Por Taylor Schulte | Noticias financieras

Do you wish you could save money on your regular bills? Are you tired of overpaying for important components of your financial plan, but not sure what to do?

If so, I’ve got some simple advice that can potentially save you hundreds of dollars in one budget category: your auto insurance policy.

My tip for saving hundreds a year on auto insurance isn’t to switch to a new insurance company with an adorable gecko as its mascot, or to the one with the cute gal named Flo. Instead, it’s a simple tweak to your existing coverage that will help you have more money.

Before I explain how and why to make this change, let’s talk a little bit about the different types of insurance offered by automobile companies and how they work.

Liability

Liability coverage is just one of the types of insurance that make up your auto insurance. Liability insurance is the mandatory part of your insurance policy and is required by law.

Fear not, because the requirement is for a good reason. Liability insurance covers you when you drive your car into another car, a person, a house or a tree.

Since a 4,000-pound object being pushed into anything can cause a lot of damage, you want liability insurance and you want a lot of it.

When it comes to liability insurance, you want to make sure you’re getting the maximum amount of coverage. The max varies by insurance company, but it ranges between $100,000 and $500,000.

Whatever your company’s maximum is, you should strive to buy it. On top of that, you can buy a separate umbrella insurance policy to increase your liability coverage even more.

Unfortunately, that’s going to cost money. The good news is that your liability coverage and umbrella coverage will come in handy if you’re hit with a $500,000 lawsuit. If that ever happens, you’ll be happy you followed this advice!

Uninsured motorist coverage

This is another very big — and very important — part of your auto insurance. This insurance helps you when the other guy drives his car into you – and that other guy doesn’t have big liability coverage (which is very, very common).

Uninsured/underinsured motorist coverage fills the gap left by another irresponsible driver. Like your liability coverage, you should max this out.

Save money on comprehensive and collision

Now let’s talk about how we’re going to potentially save you hundreds of dollars per year.

Comprehensive and collision coverage insures the value of your car. This coverage kicks in when you drive your car into a tree (collision), or when a tree falls on your car (comprehensive).

Pretty much every car insurance company thinks you need to load up on this coverage. How do I know? Because every insurance policy I’ve seen has ample coverage for comprehensive and collision — and its owners are paying for it. But should they?

If you have more cash than your car is worth, you should consider skipping comprehensive and collision insurance and bank the money you would have spent on that coverage. On average, you’ll save more money. If you ever do need to replace your car from an accident, you will have the means to do so.

Work your deductible instead

Of course, not everyone has a big pile of cash in the bank. Fortunately, you can still save money on your comprehensive and collision insurance by working your deductible.

Your deductible is the amount of money you must pay out-of-pocket before your insurance company pays you anything. You can save money by picking a deductible that’s equal to the size of your cash savings.

Do you have $500 in cash? Get a $500 deductible. Do you have $1,000 in your rainy day fund? Opt for the $1,000 deductible instead. The bigger your rainy day fund, the bigger your deductible should be — and the more money you’ll save on auto insurance.

In conclusion, start by maxing out your liability and uninsured/underinsured coverage. Then, get an umbrella policy to increase your liability coverage even more.

After those tasks are squared away, pick the biggest deductible that’s within the limits of your rainy day fund. That way, you can pay lower auto insurance premiums and save money over time.

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—Taylor Schulte, CFP, es el CEO de Definir financiera y el fundador de StayWealthySanDiego.com y le apasiona ayudar a las personas a tomar decisiones inteligentes con su dinero. Puede comunicarse con él al 619-577-4002 o info@staywealthysandiego.com.