Understanding automobile insurance


Among other responsibilities like paying bills and buying one’s groceries, shopping for automobile insurance can transition a teenager into adulthood.

With a number of insurance companies to choose from and coverages to select from each policy, shopping for car insurance can be a difficult experience.

Dr. Danielle Lewis, professor of finance, explained that there are two main components students should understand before shopping for car insurance: deductibles and premiums.

“The term deductibles, this is the amount of money that you have to come up with out of your pocket, should you have an accident,” said Lewis. “The other thing is premiums. The premium is what you pay each month.”

Premiums can be paid monthly, semi-annually or annually. Lewis explained that if premiums are paid for a longer time frame and locked, the premium amount will not increase in case of an accident.

“If I happen to have a wreck, typically what happens is they access that you’re not as good a driver, and they’re gonna raise your premiums,” explained Lewis. “Some companies will. Others have these policies where they have accident forgiveness to where you can have one accident, and your premiums won’t rise.”

Deductibles and premiums have an inverse relationship and one increases while the other decreases.

The article “How Do Deductibles Affect Car Insurance Premiums?” published by ValuePenguin website explained how to choose the deductibles and premiums while shopping for insurance.

“If budgets are tight, drivers may be better off selecting a lower deductible – a slightly higher monthly premium may be manageable in order to avoid the potential stress of covering a high repair bill out-of-pocket,” the article explained. “If drivers have more savings, they may be fine with lower monthly premiums and a larger portion of their repair cost if they file a claim in the future.”

Lewis shared that she keeps her deductibles higher when shopping for policies.

“I try to keep as high a deductible as possible, and that’s because I can stand to afford a $2000 deductible,” said Lewis. “I haven’t had an accident ever. So, it’s one of those things where I feel like if I do ever have an accident, the least I’m gonna have to pay is $2000. I get a much lower premium.”

Having a large number of car insurance companies to choose from can be beneficial to customers.

“Competition is good,” shared Lewis. “The more the better. Whenever you have fewer, you have less choices, and you typically don’t have as favourable of premiums. So, when you get more competition, you tend to have companies competing against one another for clients and so there will be more competitive pricing.”

According to a newsletter published by Business Report, Louisiana drivers pay the second highest premium in the United States. Lewis explained that premium amount is higher in Louisiana because of the large number of uninsured drivers.

“We have a lot of drivers that do not have insurance and so that means when they get into a wreck, they don’t have a policy,” reasoned Lewis. “So, we’re all having to pay for them.”

Customers do not have to stick with the same insurance company for a long period of time.

“It helps to build a relationship with one insurance company, but it is not to your benefit to avoid shopping around,” shared Lewis. “That’s what I was doing a few weeks ago. I am with State Farm, but I was calling other companies like Progressive and Geico to see if I could get my premiums down.”

Lewis feels students should shop for their car insurance themselves and learn from the experience.

“It’s complicated decisions,” explained Lewis. “You’re bombarded with all this information, and if you’re doing it yourself, you’re having to learn every little element. It may be that you just randomly go pick up a policy. You’ve no idea what you bought, but as soon as you have an accident, I can guarantee you’ll figure out what you bought, whether what you bought was decent or not and it’ll prepare you the next time when you go out and get a policy.”