Like your real neighbor, State Farm is there to make money. All those shiny geckos, cavemen, jokes, and jingles are in your head because Warren Buffet’s Geico pays a LOT of their hard-earned money to put them there. When you buy a car, the law requires certain levels of insurance, and, depending on who, how, when, what, and where you are, you will pay different amounts for this insurance. It’s all so confusing and annoying–can’t we just pay someone to figure that out for us?

You actually do, and that’s all rolled into the price of your insurance (along with marketing money, operations, etc). A lot goes into determining your insurance premium, and, lucky for you, I spent the majority of my 20s working in at insurance tracking company, and I’m happy to teach you all the ins and outs they don’t want you to know behind the curtains of Oz. Here are a few things to remember when shopping for car insurance.

We all live in a yellow submarine. A yellow submarine? A yellow submarine...

We all live in a yellow submarine. A yellow submarine? A yellow submarine…

If You Have a Loan, You Need Insurance

Anytime you take out a collateral loan (house, car, RV, boat, motorcycle, etc), you have to buy insurance on it. It’s called Collateral Protection Insurance, and it’s not much different than a store or phone warranty. If you don’t voluntarily purchase insurance, you’ll be saddled with the bank’s inflated Force-Placed Insurance. Assurant (a company also owned by Warren Buffet) ironically has subsidiaries that underwrite both Force-Placed Insurance and cell phone insurance (which is why you’ve never heard of them, despite probably paying money to them).

Liability insurance is usually standard (meaning the accident’s your fault) for any vehicle. If you don’t own the vehicle, the banks will require certain levels of collateral and collision insurance. Some states are beginning to pull this market-share from the banks, so who’s forcing you to pay varies by state, but you’re paying it either way.

Force-Placed Insurance Ruins Lives

While we’re speaking of the dark underbelly of insurance, it’s important to know that the high price of force-placed insurance is largely responsible for the majority of repossessions and foreclosures nationwide. Basically what happens when you run into financial trouble is you stop paying on your insurance to keep up your rent/mortgage/car/utility/food payments.

When you avoid that $100-$1000 bill, your bank punishes you by backdating a more expensive policy (4-10x more expensive), and forcing you to prepay the next year’s premium as well. In addition, an analysis will be performed on your loan, and your car or mortgage payments will double or triple. That’s all it takes to push many honest and hardworking people to lose their home and their car within a year. Even if you recover, it’ll take years, as your credit will be ruined, and it’ll take more and more money to get back above water.

Avoid all of this by keeping up on your insurance, and, when the banks erroneously accuse you of not having insurance, just because you were price-shopping online and the insurance company mailed them a letter to let them know, be vigilant and stern in correcting their mistake immediately. Hold them accountable. Speaking of which—

Insurance Agents Are Everywhere–Price Shop

There’s no reason not to price shop. If you’ve ever travelled on an airline, you know you can use aggregate services like Priceline or Hotwire to get basic prices, but the best deals are always on the airline’s actual site. This works the same way in insurance—no matter how honest a company seems, they really want you to use their service. They may sometimes show a competitor is cheaper, but they’re there to make money as well, and you’re not a part of their family. The very least you can do for yourself is check every company’s website, no matter how many times you’re forced to enter all your info again.

You May Already Have Insurance

A lot of insurance companies, such as Erie, Traveler’s, Lloyd’s of London, etc. offer umbrella policies, which can cover your home, vehicles, recreational vehicles, and more. When looking for insurance, check with the company you already have. It doesn’t even have to be a full umbrella policy, car insurance sometimes covers the driver, so you can drive other cars you don’t own without paying extra. Some provide car rentals in case of an accident and/or cover damage to the rental car itself. See what you have before you buy more.

Whenever you don't trust a cop, take a picture...

Whenever you don’t trust a cop, take a picture…

Extreme Couponing

Every insurance company has discounts that can be obtained in different ways. Remember your agent is just a sales person. No matter how local they seem, their policies are underwritten by someone bigger than they are, who in turn is underwritten by someone bigger until you get to one of the big guys. If you’re not insured by that structure, you’re borrowing from a legitimate loan shark/bookie/drug dealer, and you’ll probably be brutally killed for not making your payments.

Because they’re salespeople, agents offer discounts for good grades, reaching a certain age, being born a certain sex, and things like that. They’re not offering these discounts—a billion dollar research project analyzed consumer data and determined how much to charge you to make as much profit as possible while still undercutting the competition. The real deals your agent is offering you are discounts for watching a video, taking a class, or some other menial task—they do that because they’re good sales people, and know it’s subsidized by the government to make the streets safer. Since the government is run by taxes, ultimately, you’re always footing the bill.

It’s About Who You Know

If you work in the government, you can get a great deal with USAA. Like credit unions, many insurance companies started as coops. Even Geico stands for Government Employees Insurance Company. By the time you heard of them, they were already huge. That’s the thing about insurance companies—despite what you think from their public face, they hide in the shadows making money. If you’re a teacher, work for a non-profit or tech firm, you may be able to obtain cheap insurance from your occupation. Look into it.

Long-time customers are valued in any business, so whoever you do pick to insure your car, stick with them as long as you can. They may experience ups and downs, but they’ll appreciate you sticking with them in the long run, and you’ll often be surprised at how much local agents will go out of their way to help long-term customers. Don’t shop for insurance by the flashy ads or from whoever’s offering the best deal up front. Look into their track record, check to see if loss ratios are in line with the competition. Ask friends and family how their company and agency treats them. With a little elbow grease, you can find the right car insurance for you.

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