1. Project due on Tuesday, December 4, 2007
Shopping for Auto Insurance
The purpose of this project is to show you how much insurance rates vary from company to
company, how much you can save by shopping for insurance, what some of the important factors
are in buying insurance and approximately how much it would cost for you to buy insurance. For
this project you are to obtain quotations for auto insurance. For your auto coverage, obtain
quotations from three different companies and list the financial ratings on each company.
HOW TO SHOP FOR AUTO INSURANCE
First, check out the web page of the California Department of Insurance
(http://www.insurance.ca.gov/). California Department of Insurance provides information about
insurance companies licensed in California and their contact phone numbers and websites. Based
on that information, you can decide which insurers to avoid.
In your quest for low insurance costs, you might consider purchasing a make and model
of automobile that has good collision loss experience. If you are worried about insurance costs,
don't buy a “muscle car,quot; sports car, or high-performance car. They boost the price of insurance.
Next, prepare information (often referred to as “specificationsquot;) an insurer will need to
give you a price quote. The attached “Quotation Worksheetquot; can be used as a guide.
As part of these specifications you need to decide what coverage and limits you want.
The quot;Insurance Quotes-Semiannual Premiumsquot; section in the attached “Quotation Worksheetquot;
can be used for this process. To consider price-quantity variations, you likely should inquire
about several different limits and also several deductible levels. A relatively small increase in the
deductible often results in a substantial premium savings. A substantial increase in liability limits
often is available at relatively little additional premium. Thus, while you want to purchase of the
limits/deductibles that meet your needs, you should realize that cost variations will affect your
choices.
After preparing this information, contact an independent agent and ask him or her for
quotes from several companies. You may also contact several exclusive-agency companies and
insurance-by-mail companies(whose names may be available from state insurance department)
and repeat the process. Be certain to talk with friends and relatives about their experiences with
particular agents and insurers. You are buying a service and ought not to consider price as the
only factor in your choice. Insurer financial strength and service are also significant factors. Also
be certain that you are asking for quotes on the same basic policy, limits, and deductibles;
otherwise, your comparisons will be invalid.

2. Organize the information collected so that you can identify the best price for each
combination of limits and deductibles. You must then determine which combination best serves
your needs. Remember that insurance works best for the low probability, high value loss.
Next, look for the following discounts:
1. Good student.
2. Nondrinkers.
3. Nonsmokers.
4. Second car.
5. Driver training.
6. Safety devices.
Furthermore, if you have more than one car, don't use both of them to drive to school.
quot;Pleasure use onlyquot; is cheaper than quot;to and from work.quot;

3. Last, don't duplicate insurance. If you have adequate health insurance to protect you
against medical expense, why buy medical payments with your auto insurance? Some insurers
add accidental death insurance to an auto policy for extra premium. If you need life insurance,
buy a policy that provides benefits for death by any cause.
PREVENTING MISREPRESENTATIONS
Your insurance company relies on the information you provide. By law, therefore, if you provide
information that is misleading, the insurance company may be able to deny coverage for a claim
you make. Clearly you want to avoid this occurrence; otherwise, you would not have purchased
the policy in the first place. Your obligation to the insurance company is not only to provide cor-
rect information, but to provide complete information.
What do you need to tell the insurance agent when you go to purchase automobile
insurance? The agent knows most of what is needed. He or she will ask for the make and model
of the automobile, the year of manufacture, and whether or not there are any outstanding loans
on the vehicle. The agent will also ask if you have had any accidents or traffic violations in the
past three to five years, where you keep (quot;garagequot;) the automobile, and how you use it (for work
or for pleasure only).
You might be tempted to tell the agent that you keep the automobile at your parents'
home, because rates there are cheaper. If you are using it primarily at school, however, to tell the
agent otherwise may be considered a misrepresentation that would permit the insurer to deny
coverage on a claim. Be certain to tell the agent that the automobile is being used at school. The
agent may still give you the rate applicable to your parents' locale, and you have avoided the
possibility that the insurer will argue that you have been untruthful, which could make the policy
voidable.
You may also be tempted to tell the agent that you have not had any traffic violations,
when actually you have had three in the past year. Certainly your insurance premium will be
lower if the agent thinks you have a clean record than if the agent knows the truth, but that
premium savings will mean very little to you when the insurer notifies you of denial of coverage
because of dishonesty. Coverage may also be denied if you simply fail to notify the insurer of
certain facts that clearly affect the insurer's view of whether or not to accept you as a
policyholder. An example illustrates the point. An out-of-state student at the University of South
Carolina decided not to renew his auto insurance policy because he could not afford the
premium. In South Carolina (as in many states) it is illegal to drive without minimum amounts of
automobile liability insurance. The student had an accident and convinced the reporting officer to
allow him to obtain insurance on the spot rather than be put in jail. He called an insurer in his
home state. The insurer provided coverage, but the student failed to tell the insurer of the
accident that had just occurred. If the student makes a claim under this policy and the insurer
finds out about the accident, the insurer has good cause for denying coverage.
On the other hand, you have various options to make yourself a more desirable
policyholder, thus reducing premiums. These are actions you can take without having to tell
untruths or hide important facts.

4. HOW TO REDUCE INSURANCE COSTS
The following table illustrates the divergence in premiums that can be found across insurers in
the State of Wisconsin. These quotes are based on the same information: coverage for a 21-year-
old single male with no dependents who commutes twenty-four miles to work round-trip. He had
no accidents or violations in the past three years and travels approximately 20,000 miles annually
in his three-year-old GMC Jimmy S15, 4-wheel drive. The insurance limits are 25/50/10 for part
A, $1,000 for part B, 25/50 for part C, and a $100 deductible on the collision. As this illustration
demonstrates, shopping around for automobile insurance can be worthwhile.
In addition to shopping around, you can reduce costs in other ways. One way is to choose
the largest deductible you can afford. The higher the deductible, the lower the premium. A
second way to save is to drop coverage for damage to your vehicle on an old (low value) vehicle.
Insurers will not pay more than the actual cash value of a car, regardless of the cost to repair it.
Bear these costs yourself, just as you do with the deductible.
The purpose of this project is to show you how much insurance rates vary from company
to company, how much you can save by shopping for insurance, what some of the important
factors are in buying insurance and approximately how much it would cost for you to buy
insurance. For this project you are to obtain quotations for auto insurance. For your auto
coverage, obtain quotations from three different companies and list the financial ratings on each
company.

5. WHAT SHOULD I TURN IN?
1. Briefly describe your personal exposures to loss arising out of automobile ownership.
2. Based on your need, obtain quotations from five different companies and list the
financial ratings from A. M. Best, Standard and Poor's and Fitch) on each company.
The ratings from Standard and Poor's and Fitch are available on the Internet site:
http://www.insure.com/ratings/index.html . The A. M. Best ratings are available at
http://www.ambest.com/.
For auto insurance quotations, you can do online at sites like quotesmith.com. However,
you need call at least two local agencies to get the quotations.
3. Describe the best coverage for you and explain how you made your decision.
4. Get a copy of the insurance policy from the company of your choice (If it is State
Farm, get the insurance policy from the second-best company) and answer the
following questions:
Based on your liability coverage, answer questions (1) to (4):
(1). What types of liabilities are covered?
(2). Does it provide the amount of coverage you need?
(3). What are excluded?
(4). What are your rights and obligations?
(5). What are the major differences between your policy and the State Farm policy that
we discussed in class.
(You need give me a copy of the insurance policy when you hand in your project.)
5. In your opinion, what is the most important thing that you learned from our discussion
on automobile insurance?