6. Saving money on your auto insurance - Good and bad decisions

A key principle of buying insurance is to retain risks you can afford and insure against risks you cant afford. It is therefore important to recognize that some cost-saving decisions are more advisable than others when choosing types of coverages and liability limits.

Consider Kim and the adjustments she is considering making to her policy. First determine the effect each change would have on her monthly premium, then indicate whether each change is generally advisable by selecting Yes or No in the final column.

Smart Savings on Insurance Premiums

Kims policy is a FAP and provides liability coverage with limits of 100/300/100, $10,000 medical payment insurance, and uninsured and underinsured motorist coverage with limits of 1/2. She has collision and comprehensive auto insurance, both with a $500 deductible.

	Effect on Premium	Advisable
Switch from limits of 100/300/100 to 250/500/250
Decrease collision and comprehensive deductible to $100
Eliminate Coverage C

Suppose Kim gets quotes from other auto insurance companies and finds that one company offers the same coverage as her current plan but for $15 less per month.

True or False: Rates do not vary substantially across policies with identical coverage; therefore, you can assume Kims current company offers a higher quality of service and/or coverage than the other company.

False

True