How Bad Credit Could Be Doubling Your Car Insurance Bill

You've probably heard by now that in some vague way, your credit rating has something to do with the premiums your auto insurance company charges you for coverage. But if you're like me, you've probably never quite understood the details of how this work.

Fortunately, the good folks at InsuranceQuotes.com -- a subsidiary of Bankrate (RATE) -- recently published a report that draws back the curtain on this little-understood quirk of the insurance industry.

Blame it on FICO

Used to be, the rate you paid for insuring your car was tied primarily to demographic and personal factors that were clearly connected to the risk that you'd damage your car and ask the insurance company to pay for it: things like your age, sex, marital status, and driving history. It won't surprise anyone that younger, unmarried men are more likely to be risky drivers than soccer moms, and should therefore pay higher premiums. But about 20 years ago, the folks at Fair Isaac Corporation (FICO) found a correlation between low credit scores and a higher risk of filing an insurance claim.

That's not causation, of course -- having bad credit doesn't somehow cause you to crash your car. But according to FICO, "people who choose to effectively manage their finances are also less likely to have future insurance losses." Conversely, there is a "statistical correlation between a person's credit score and the likelihood that he or she will file an auto insurance claim in the future."

Shazzam! Suddenly, FICO had a new way to hawk its credit histories to insurance companies -- and insurance companies had a new excuse to raise your rates.

News Flash: Everybody Does It

Ever since, insurance companies have used this finding to tweak the rates they charge you for insurance. Today, says InsuranceQuotes, "about 97 percent of U.S. insurance companies" do it.

But how do they do it, exactly?

InsuranceQuotes.com wanted to find out, and so they ran some tests, requesting quotes for a hypothetical insurance customer with the following attributes:

• Age: 45
• Sex: Female
• Marital status: Single
• Accident history: No prior claims
• Insurance history: No lapses in coverage.

In essence, InsuranceQuotes started with the perfect candidate. Neither too young, nor too male, to be considered an unsafe driver. Spotless driving history. Just the person you'd expect an insurance company to consider low-risk and to offer a low insurance rate. Now let's see what happens to her rates as her credit history changes.

• Excellent "credit-based insurance score" (not the same as a FICO credit score): No effect
• Median score: Premium goes up by 24 percent
• Poor score: Premium goes up by 91 percent

Ignorance Is Not Bliss

As you can see, there's some pretty serious coin at stake here. Yet according to a 2005 report out of the Government Accountability Office, roughly two-thirds of consumers surveyed had no idea that their credit rating could affect their insurance rates at all -- much less cost them nearly double for poor credit.

It literally pays to know the truth about this. And the truth is that if you're among the two-thirds who don't know the details of how insurance companies use credit history to determine your rate -- and if you're a customer of one of the 97 percent of companies that engage in this practice -- you're probably paying through the nose for your ignorance.

Let's Fix That

What do we know about how this system works? Not a lot.

Individual insurance companies hold information about their pricing practices close to the vest, calling their methods for setting rates trade secrets. Worse, according to Former Texas Insurance Commissioner Bob Hunter, now director of insurance at the D.C.-based Consumer Federation of America, "every insurance company uses this score differently."

But there are some general rules that appear to hold true across the industry.

FICO insurance underwriting expert Lamont Boyd tells InsuranceQuotes.com that just two factors make up about 70 percent of the credit-based insurance score that insurers use in setting their rates. Specifically:

• 30 percent of your score depends on "how much credit card and loan debt you have compared to how much you are allowed to borrow."
• Even more important, "40 percent of every consumer's bottom line score will be driven primarily by whether or not you paid your credit obligations on time."

Other inputs include length of credit history, collections, bankruptcies, and new applications for credit.

Knowledge Is Power

Knowing this, we can suggest a couple of simple rules that will -- if not necessarily protect you from this insurance industry practice -- at least help to minimize your risk of getting gouged.

• First rule: Don't max out your cards, and always make sure you have lots of credit available to you. That means not necessarily closing credit card accounts just because you don't need the cards anymore (which would decrease your available credit, even as it risks removing beneficial, long-held credit accounts). The key is to have a lot of cushion between the amount you actually owe and the ceiling on your credit limit.
• Second rule: Pay your bills on time.
• Extreme option: If all else fails, you could move to California, Hawaii, or Massachusetts. According to InsuranceQuotes.com, these three states are the only states that ban the practice of setting insurance rates based on credit ratings. (Although two of those states have other downsides: In a state-by-state rundown of most expensive average car insurance costs, California came at No. 7, and Hawaii at No. 15. But Massachusetts falls in the bottom third, price-wise, at No. 35.)

Motley Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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8 Car Insurance Myths You Should Send to the Junkyard

From the old fiction about red cars costing more to insure, to the one about rates dropping when you turn 25, to the idea that "full coverage" means you get a new car after a crash, myths about car insurance abound. And they're easy enough to take at face value -- until you look at the facts. Not falling for these eight insurance fables could save you some cash.

1. "Full coverage" will get me a new car if I crash. Your auto repair shop may thank you for having collision and comprehensive coverage, because they'll get paid by your insurer for fixing your car. But however you define "full" coverage, it won't equate to you getting a new car after you crash. Insurance is meant to put you back to where you were, not improve upon it, so you won't be getting a better car than you had.

If your car insurance agent tells you that you have "full coverage," ask what that entails. It could include liability, property damage and rental reimbursement, says Shane Fischer, an attorney in Winter Park, Fla. "Unfortunately, most people who claim to have 'full coverage' are people of modest incomes who buy the cheapest policy their state legally allows," he says. "This can leave them without uninsured motorist coverage if they're a victim of a hit and run, without a rental car if theirs is damaged in a crash or personally responsible for thousands in medical bills if they don't have enough liability coverage."

Full coverage isn't an insurance term agents use, says Adam Lyons, CEO of The Zebra, a digital auto insurance agency. Collision insurance covers damage to your vehicle in an accident. Comprehensive covers non-accident damage, such as from theft and fire. If you want medical coverage and other protections, you'll have to spell that out for your agent, Lyons says.

2. My rates will go up if I get a traffic ticket. Not always, says Matthew Neely, owner of Eco Insurance Group in Las Vegas. A client who has six speeding tickets in the past three years hasn't had his rate go up, he notes.

Here's how it works, Neely says: Some companies only ask for a record of an applicant's driving history when he or she first sign up for a policy. Motor Vehicle Reports cost $3 to $28, depending on the state. "These charges can get very expensive for insurance companies, so a lot of the time the carrier will randomly select households and run the MVRs," he says. "If you are lucky enough, the insurance company will not find out about your speeding habit. However, if you let your insurance lapse, get into an accident or change insurance carriers, the carrier will run the MVR."

3. Thieves prefer new or fancy cars. Not true, points out Lyons. Of the 10 most frequently stolen cars, the most stolen in 2012 was the 1996 Honda Accord, according to the National Insurance Crime Bureau. You might have the latest and fanciest car, but a 1996 Accord is preferable for catalytic converters and other parts that are more in demand. To protect your car against theft, get comprehensive insurance.

4. My red car will cost more to insure. False. Insurers don't care what color your car is and they don't ask for that information. Police might spot a speeding red car quicker than a white one, but an insurer factors in other aspects of your car, such as model, make, year and engine size.

5. The longer you are with an insurance company, the lower your rate will be. This is half true, Neely says. Longevity discounts are sometimes offered to policyholders, but it doesn't shelter them from increased costs, he says. "Most of the time, the moment you make a claim, this discount will disappear, and it does not guarantee your rate will not increase," Neely says.

6. My credit score has nothing to do with my car insurance rate. In most cases it's the biggest factor of determine your rate, right after your driving record, Neely says. Studies have shown that individuals with good credit get in fewer accidents, he says, though insurers in California, Hawaii and Massachusetts can's use credit as a rating factor.

7. No fault means I am not at fault. In most states "no fault" simply means that each insurance company involved pays for their respective policyholders injury-related bills, regardless of who is at fault, Neely says. This helps keep the overall cost of car insurance down.

8. Rates drop at age 25. Rating factors vary by state, but in North Carolina, the myth is wrong because age isn't a factor in pricing, says Jonathan Peele, president of Coastline Insurance Associates of North Carolina. Instead, insurers use the years of experience to determine the rate. Once the driver has more than three years of driving experience, the insurer can't surcharge the premium, he says. Less experienced drivers are charged more for car insurance because they have a higher risk.

A former newspaper journalist, Aaron Crowe is a freelance writer who specializes in personal finance, real estate and insurance for various websites, including Wisebread, insurance websites, MortgageLoan.com and AOL.

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How Car Insurance Companies Handle Car Accident Claims

When Apple programmer Kit Cutler's 2012 Ford Focus was slammed from behind by a silver Lexus, the hit was so hard that it shoved his car into the Honda Accord in front of him. Although no one was hurt in the accident, the driver of the silver Lexus drove off without providing insurance information to anyone. Cutler and the Accord's driver exchanged insurance information, filed reports with the police and went home. The accident was only slightly more confusing to Cutler than the insurance claims process that came after.
That car insurance claims process baffles nearly everyone. "Most people only file a claim every eight to 10 years," says Jeanne Salvatore, vice president for public affairs and consumer spokesperson for the Insurance Information Institute, an industry-supported, non-lobbying group dedicated to improving public understanding of insurance.
Cutler filed his claim by phone. "In that initial interview, the agent told me very quickly that I wasn't at fault," he says. Then she asked him questions about the accident and typed his answers into an online form. Cutler checked and verified the information.
"They go through it all very quickly, so you have to pay attention," he says. "I hadn't been in an accident before, and I didn't know what was going on."
This article explains what insurance companies are doing behind the scenes in the wake of an automotive mishap or collision. It also discusses what happens if you're hit by an uninsured or underinsured driver.
Immediately After the Accident
If you're involved in an accident, "The first thing to do is let your insurance company know you were in an accident and provide all the specifics of it," Salvatore says. "From the second of the accident, keep good records." Use your smartphone (or keep a notebook in your glovebox) and write down the time, date, plate number, make and model of their car, their registration information, license number, name, insurance company and contact information.
If the police are on the scene, Salvatore says, take their names and badge numbers. Get the names of any witnesses and note whether emergency medical personnel were called. "Photos are helpful. Take pictures of the car and the license plate," she says. "If the claim is straightforward, you may not need any of it, but if a problem occurs, you need all the information possible." Again, with the prevalence of smartphones these days, this is all quite easy to do.
From filing the claim to resolving it, every insurance company's methods are different. However, the essentials of the process are fairly standard. You'll only see part of the process, though. All negotiations between insurance companies about payments and reimbursements will be carried on behind the scenes.
Filing Your Claim
As with Cutler's case, it's standard for your insurance carrier to call soon after you report an accident. During that call, "We'll match the person to their policy, determine what happened in the accident, find out about any injuries, the extent of damage to both vehicles and get some demographic information," says Mike Flato, a process business leader for Progressive Insurance. "We'll make sure everyone is OK; if not, what happened and then who'll handle the medical claims."
After a claim is filed, your insurance company assigns you a claims adjustor, who is your contact from then on. Adjustors coordinate teams that look at medical reports, investigate the accident, speak with witnesses, view the scene, examine the vehicle damage, manage all the repairs and any medical treatments, check all coverages (how much your policy pays for medical injuries and property damages) and ultimately determine fault.
"The claims process is the business of the insurance company," says Salvatore. "Every situation is different, and the better organized you are, the easier the claims process is."
While adjustors work, medical treatment and auto repairs start immediately, with each insurance company covering its own driver's injuries and property damages. This process of "making you whole" is known as indemnification. Your insurance company indemnifies you, not the other way around. Later, after the insurance companies assess fault, they will negotiate to determine which one will reimburse the other for claims paid.
Who's at Fault?
Fault assessment is not necessarily a simple matter. "Liability laws don't govern how you assess fault," says John Murphy, service center business leader for Progressive Insurance. "They dictate how much you can collect and who is eligible." Therefore, fault determination is up to the insurance companies.
"There may be an allocation of fault, such as 60/40," says Scott Spriggs, a member of the Insurance Council of Texas. "In that case, payments may be apportioned by percent of fault." That is, the insurance company of the driver who is 60 percent at fault pays for 60 percent of the claims and the other company pays for the rest.
"Sometimes, if one party is allocated more than 50 percent of fault, that driver's insurance company pays for everything," Spriggs says. "In no-fault states, each driver's insurance company pays for its own customer's claims."
If one driver is wholly at fault, it's much simpler. "In at-fault states, at-fault drivers try to collect from their own insurance, whereas the person who is not at fault collects from the at-fault driver's insurance company," Salvatore says.
When an Uninsured or Underinsured Driver Hits You
It may come as a surprise, but the process doesn't change much when uninsured or underinsured drivers are involved.
"Each state has its own rules about what qualifies as uninsured and underinsured," says Murphy. If an uninsured driver hits you, and you suffer injuries, "your insurance company will pay you," he says. However, you must have collision insurance or coverage for uninsured or underinsured drivers in order for your carrier to pay for your car's damages. After any payments to you, your carrier "will try to find the uninsured driver and get reimbursement for its payments," he says.
Fortunately, Cutler got a photo of the Lexus' license from the Accord's driver. The photo meant Cutler's insurance company could find the hit-and-run driver and demand reimbursement for the $11,000 it paid to repair Cutler's car. Because of the photo, Cutler says, his insurance company waived his deductible.
Every state but New Hampshire and Virginia requires auto liability insurance. New Hampshire requires that drivers set aside funds for accidents, but Virginia doesn't, according to the Insurance Information Institute. Despite this, the institute says your chances of encountering an uninsured driver in the United States are about one in seven.
When a driver is underinsured, "your insurance company will work with the other driver's company to cover your claim," Spriggs says. For example, suppose the underinsured driver's policy covers up to $5,000 of property damage, but your vehicle sustained $10,000 in damage. In that case, the underinsured driver's insurance company will pay $5,000 and your insurance company will pay the other $5,000. Your insurance company will then go directly to the underinsured driver and seek reimbursement for its payment to you.
Although claims adjustors determine fault, "subrogation units" use those determinations to decide which insurance company pays and how much it pays.
"Subrogation is the substitution of one creditor for another," Spriggs says. "If I am hit by someone else, my insurance company will cover that damage." In other words, you substitute one creditor — your insurance company — for another creditor (the other driver's insurance company). That is subrogation. Then, of course, your insurance company seeks reimbursement from the other insurance company or the driver.
In Cutler's case, neither he nor the Accord driver were at fault. Therefore, each driver's insurance company paid its own customer's claim. No subrogation was involved.
How Carriers Resolve Payment Disputes
When each driver's carrier completes its claim investigations, "one insurance company will send a demand [for payment] to the other," Murphy says. "That will be countered. The carriers will then work out liability and who pays what. Most of the time, we make the appropriate payments. The faster we can do that, the faster we can pay out."
If companies can't agree on payment, they can request judgment from Arbitration Forums, an industry-funded nonprofit set up to handle insurance carrier disputes.
"For arbitration, the two companies apply and present all their information," Murphy says. "The arbitration panel makes a decision." Those decisions are final and binding, and there is no appeal.
What You Need To Know
Even the most minor car accident can shake you up. But it's important to know the steps to take so that everything will go smoothly in the claims process.
If you need to file an auto insurance claim, know what kind of coverage you have, be prepared with as much information about the accident as possible, stay in touch with your claims adjustor and know your state's laws regarding liability.

"Every state has an insurance commissioner," Salvatore says. "You can go to that Web site to learn about your state's laws."

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Car Insurance Companies Use Facebook for Claims Investigations

Know How To Preserve Your Car-Related Privacy

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In the hours after a car accident, filing a claim with your auto insurance company is one of the first steps you should take. But auto insurance industry insiders say a smart second step is giving social media accounts the once-over to prevent all or part of that claim from being denied.
In the past five years, the use of social media has exploded within the insurance industry, says Frank Darras, an insurance attorney in Ontario, California, who represents plaintiffs in suits against insurance companies. Because social media Web sites provide a real-time examination of users' lifestyles, insurance companies, claims adjusters and attorneys have begun to monitor and mine them as a valuable source of claims-investigation evidence. Insurers are reviewing information found on such social media sites as Facebook, LinkedIn, Instagram, Twitter, Foursquare, Google Plus and Pinterest, and applying it to auto claims, says Chicago personal injury lawyer Michael Helfand.
"This happens all the time," he says.
Facebook is used in almost every claim now, especially when there is an injury. "Checking social media accounts has become one of the first things an insurance company or adjuster will do when you file a claim," adds Darras. Especially when any injuries stem from the accident.
Claims Investigation by Social Media
Part of the new claims-investigation process is for an adjuster, agent or insurance company to look for the Facebook, Twitter or other social media account of a person claiming bodily injury stemming from an accident, Helfand says. They're looking for proof that the person is filing a fraudulent claim, he says.
If the part of your accident claim is for a back injury and you share post-accident pictures of you golfing, surfing or playing ball with the kids, your claim could be denied.
"Over the years, social media has killed a bunch of claims," says Helfand.
"Almost every insurance company has a special investigation unit (SIU), and policyholders should work on the assumption that SIUs will look into questionable or fraudulent claims," says Michael Barry, vice president of media relations for the Insurance Information Institute.
"Mining social media for clues is one of the fastest-growing areas of insurance-fraud investigation," says James Quiggle of the Coalition Against Insurance Fraud in a report published in 2012.
While insurance adjusters or agents may not look into the social media accounts of every person who files a claim, they will definitely dig into social media if they have any reason to suspect a fraudulent claim.
"It's simply part of the due diligence in investigating a case, because so many people are brazen or dumb enough to say one thing to an insurance adjuster while at the same time telling the world something else," Helfand says. "It's not unusual for a person to tell the adjuster and doctor how much their back hurts and then post photos from their softball league.
"Facebook and other social media sites have become a great tool for fighting claims because the 'look at me' nature of social media causes people to shoot themselves in the foot," he says.
A claims adjuster will also stick directly to the language you use in the claim. If you report that you're unable to lift more than 20 pounds, but a picture on social media shows you doing otherwise, Darras says you can expect the claim will be denied.
The same goes for tweets and status updates detailing your mood or mental state related to the accident. A stream of tweets about your road rage or noting that you're driving against doctors' orders because you're under the influence of medicine will raise red flags on any auto-accident-related injury claim.
Switch Your Privacy Settings
Using Facebook or Twitter activity in the claims process is completely legal — as long as the information is part of a "public" profile, Darras says.
"It is generally understood that if the adjuster or insurance company has to 'friend' or have a third party 'friend' the claimant on Facebook to obtain the information, then it becomes unethical and an invasion of privacy. Unfortunately, that doesn't necessarily make it illegal," Darras says
You can reduce your exposure by adjusting the privacy settings for Facebook accounts so that only people you select as friends can read your status updates or view photos on your account. And make sure privacy settings on Twitter are set to "Protect my Tweets" to limit who can read your timeline.
But beware: Your friends' social media accounts could also complicate an insurance claim. A photo or post on Facebook that's visible on a friend's public page might also be spotted, and used, by a car insurance company or claims adjuster, Darras says.
To be safe, Darras suggests removing the Facebook photos and tags or tweets of anything incriminating. For instance, delete a post in which your friends say that you're a terrible driver — even if they're joking. Helfand says an insurance company could use this evidence against you during the claims-investigation process.
"The responsibility to be constantly vigilant with Facebook profiles and Twitter streams is ultimately on consumers," says Helfand.
Keep Quiet
Don't rely solely on privacy settings to protect a claim. Helfand says the best advice is zipping your virtual lip.
"No matter how rattled, irritated you are, it's never wise to tweet or post on Facebook that you were involved in an accident," he says. "There's nothing to benefit from doing that."
In fact, getting social about an accident or car insurance claim is possibly the worst thing you can do.
"Doing this is just asking the insurance company to use the information against you, even if what you said was harmless in your eyes," Darras says. "Remember that jokes and sarcasm aren't conveyed well on social media and the insurance company will use everything they can."
Often insurance companies ask a person injured in a car wreck to provide information about their activities for a two-week period, says Darras. If any public Facebook activity doesn't match the log, the insurance company can think you're lying and treat the auto insurance claim as fraud.
Disputing the Social Scoop
If the Internet interferes with your claim, all is not lost. It may be possible to dispute anything an adjuster turns up on your social profiles.
"One of the biggest arguments consumers can use against insurance companies is their failure to investigate the information further and receive third-party support of the information they found on social media," says Darras.
And because social media should be a starting point, not the only evidence used in approving or denying a claim, you can press the insurance company to consider statements from other sources, such as doctors or witnesses, or allow you to explain the circumstances around the information found on your social networking profiles.
The Bottom Line
There is a time and place for social media, and it's not necessary to shut down your accounts after an accident. But it is important to watch what you post and be cautious about your participation in conversations, says Darras. And remember, regardless of your privacy settings, social media is never really private.

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How To Shop for Use-Based Car Insurance

In recent years, nine of 10 top U.S. auto insurance companies have started selling policies based on how motorists drive. At least a handful of pay-as-you-drive policies are offered in every state, covering as many as 3 million U.S. vehicles, according to industry estimates. Switching to use-based insurance (UBI) could help you save a little or a lot over what car owners spend on premiums associated with a more traditional policy.
If you're considering changing to a UBI plan, it pays to understand what you're getting.
Carriers set UBI rates by collecting mileage or other information directly from your car, but similarities among policies end there. Some insurers use a small, meterlike electronic device that plugs into a car's onboard diagnostics port to store or transmit information. Newer versions gather driving data through an app and a smartphone connected to a car's infotainment or telematics system.
Drivers may happily trade access to their driving habits for lower insurance rates. But privacy advocates worry that insurance companies aren't always 100 percent transparent about what data they collect, what they do with it and with whom they share it.
"Privacy is a real question," says J. Robert Hunter, insurance director for the Consumer Federation of America. "What do insurance companies do with that information? If I park at the corner of Main and 14th and on one corner is a bar and another is a gym, will you raise or lower my rate?"
Here are steps to take if you're shopping for car insurance and considering a use-based policy:
Find out what's available: Look on the Web site of your state insurance commission or consumer advocacy agency to see which insurance carriers are licensed to operate in your area. Here's a list of all 50 state insurance departments. Alternatively, visit auto insurers' Web sites and type in your ZIP code to see if they sell UBI plans where you live.
Understand what types of data insurers collect: Some states restrict the information insurers can collect, which limits the types of UBI policies they offer. In California, for example, insurance companies can track mileage but are barred from monitoring where or when you drive. They also can't track such behaviors as how fast you drive or how often you slam on the brakes, the activity known in insurance lingo as "hard-braking events." Visit state insurance regulators' Web sites for their explanations of the UBI plans they authorize, such as this pay-as-you-go auto insurance pamphlet from the Oregon Department of Consumer and Business Services. You can also read the fine print on UBI policies on insurers' Web sites to determine what driving data an insurer collects, and how it is gathered.
Try before you buy: Certain insurers give potential customers a chance to take a UBI policy for a test-drive before committing to a policy. In such cases, you may be asked to plug an electronic monitor into your car's diagnostics port for a month or so, which allows the insurer to collect enough data to set a rate. Other insurers offer UBI policies only to existing customers.
Understand how insurers determine discounts: Insurers may offer an introductory discount of 5 or 10 percent during a try-out period, and adjust the rate as needed after monitoring mileage or driving behaviors for a set time period. Progressive Insurance bases rates for its Snapshot policy on six months of driving data. State Farm customers with Drive Safe & Save policies keep electronic monitors plugged into their cars all the time, so, theoretically, their rates could change at renewal time, if they've driven substantially more or less than in the previous period.
Consider a UBI bundle: Some insurers offer UBI as part of a bundle of services tied to a car's built-in entertainment, safety or maintenance systems. State Farm's Drive Safe & Save with In-Drive Connect policy, a joint venture with Verizon Wireless, offers mileage-based insurance along with stolen vehicle assistance and hands-free mobile phone service. After a one-year free trial, charges for In-Drive Connect jump to $6.99 a month or more based on what other features a customer chooses.

See how you're doing: If you sign up, use the Web portal associated with your UBI policy to monitor your driving. Some insurers' dashboards give customers a grade based on their driving habits. For example, customers of Allstate's Drivewise UBI policies can download an iPhone or Android app to look up mileage, speed, hard stops and what times of day they drive.

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12 Car Insurance Cost-Cutters

Due to the litigious nature of our society and the rising cost of vehicles, car insurance rates are hefty throughout the nation. The bad news is that insurance isn't likely to lessen in price any time soon. The good news is that there are things that you can do to minimize increases and/or lessen the burden on your wallet. Let's take a look at 12 tips you can employ to save your driving dollars.

1. Insure Multiple Cars/Drivers
If you obtain a quote from an auto insurance company to insure a single vehicle, you might end up obtaining a higher quote (per vehicle) than if you inquired about insuring several drivers and/or vehicles with that company. This is because insurance companies will offer what amounts to a bulk rate because they want your business, and under some circumstances, they are willing to give you a deal if it means you'll bring in more of it.

To obtain a discount, ask your agent/insurance company to see if you qualify and get a quote. Generally speaking, multiple drivers must live at the same residence and be related by blood or by marriage. Two non-related people may also be able to obtain a discount; however, they usually must jointly own the vehicle.

Incidentally, some companies may also provide an auto insurance discount if you maintain other policies with the firm (ex. homeowner's insurance). Check with your agent/insurance company to see if such discounts are available and applicable.

2. Keep A Clean Record
It should go without saying that the more accidents or moving violations an individual has, the more he or she will tend to pay in terms of annual premiums. For those unaware, points are typically assessed to a driver for moving violations. Generally speaking, more points can lead to higher insurance premiums (all else being equal).

3. Take A Defensive Driving Course
Sometimes insurance companies will provide a discount for those that complete an approved defensive driving course. Also, sometimes a driver can reduce the number of points he or she has on his or her license by taking a defensive driving, accident prevention or other course.

Make sure to directly ask your agent/insurance company about this discount before signing up for a class. After all, it's important that the effort being expended and the cost of the course will translate into a big enough insurance savings. It's also important that the driver sign up for an accredited course.

4. Shop Around
If your policy has just been renewed and the annual premium has gone up markedly, consider shopping around and obtaining quotes from competing companies. Also, every year or two it probably makes sense to obtain quotes from other companies just in case there is a lower rate out there.

However, remember that cheap doesn't always mean good and going with the lower-priced company isn't always the wisest decision. That's because the insurer's credit worthiness should also be considered. After all, what good is a policy if the company doesn't have the wherewithal to pay an insurance claim? To run a check on a particular insurer, consider checking out a site that rates the financial strength of insurance companies (such as A.M. Best). Financial strength of your insurance company is importnant but, what your contract covers is also very important so, make sure you understand your insurnace contract.

5. Take Mass Transit
When you sign up for insurance, the company will generally issue you a questionnaire. Among the questions it asks might be the number of miles you drive the insured automobile per year.

If you use your vehicle to commute three hours to work every day, you will generally pay more in insurance premiums than someone who only drives one mile a day. If possible, try to use mass transit to rack up fewer miles, keeping in mind that you will usually have to decrease your mileage significantly before incurring a discount. Ask your agent/insurance company about the company's different mileage thresholds so your efforts won't be wasted.

6. Select Your Vehicle Carefully
Buying a huge SUV may sound exciting, but insuring a 5,000-pound, top-of-the-line vehicle can be more expensive than insuring a small (but safe) lower-cost commuting car. Also, older cars are often cheaper to insure than their more modern counterparts. Again, speak with your agent/insurance company to find out the exact rates to insure the different vehicles you're considering before making a purchase. To learn more about choosing a cost-effective vehicle, see Wheels Of A Future Fortune.

7. Consider Raising Your Deductibles
When selecting car insurance, you can typically choose a deductible, or the amount of money you would have to lay out before insurance picks up the tab in the event of an accident, theft or other type of damage to the vehicle. Depending on the policy, deductibles typically range from $250 to $1,000. The catch is that, generally speaking, the lower the deductible, the higher the annual premium. Conversely, the higher the deductible is, the lower the premium. Ask your agent/insurance company how your premium might be affected if you raised your deductible. In some cases, it may make the annual premium better by several percent and put some money back in your pocket; other times, the savings may be minimal.

8. Improve Your Credit Rating
A driver's record is obviously a big factor in determining auto insurance costs. After all, it makes sense that a driver who has been in lots of accidents could cost the insurance company lots of money. However, folks are sometimes surprised to find that insurance companies may also consider credit ratings when determining insurance premiums.

Why is a person's credit rating considered? The theory is that individuals who keep their financial situations in ship-shape condition will tend to be more careful when it comes to driving. Regardless of whether that's true, be aware that your credit rating can be a factor in figuring insurance premiums and do your utmost to keep your credit rating high.

9. Pay Attention to Where You Live
It's unlikely that you will move to a different location (i.e., state) simply because it has lower car insurance rates. However, when planning a move, the potential change in your car insurance rate is something that you will want to factor into your budget.

10. Drop Unnecessary Coverage
Dropping certain types of coverage can be a slippery slope. After all, nobody can predict if or when an accident will occur. However, if an individual is driving an extremely old automobile that's on its last legs, it may make sense (depending on the cost, the individual's driving record and other factors) to drop collision coverage. The reason for this is that were the vehicle to be involved in an accident, the insurance company would likely total the car. If the value of the car is only $1,000 and the collision coverage costs $500 per year, it may not make sense to buy it.

In any case, before making any such decision, consider speaking with your financial advisor and your agent/insurance company. Remember, every situation is different and the decision is up to you.

11. Install Anti-Theft Devices
Individuals have the potential to lower their annual premiums, sometimes by as much as several percent, if they install anti-theft devices. Your agent or insurance company should be able to tell you specifically which devices, when installed, can lower premiums. Car alarms and LoJacks are two types of devices that you might want to inquire about. If your primary motivation for installing an anti-theft device is to lower your insurance premium, make sure to consider whether the cost of adding the device will result in a significant enough savings to be worth the trouble and expense.

12. Question Your Agent
It's important to note that there may be other potential cost savings to be had in addition to the ones described in this article. In fact, that's why it often makes sense for you to speak directly with your agent or a representative of the insurance company to ask if there are any special discounts that the company offers for individuals such as military personnel or employees of a certain company. The insurance company may also offer a "good student" rate or some other special savings. You never know what sort of discount pricing might be available for your circumstances, but unless you ask, you probably won't be able to take advantage of it.

The Bottom Line
The price of auto insurance is likely to continue to rise in the future. However, there are many things you can do to reduce the sting, and hopefully these 12 tips will have you driving in the right direction.  

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