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

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6. Saving money on your auto insurance- Good and bad decisions Aa Aa Deborah recently went online to review her auto insurance policy. Her policy is a Personal Automobile Policy and provides liability coverage with limits of $250/500/250, $50,000 of medical payment insurance, and uninsured and underinsured motorist coverage with limits of $250/500. She both have no deductible. has collision and comprehensive auto insurance, and Consider the following adjustments Deborah could make to her policy and the effect they would have on her monthly premium. Indicate whether each change would be worth the additional cost or cost savings by selecting "Yes" or "No" in the final column of the table. Smart Savings on Insurance Premiums Effect on Premium? Worth It? Switch from limits of $250/500/250 to $100/300/100 Eliminate Coverage C Increase collision and comprehensive deductible to $500 Suppose that Deborah 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 that Deborah's current company offers a higher quality of service and/or coverage than the other company O True O False layer WIN 30,0,0,13 O Type here to search

Explanation / Answer

(1) A reduction in limits of $250/500/250 to $100/300/100 reduces the maximum liability coverage which obviously reduces the premium. However it is not worth reducing the liability as it will increase the risk of a incurring a pay out in the future in the event of meeting an accident without insurance providing for the same.

So it is clearly not worth the reduction of the premium.

(2) An increase in collision and comprehensive deductible to $500 also reduces the premium. However this implies that amount of money that one has to pay before insurance covers the rest increases.

An increase in deductible by $500 may be acceptable provided it results in a significant reduction in premium. So it is worth it.

(3) Elimination of coverage C will again reduce the premium. However this will leave the insured exposed to risk because of withdrawal of insurance.

So it is clearly not worth the reduction of the premium.

If the coverage from a different auto insurance company is substantially less ($15 less per month) than the present plan, then it is prudent to switch to the new plan provided coverage and terms of insurance are identical.

This can happen if the underwriting companies have different risk management approach.

So it is true that rates can vary substantially across policies with identical coverage; therefore Akiko should consider switching to the cheaper company.

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