Can You Believe Car-Insurance Ads?

The airwaves are saturated with car insurance ads featuring likable characters, such as Flo and the Geico Gecko, actors with soothing voices, and several star quarterbacks. Some ads employ scare tactics along with humor—scenes involving fender benders, totaled cars and even creepy, horror-flick-esque “rate suckers.” But which ads convey accurate information and which are gimmicks? We dissected six of them to find out. Each has a modicum of good advice that you can use to shop smart and save money.

Geico

Save 15% in 15 Minutes

See a Geico Ad - Countdown (ft Europe) It's What You Do

The Gecko offers good advice, as far as it goes. If you go to the Geico Web site as a new customer and meet certain criteria, you may qualify for lower premiums in as little as 15 minutes. But it’s a mistake to stop shopping after you get your quote. Carve out about an hour to contact several companies and see how much you can save. The insurer with the best rate for you could have the highest rates for someone else.

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When Robert Hunter was Texas insurance commissioner, he asked 25 consumers to come to his office with their policies, make some calls and report back in one hour. “The average savings was about $125 per year,” says Hunter, who is now director of insurance for the Consumer Federation of America.

Many insurers now use personal consumer data to measure how likely you are to compare prices and how much of a price hike you’d likely accept without switching insurers—-a practice called price optimization. If you’ve changed insurers or even complained to yours about your rate, companies may charge you less than a nonshopper.

Fifteen states plus the District of Columbia recently banned the practice as unfair because it bases rates on criteria other than the risk that you will have a claim. But even in those states, shopping can still save you money. Hunter recommends starting with your state insurance department’s buyer’s guide (go to www.naic.org for links), which shows sample prices for all auto insurers licensed in the state. Pick the six insurers with the lowest rates for the example closest to your situation. Then go to www.naic.org/cis to check complaint statistics. (Type in the name of the insurer and choose “property/casualty.” Click on the name of the company, then on “closed complaints” and finally on “closed complaint ratio report.”) Drop the two insurers with the highest complaint ratio. Call the remaining four to get quotes for identical coverage.

If you find a better rate, let your insurer know before switching. It may offer to beat the quote, especially if you’re a longtime customer. In our Kiplinger reader poll, 63% of those who reshopped their car insurance in the past year said their insurer offered them a lower rate.

You can also get help from an independent agent who works with a number of companies and knows the sweet spots (go to www.trustedchoice.com). You’ll generally need to contact Allstate, State Farm and USAA separately. You can also compare rates from several insurers at InsuranceQuotes.com or Insurance.com.

State Farm

Discount Double-Check

See a State Farm ad - Cheesehead: Beyond the Fan

State Farm converted Green Bay Packers quarterback Aaron Rodgers’ touchdown celebration move—running his hands across his belt—into the discount double-check, which State Farm says can reduce your rates by up to 40%.

Here’s the fine print: That 40% figure is based on rates for new customers who have been accident-free for the past three years and who have more than one car and more than one type of coverage (such as home or life insurance) with State Farm, says Scott Bruns, technology director in State Farm’s property-and-casualty actuarial department.

Even if you don’t meet those criteria, ask about discounts. In general, State Farm offers a 10% discount for drivers younger than age 21 who complete an approved driver education course and up to a 25% break for students younger than 25 who have good grades. Current customers can save 15% to 25% after three years without an accident.

Let your insurer know about life changes. Married customers tend to get lower rates, plus you could get a 10% to 20% break for adding an extra car and a 5% to 20% discount for adding another type of coverage.

Switching jobs can cut your rates if you have a shorter commute. And Farmers gives 10% to 15% discounts to educators, lawyers, accountants, physicians and law-enforcement personnel, says Sharon Jansma, who owns a Farmers Insurance agency in Visalia, Calif.

A little effort can get you more discounts. State Farm shaves 5% to 15% off premiums in most states if you’re 55 or older and take a defensive driving course. You may get a discount if you sign up for paperless billing or if you pay premiums in a lump sum rather than monthly. Liberty Mutual offers up to 10% discounts through 750 college alumni associations.

Progressive Snapshot

Rate Suckers

See a Progressive ad - Rate Suckers Progressive

Flo, the perky Progressive spokeswoman, explains how you can plug the Snapshot device into your car and save on car insurance based on your good driving. The company’s Rate Suckers ad, in which creepy people attach themselves to the outside of a moving car and suck on the windshield (“their bad driving makes car insurance more expensive for the rest of us”) does illustrate a key concept: Insurance companies don’t really know a lot about your driving habits, so they use actuarial factors, such as age, location, type of car, marital status, education, mileage estimates and credit score, to set premiums.

With data-tracking programs, such as Progressive’s Snapshot, State Farm’s Drive Safe & Save, and Allstate’s Drivewise, you plug a device into your car (newer versions use your smartphone) that relays information about your driving, such as how many miles you drive, how often you drive late at night, and potentially reckless habits such as braking hard and accelerating rapidly. The programs are voluntary, and consumers may get a discount of 5% for signing up. Drivers with the lowest mileage and the best habits can save a lot—up to 50% at State Farm. You can review your results online, so you have time to work on improving your habits before your rate is set for each term.

So far, insurers generally use the information to determine the size of your discount and don’t use the data to raise your rate. But that is changing: Progressive is rolling out a new version of Snapshot that “allows safer drivers even more savings, while riskier drivers may end up paying a bit more,” says David Pratt, general manager of usage-based insurance at Progressive.

Liberty Mutual

“Brad” Replacement

See a Liberty Mutual ad - You Loved Brad

The ad features a young woman who professes her love for her four-year-old car named Brad…then totals it. No worries: Liberty Mutual’s “better car replacement” program will reimburse her for the value of a car that is one model year newer and has 15,000 fewer miles than Brad. Whew. She breaks into a happy dance.

The average cost for this program is $75 to $80 per year, but it’s important to weigh the cost versus the extra money you’ll get if your car is totaled. For example, in central Virginia the average cost for a 2011 Ford Focus in very good condition with 62,000 miles is about $7,000, according to Kelley Blue Book. The cost for a one-model-year-newer (2012) version with just 47,000 miles is about $8,100.

Liberty Mutual’s new-car-replacement program is included automatically at no extra cost in most states. It comes to the rescue if you total a new car within the first year and first 15,000 miles you own it—in which case Liberty will pay the full, non­depreciated value of the car when it was new, minus the deductible. New cars are notorious for losing value, and Edmunds estimates that a 2015 Ford Focus will lose about $4,000 of its value after the first year, depending on location. You can estimate a car’s depreciation over several years with the True Cost to Own calculator at Edmunds.com.

Knowing the car’s depreciated value can also help you decide when to drop physical-damage coverage on an old car. Some people decide to drop collision coverage but keep comprehensive coverage, which is less expensive and protects your vehicle from theft and natural disasters.

Allstate

Accident Forgiveness

See an Allstate ad - Smart Girl

Because of Allstate’s accident-forgiveness program, actor Dennis Haysbert explains in his deep, authoritative voice, your rate won’t rise after one accident. Liberty Mutual, Nationwide and several other insurers offer accident forgiveness, too.

But before you sign up, figure out how much the extra coverage costs compared with the benefits. The costs and coverage vary. Allstate offers accident forgiveness as part of its Your Choice auto insurance program, which costs an extra 10% to 19%, depending on the number of accidents to be forgiven and other special features (including new-car replacement for up to three years and reductions to your deductible if you are accident-free). Allstate and several other insurers will also forgive longtime customers if they’ve been accident-free for five years or more; Liberty Mutual offers the break even for new customers who are accident-free. Still other companies forgive the first accident if the damage is less than about $500 or $750.

Without accident forgiveness, your rates could rise by 5% to 10% for three to five years after an accident, depending on the insurer, says Derek Ross, president of Kulchin Ross Insurance Services, in Tarzana, Calif. These programs may be more valuable (but also more expensive) if you have a teenage driver, says Carolyn Reynolds, an independent agent in Richmond, Ky.

One way to reduce the chance of a rate hike is to increase your deductible. Hiking the collision deductible from $250 to $500 or $1,000 can cut your premiums by up to 20% and make you less likely to file small claims that could raise your rates and jeopardize a claims-free discount. Hunter, of the Consumer Federation, recommends raising your deductible and adding the money saved in prem­iums to a savings account. He has been doing that for almost 40 years and now has about $12,000 saved.

If you have an accident on your record, shop for new coverage after a couple of years. Some insurers add an accident surcharge for five years, but some look back only three years. And a new insurer may give you a break sooner.

Know the gaps

Professor Burke, of the University of Farmers (actor J.K. Simmons), explains that the worst time to find out you’re not covered is at the time of a claim. The slogan “Know the gaps” is great advice.

Don’t try to save a few dollars by skimping on the most important in­surance: liability coverage. It protects your assets and future earnings from lawsuits if you cause an accident. If you have a couple of cars and a house, you should probably have a $1 million umbrella policy, says Derek Ross, president of Kulchin Ross Insurance Services, in Tarzana, Calif. The umbrella provides extra liability protection on top of your auto and homeowners coverage. (You usually need liability levels of at least $250,000 per person and $500,000 per accident on your auto policy first.) It generally costs just a few hundred dollars to add a $1 million umbrella policy. And with an umbrella policy, you may qualify for a multiple-policy discount.

Also make sure you have uninsured-motorist coverage, which pays for damages to your car as well as medical expenses and lost wages for you and your passengers if the at-fault driver doesn’t have insurance. Consider underinsured-motorist coverage in case the at-fault driver’s liability limits are too low. California drivers, for example, are required to have liability limits of only $15,000 per person, $30,000 per accident and $5,000 for property damage. Sharon Jansma, a Farmers Insurance agency owner in Visalia, Calif., recommends getting the same level of uninsured- and underinsured-motorist coverage as your own liability coverage. And if you add it to your umbrella policy, you’ll be covered up to the limits of your umbrella policy.