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HSFPP Weekly Update # 176—Selecting Vehicle Insurance

Message from Bob and Charles: In the conclusion of our two-part series on buying a vehicle, we deal with selecting the best insurance company, as this is just as important as selecting the right vehicle. Insurance companies are designed to benefit the shareholders and it’s the consumer’s responsibility to shop around for the best price and service.

When one looks at the Consumer Guide to Auto and Home Insurance, published by the Kentucky Office of Insurance, one will find that the same amount of coverage can vary in cost by more than 300 percent from the various insurance companies; consumers can view this publication online at the following Web site: http://doi.ppr.ky.gov/kentucky/Documents/pubs/AUTOHOMERATESCOMBINEDb.pdf

The consumer also needs to evaluate the service provided by each company; for this reason, we are including the latest survey by J.D. Power and Associates.

 

Web Site Pick of the Week:

http://www.doi.state.ky.us/kentucky/documents/news/web/web_quiz1.asp

The Kentucky Office of Insurance Web site provides four great quizzes to test teenagers’ knowledge of auto, health, property, and life insurance.

In the New$... Look into Insurance Costs Before Buying the Vehicle

by Charlie Sewell, Junior in Communications, University of Kentucky

Luckily, in a little over four years since receiving my driver’s license, I have accumulated zero speeding tickets so far and haven’t been involved in any accidents. The wonderful agents at State Farm Insurance in Maysville, Kentucky, can rest their heads a little easier knowing that I’m on the road! Unfortunately, for the majority of my peers, driving hasn’t been perfect. And, just because I have a clean driving record now, that doesn’t mean something can’t happen tomorrow to mess it up. Accidents occur quickly and unexpectedly, and even the best training is no guarantee that you won’t be involved in a wreck. You never really know what’s going to happen in the future, so having the right coverage and insurance company is crucial for all drivers.

In a recent press release from J.D. Power and Associates, Amica Mutual ranks the highest in auto insurance customer satisfaction for the seventh consecutive year. Following Amica in these rankings are Erie, State Farm, and GEICO. These results were based on responses from 14,066 insurance policy holders surveyed between April and May 2006. According to the Kentucky Office of Insurance’s Consumer Guide to Auto and Home Insurance, the average premium for a 22 year old male driving a 2002 Toyota Camry is $2,367.13 from Amica Mutual, based on averages from eight cities in Kentucky (Ashland, Bowling Green, Erlanger, Lexington, London, Louisville, Murray, and Pikeville). State Farm’s average premium is $1,647.38, and the average premium for GEICO is $2,267.13; there were no listings in Kentucky for Erie.

In doing research for this update, I became curious about my own insurance. While on the State Farm Insurance Web site, I decided to see what kind of quote a 20-year-old driver with one vehicle could get from State Farm in Lexington. It would cost $1,255.66 annually to insure a driver like me, which is a little more than my mother pays to insure me in Maysville under State Farm.

On another hypothetical subject, I called my agent to see what would happen on the chance that I was charged with a DUI (driving under the influence – drugs, alcohol, etc.).  According to her, my insurance would most likely be cancelled and, if I could not get insurance from another company, I would have to apply to the Kentucky Automobile Insurance Plan, which means that my premiums would more than likely skyrocket. Based on my good driving record so far, however, the company might—and that’s a big might—still cover me, but my premium would increase at least 25 percent.

Just remember that I haven’t discussed all the other legal costs for driving drunk, or the loss of your driver’s license for drinking while under the age of 21, which will cost you or your parents thousands of dollars and having to live without a driver’s license for a long time. So, in other words, you can save your parents a great deal of trouble and money by abstaining from drugs and alcohol; or, if you’re going to drink anyway, you should be smart enough to call a cab or have a designated driver. Besides, you will not always be under your parents’ wings, and I know you will want to avoid bringing this kind of trouble on yourself.

Sources: (1) “Auto insurance: Choosing an insurer that pays,” Consumer Reports, March 2006, pg. 48. 

(2) “J.D. Power and Associates Reports: Providing High Levels of Customer Satisfaction Has Clear Financial Implications for Auto Insurers,” by John Tews & Syvetril Perryman.  J.D. Power and Associates, August 29, 2006.
http://www.jdpower.com/global/press-releases/pressrelease.asp?StudyID=1169.

(3) Consumer Guide to Auto and Home Insurance. Kentucky Department of Insurance, 2006, pp. 24-34.

 

Discussion Questions:

Discuss your vehicle buying experiences.

1.) For those who have bought a vehicle, did you check out how much it was going to cost you to insure before buying it?

 

2a.) If yes, did this cause you to change your mind about buying that vehicle?

 

2b.) If not, why not?

 

3.) Did you or your parents compare the cost of insuring the vehicle with more than one company?

 

3a.) If yes, how many insurance companies did you look at, and how much did the cost vary from one company from another?

 

3b.) If not, why not?

 

Follow-Up Activity:

Business class: Complete the activity on page 79 of the HSFPP Student Workbook, also available at the HSFPP Web Portal: http://www.nefe.org/hsfppportal/includes/main/home.asp?portal=1

Click on student portal, next Unit 6, then click on Assignment 6.1, “How Well Are You Covered,” to compare your current car insurance with two other car insurance companies.

Use at least four sources. You already have three. Get insurance quotes from three insurers for each car.

Then answer the following questions:

1.) Based on price and quality comparisons and insurance costs of the three cars, which car do you think is best? Why?

 

2.) Considering the ratings and insurance costs of the three cars you chose, would you still want to buy any of them? Why or why not?

 

3.) What are your most important criteria in selecting a vehicle to buy?

 

Kentucky High School Financial Planning Program

http://www.ca.uky.edu/fcs/hsfp

The purpose of the HSFPP weekly financial updates and Web site is to assist county Extension agents, credit union educators, high school teachers, and parents who home school their teenagers so that they may improve the economic well-being of our teenagers; and also to show educators how the HSFPP and the weekly updates meet Kentucky core concepts. The Web site and weekly updates are provided by the University of Kentucky Cooperative Extension Service, and are free to all educators. The list of core concepts and order form for free program materials including the student guide and instructors manual can be found on the Kentucky HSFPP home page.