How I Reduced Auto Insurance Premium

In this post, I want to share how I reduced my auto insurance premium.

Three Principles

I have three principles that apply to any insurance purchase decisions.

(1) Get high coverage for events that I cannot self-insure (by paying from my emergency fund).

(2) Get minimum coverage for events that I can self-insure. Drop if possible.

(3) Always choose highest deductibles.

First principle is ensuring my family are covered from financial perils caused by auto accidents. Per NHTSA, in 2016, there were 2.2 million of auto accidents that had death or injuries. I am a safe driver but my careful driving doesn’t guarantee I will never be involved into tragic accidents. It is definitely worth to pay premium for bodily injury liability and property damage liability.

Source: NHTSA.org - Traffic Safety Facts Annual Report, 7/03/2018

Source: NHTSA.org - Traffic Safety Facts Annual Report, 7/03/2018

Second principle is about spending least on coverage that I think I can pay easily from my emergency fund, or even denying the coverage. I have health insurance to cover medial cost for my family so I can go with minimum coverage for medial payments, or just drop it from my policy.

Third principle will lower my premium down significantly across the policy. With high deductibles, I won’t claim smaller incidents, so insurance company won’t increase my insurance premium due to claim history.

I Pass Commonly recommended policy

Auto insurance companies recommend couple of policies in different price ranges for good intention. Customers can simply choose one of the recommendations based on their financial situation, risk profile, and other factors. When I didn’t know much about auto insurances, I just got the “deluxe” policy that pay higher premium for higher coverages for peace of mind. Over time, I moved to the cheaper one that was somewhere between “deluxe” and “budget” plan.

Graph 1 - “Deluxe” Plan  gives you peace of mind by having high coverage, but makes you pay high premium. When you have traffic tickets, accidents, claims in the past, the premiums could be very expensive.

Graph 1 - “Deluxe” Plan gives you peace of mind by having high coverage, but makes you pay high premium. When you have traffic tickets, accidents, claims in the past, the premiums could be very expensive.

Graph 2 - “Budget” plan  satisfies the minimum liability coverages required by the State and provide minimum coverages. You will save money today but you could be inadequately protected from potential financial perils.

Graph 2 - “Budget” plan satisfies the minimum liability coverages required by the State and provide minimum coverages. You will save money today but you could be inadequately protected from potential financial perils.

Graph 3 -  “Mid-range” Plan  looks good when you don’t want to pay high premium but don’t want poor coverages, but it doesn’t mean financially optimized for you.

Graph 3 - “Mid-range” Plan looks good when you don’t want to pay high premium but don’t want poor coverages, but it doesn’t mean financially optimized for you.

Over time, I learned what coverages I truly need and what coverages I should not pay high premiums.


How much auto insurance coverage do I need?

This is what I have done for my 2019 coverage. As you can see I have dropped most of coverage while increased liability coverages to maximum allowed by m insurance provider.

Graph 4 -  Three Principle Plan

Graph 4 - Three Principle Plan

Let me explain one by one.

Bodily Injury liability - $1 million per person / $1 million per occurrence

Source: IMDB.com

Source: IMDB.com

There is a movie named Shot Caller. A successful financial professional who is happily married (actor Nikolaj Coster-Waldau who acts Jaime Lannisiter in the Game of Thrones) accidentally killed his friend. Sued by the friend’s wife, this guy’s life is totally changed. What if he had a higher coverage for bodily injury liabilities? I doubt it will change the movie, but it could change our life if we get into similar situation

This coverage pays if I am responsible for someone’s injury or death in an auto accident and any legal cost. This coverage is required by the law so I cannot drop even if I were very wealthy.

Many advices say I need at least $100,000 / $300,000. I stepped further and increased the coverage to the maximum available. I drive mostly in San Francisco Bay Area where many high income professionals and their family and friends ride in luxury cars and motorcycles. Any serious auto accident could lead to a financial disaster for me. So I wanted to be insured very well.

Since I don’t have umbrella liability insurance (and don’t need it yet), I just raised coverage in my auto insurance policy.

Fortunately premium price between my previous coverage $300,000 / $500,000 and this was small, probably because my clean record of driving.

What about Uninsured motorist & underinsured motorist?

This coverage pays if my injuries are caused by motorists who have no bodily liability coverage or insufficient coverage.

General advices say I should have the same or similar coverage with bodily liability coverage.

I went to with $500,000 / $500,000 that was maximum allowed from my insurance provider. It costed very little to increase from previous $300,000 / $500,000.

Property damage liability - $100,000 per occurrence

This coverage pays if I am responsible for damage to another person's property (cars, motorcycles, buildings, etc.). This coverage is required by the law so I cannot drop even if I were very wealthy.

I went with maximum coverage allowed from my insurance provider.


Collision / Comprehensive - Dropped

I get the re-sale value from Credit Karma (as screen-captured above) or KBB.com

I get the re-sale value from Credit Karma (as screen-captured above) or KBB.com

Collision coverage pays for repair or replacement costs if my car crashes or rolls over. Comprehensive coverage pays for damage due to theft, flood, vandalism, explosion, and fire.

I used to carry these coverages with $2,500 deductible. However, my car’s resale value was decreased to the level that it is not much worth to pay premium to insure it.

So I decided to drop both collision and comprehensive coverage.

Medical Payments - Dropped

This coverage pays for my and my passengers’ medical expenses regardless of who was at fault of auto accidents.

I have good high deductible health plan from my employer and have fund growing in health saving account. So I dropped this coverage.

Uninsured Motorist Property Damage - Dropped

This coverage pays for damages to my car caused by motorists who do not have property damage liability coverage.

My insurance provider has single option that pays $3,500. I can easily cover this amount from my pocket, so I dropped the coverage.

Emergency Roadside assistance - Dropped

This coverage pays for towing, labor for flat tires, jump starts, lock out, and other problems that could happen on roads.

My American Express card provides similar assistance, so I dropped this coverage.

Rental Reimbursement - Dropped

This reimburses rental car expenses while my car is being repaired under collision or comprehensive coverage claim.

I never carry this coverage. Now, I don’t even carry collision and comprehensive coverage, so there is no reason not to drop it.

What else have I done to lower premiums?

Updated insurance company about my low mileage

Insurance companies determine risk profile of insured drivers and cars by various factors, and one of important factors is how many miles I drive.

When I started working from home frequently, I have updated my insurer about estimated mileages, and they lowered my premium immediately.

Proved the driving history outside of U.S.

When I came to U.S. my auto insurance was very expensive. To the insurance companies, I was the newbie driver whose not enough driving record to determine risks.

I found one insurance company would accept foreign driving records, so I submitted the document I’ve got from my home country’s police department. This significantly lowered my premiums throughout all years I was insured.

That’s it. Hope you find this helpful.