The Balance between Insurance Cost and Coverage

You are the only one who can decide: What is the right structure for your auto insurance policy? How do you keep the cost of the policy aligned with the coverage it provides, in a way that makes sense for YOUR situation?

There’s no one-size-fits-all answer. It’s totally up to you. Having information in hand to make that decision is important. Following are a few factors to consider.

What Determines a Policy’s Cost?

It’s more than the coverage limits you select. There are many variables that factor in to what an auto insurance policy will cost, including but not limited to:

• DRIVING RECORD: If you have no serious traffic violations and no accidents, you could pay a lower premium than someone who has speeding tickets and fender benders (or worse) on their record. Also, if you’re an experienced driver with no serious traffic violations or accidents, you could pay less than a new driver without a track record will pay.
• USE: If you drive a significant distance to and from work, your premium could be higher than those who work close to home (or from home).  
• WHERE YOU LIVE: If you live in an urban area, your coverage might cost more, due to higher rates of accidents, theft, and vandalism, than coverage for someone who lives in a rural area. 
• YOUR DEMOGRAPHIC: Your policy cost may reflect certain assumptions, which are based on statistics, that members with certain demographic profiles are likely to have fewer accidents, and are thus likely to have lower premiums than other demographic groups. 
• YOUR CAR: How much your car cost is another factor in the cost to insure it. Look at the specifics of your particular car – is your car a target for theft? Does it have a good safety rating? Do you have additional safety equipment installed? Is it costly to repair? 

Keep in mind that the insurance industry has statistics for practically everything. For example, not only do they look at how safe your car is to drive, they also look at what kind of damage it could potentially cause if it hits another car. These statistics are industry-wide and considered by any insurance company you might ask for a quote.

Speaking of statistics, one last thing that is typically considered when determining policy cost is your insurance score. Actuarial studies show that how a person manages their credit is a good predictor of insurance claims. In other words, people with a low insurance score (which is based on information from their credit report) are more likely to file a claim.  

After all this, the cost then boils down to the actual insurance coverage.

The Coverage Itself

There are several choices you can make about your auto coverage that directly impact the cost of the policy. These include:

• The amount of your deductible - the amount you will pay out of your pocket before your insurance company will pay a claim
• The types and amounts of policy options – like collision – you choose
• Other optional add-ons like rental reimbursement coverage

If you have a loan on your vehicle, the loan company or bank will require that you have coverage that protects their interest (since the car is collateral for your loan) – and they are named on the policy as a lienholder - in the event you are in an accident.

If you own your vehicle outright, there are specific minimum coverages required in the State of Minnesota. Your agent can educate you on exactly what those are. 

Now the Balancing Begins

The choices you make about your coverage make a big difference in the cost of your auto insurance policy. Before you commit to a policy, you’ll want to evaluate what you can afford to pay out of your pocket in the event you have a loss like an accident or theft.

One simple way to help reduce your premium is to increase your deductible, which means that you will pay more out of your pocket before your insurance will start paying a claim. Remember  that no one plans to have an accident, so you want to be sure you can cover the deductible if you have one. 

If you lose the use of your vehicle, do you have another one that you could use? In that case, you may decide you don’t need rental reimbursement coverage.

The Bottom Line

Keep an open line of communication with your insurance agent, and keep them apprised of any changes in your life or with your vehicle. For example, changing from driving to an office every day to working from home could mean a lower premium. 

Consider bundling your auto insurance and your homeowner’s policies together. Your insurance company may offer discounts for doing so.

And finally, ask questions and ask for suggestions. Your agent has seen, if not everything, most everything. From the squirrel nest in the engine to the truck that took a swim in an ice-covered Minnesota lake, you want to be sure you are covered for the eventualities that could happen to you – for a cost that makes sense.

Start a Quote Online or Contact Us. We look forward to hearing from you.

This article is for general information only and should not be considered an offer of insurance or legal or other expert advice.  The recommendations herein may help reduce, but are not guaranteed to eliminate, any or all risk of loss.  Claims illustrations herein are hypothetical and for discussion purposes only.  Coverage will be determined based on the facts of the claim and the terms of your policy, if approved for issue.  Policy limits, deductibles, conditions, and exclusions may apply.  Your eligibility and premium will depend on the application of Federated’s underwriting guidelines to your unique circumstances including, but not limited to, your personal information, loss history, location, driving record, and coverage.  The information herein is current as of September  2022 and is subject to change.  Coverage not available in all states.  Qualified counsel should be sought with questions specific to your circumstances.   Policies are underwritten by Federated Mutual Insurance which is licensed in Minnesota.