
In some states, insurance companies are required by law to provide you certain coverage which are, in fact, optional. However, you have to expressly notify the company in writing of your desire to remove the coverage.

For example, in Colorado, your policy must include $5000 in personal medical coverage. If you already have medical insurance, there may be no need for the coverage. However, you must reject the coverage, in writing, after your policy has been issued. The coverage may show up again when your policy is renewed. And you must reject it again. Ridiculous, yes, but it is the law.

Accident waiver scam
Most auto insurance companies will not raise your rates after a single accident. However, some companies, such as Allstate, now make you think they do, and offer a special package (Allstate's Gold Protection Package) at extra cost. The package offers what they call Accident Waiver Enhancement with which you are forgiven for an accident, which you already have without the package. In fairness, it also provides a deductible reduction over time if you have no accidents. You should evaluate the entire package before making a decision.

Check your renewal for surprises
Renewal time is a good time for car insurance companies to make more money from customers. It's the time when they can slip in rate increases, new terms, and changed coverage — hopefully without you noticing. If you recently bought your insurance, you may have gotten a promotional rate that expires at the time of your first renewal.

If state laws have changed in the last year, the effects of those changes will appear with little or no notice in your renewal statement.

If your insurance company has introduced new discounts recently for which you might qualify, don't expect to see them automatically included in your new statement. You must take the initiative yourself to find out about the discounts and ask for them. If you don't, the insurance company benefits from your mistake.

Many smart car insurance buyers automatically review their policy renewals each year and get quotes from other companies to make sure they are paying the best rates available to them.

You pay for other people's claims
Everyone knows that teenage males who drive 2-door sports cars pay the highest insurance rates of any category.

The reason is simple. Teenage males who drive 2-door sports cars have the most accidents and create the most costly claims.

Now you might think that if you are older and have a good driving record, and have made no claims in years, that you can drive a 2-seat sports car and pay no more insurance than for any other type of car. You would be wrong.

Rather than putting all the cost of all those teen driver claims on those who are responsible, the insurance companies spread the cost to everyone. So, if you are older and want to drive a 2-seat sports car, you pay extra for the privilege — not as much as a teenager, but an increased rate nevertheless. Even if you are 65 years old driving a big Ford Crown Vic, with never an accident, you still share in the insurance companies' cost for the misfortunes and mistakes of other drivers.

You may live in the wrong state
Insurance companies and their rates are regulated by state laws. Laws are different in each state. Therefore, rates can be, and are, different in each state, even for exactly the same coverage.

State laws also dictate minimum auto insurance coverage. Those minimums are different across the U.S., which affects policy cost. If your state's required minimum liability coverage is more than in another state, you'll pay more in your state. For example, you'll pay more in Maine which has 50/100/25 minimum than in Florida whose minimums are only 10/20/10.

Some states have a no-fault insurance system in which injury payments are made by the injured's insurance company, regardless of who was at fault. Others have a tort system where the at-fault party is responsible. Originally, the no-fault system was created to reduce insurance costs but, in fact, it has turned out to be more expensive due to increasing medical costs and abuses. If you live in a no-fault state, you are probably paying more for your car insurance than your cousin in a tort system state.

Your deductible is too high
When you buy car insurance, your collision and comprehensive coverage has a deductible, the amount you pay out of your pocket before your insurance kicks in — in the case of an at-fault accident or voluntary claim (say, for a broken windshield). Some insurance companies automatically set the deductible very low, say $250, if you don't specify a higher amount. If you don't know better, and don't understand how deductibles work, the insurance company benefits from the higher rates for low deductibles.

If you can afford a higher amount, it can save you a significant amount of money in reduced premiums.

Here's a little experiment you should do. Call your insurance company (or compare other insurance companies) to get your monthly premium cost for a $250 deductible, then for a higher deductible, say $1000. Take the difference and divide into $750, the difference in deductible amount, to find the number of months it would take you to reach the extra $750 amount by putting your monthly savings into your own "accident deductible" savings account. Anything beyond that number of months is pure profit to the insurance company if you continue to pay for the $250 deductible. So, by self-insuring your deductible, you will save money in the long run.

After an accident is too late
Most complaints about auto insurance companies come after a customer has an accident and receives unsatisfactory service or payment from the company. Unfortunately, insurance companies get to make all the rules. Inconsistencies can occur due to the unique circumstances of each accident or claim.

Even the language used in policy documents can be non-specific (e.g., "in certain circumstances" or "depending on our evaluation") and allow the company considerable latitude.

Adjusters can see things differently. Even independent adjusters can work under different rules from different insurance companies.

It is a shame when you must pay so much for car insurance and then have to fight with your company to get fair treatment.

If you are 50 years old or older
If you drive and are 50 years old or older, you are probably a member of AARP. If not you should be; the cost is minimal and the benefits are many, too many to mention — including access to its outstanding auto insurance program, administered by The Hartford. The program and rates are specially designed for AARP members. For example, there are multi-car discounts, safe driving discounts, disappearing deductible, accident forgiveness, home/car policy discounts, air bag discounts, hassle-free claim service, and more — including a special discount for members who take an easy online defensive driving course. To take the course costs about $15 and can be completed in about six hours. Once you complete the course, you get the discount.

If you are over 50, we recommend the AARP auto insurance program. Request an online AARP insurance quote..

Summary
Car insurance is a necessary evil in many people's eyes. You don't want to pay for it when you don't need it, but it's nice to have when you do need it. However, insurance companies need to maximize profits and often use techniques that border on being a scam, or at best, unethical. As consumers, we have to watch out for ourselves.

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