We'll tell you how to shop for a policy, insure a risky driver, get discounts and more.

How to Insure a Risky Driver
Say you get a speeding ticket on your way to work. A week later you rear-end a Jaguar. This star-crossed month ends with a notice from your insurer that you're being dropped. What to do? At all costs avoid the assigned risk pool — a state-run system that forces all carriers to share the burden of insuring the riskiest drivers. Premiums in assigned risk pools run 50% higher on average than with private insurers, according to Robert Hunter, director of insurance for the Consumer Federation of America. A better option: Turn to an independent agent who can help you find a private carrier specializing in high-risk drivers. (In some states, such as New Jersey, there's no nonstandard market; the assigned risk pool is your only choice if standard insurers won't take you.)

Ideally, you'll find an insurance carrier that specializes in your own particular brand of risk. For example, Progressive is known for being lenient with first-time DUI offenders in Ohio. "If someone comes in here with just one DUI on his record," says Tom Schneider, an insurance agent based near Columbus, "there's no question where I'm going to put him."

Unfortunately, most nonstandard insurers don't want to go above the industry-recommended bodily injury liability limits of $100,000 per person, $300,000 per incident. While pushing limits to $250,000 and $500,000 is inexpensive for clean drivers, "if you have tickets, the rates get astronomical — they can even double," says San Francisco-based agent Gary Savelli. For that reason, make sure you don't stay with a nonstandard carrier (or in the assigned risk pool) a day longer than necessary. In most states, moving violations and accidents stay on your record for three to five years; once you've been clean for three years — if you don't drive an exotic car (say, a Maserati) — you should be able to find standard carriers that will insure you.


How to Shop for a Policy
For the past two years, insurers have been squeezed by bigger-than-expected losses and the bear market — now they're squeezing you. Premiums for both home and auto coverage are supposed to rise 9% next year, leaving the average household paying 23% more for auto and 21% more for homeowner's insurance than it did in 2000. And carriers have slapped customers with double- and even triple-digit rate hikes this year. AT&T retiree Art Roy is paying State Farm $994 a year for $104,000 in coverage on his ranch-style house near Dallas. That's 45% more than he paid last year — and his rates would have gone up 104% if he hadn't excluded his carpets, drapes and clothing from mold damage coverage.

In this environment, the rules for shopping around have changed. It's no longer true, for example, that the "Big Three" (Allstate, State Farm and Farmers) can always beat companies represented by high-commission independent agents (Chubb, Hartford or Travelers, among others) on price. Your job: Head to the Web and do some homework. Many state governments (28 states for auto insurance, 23 for home) post sample premiums from insurers online; they're usually sorted by county or town, letting you find the best prices in your area. You can find an index of Web sites at the site of the National Association of Insurance Commissioners (www.naic.org); for auto insurance, cross-check your results at InsWeb.com. Keep in mind, these quotes won't match exactly what you'll eventually pay — they won't take your credit or claims history into account, for example — but they'll give you an idea of what to expect once you start working the phones.

As you contact companies for quotes, ask about any discounts that apply. Hanging with the right crowd can also cut your premiums. Many carriers offer attractive prices through professional groups or alumni associations. At Liberty Mutual, for example, graduates of 200 colleges can get discounts of up to 15%, on top of any other premium breaks for which they qualify.

There's a good chance that one of the companies you contact will refer you to an independent agent to handle the sale. If not, contact one in your area anyway — she might be able to beat the quotes you got elsewhere. And an agent can also help you when there's something on your record that could make it tricky to buy insurance — so-so credit, for example, or a bad driving record — by steering you to companies that are willing to insure those kinds of risks.


How to Get Discounts
Understand this exasperating fact about the insurance business: The more likely you are to need some form of coverage, the less psyched a carrier will be to sell it to you. The flip side? Prove that you're serious about protecting your car from any kind of damage that is under your control, and you can slash your bill — a lot.

Note: Insurers' discounts vary from state to state, and the percentages listed represent an average, rather than a specific discount available in every state.

Automobile Discounts
Allstate Farmers Geico Progressive State Farm
Multicar 5% 5-15% 15-20% 20% 10-15%
Safety Equip./
Airbags
5% 5-10% 25-40% 5-30% 5%**
Safety Equip./
Antilock Brakes
*
5% 5% 5% 5-30% 5%**
Antitheft Device 5% 10% 5-20% 5-25% 5-15%**
Clean Driving Record 10% after 3 yrs.
20% after 5 yrs.
None 5-17% after 5 yrs. None% 10% after 3 yrs.
20% after 10 yrs.
Defensive Driving Course* 5% (for ages 50-plus) 5% 5-10% (for ages 50-plus) 10%** 5-10%
Young Driver/
Good Grades
10% 15-20% 5-10% None 10-25%
Young Driver/
Driver's Ed
15% (must take Allstate course) 10% None None 10-15%
College Students*** 35% None None None 30-35%
* Discount generally applies to all major coverages except comprehensive.
** Only where mandated by state law.
*** Applies to college students on family policy who are more than 100 miles away from home and do not have a covered car at school.

How to Deal With a Spotty Credit Rating
Sara and Derek Lapham of Garland, Tex., haven't had a car accident since 1991, and they've never made a claim on their homeowner's coverage. But last January, Nationwide hiked their home premium by 78% and their auto rates by 14%. Why? A medical bill that their insurer had been late in paying, along with a higher-than-average balance on one of their credit cards, had undermined their credit rating.

Surprise: A growing number of companies give your credit score as much weight as your credentials as a driver or homeowner. "What we've found," says Allstate spokesman Mike Trevino, "is that credit scoring is predictive of likelihood of future loss" — in other words, tardy bill-payers and recent bankruptcy-filers tend to file more claims.

While the practice has a lot of critics, including a growing number of agents who say it hurts their customers, credit-scoring is the norm for now in many states, driving up premiums by as much as 400% for some iffy-credit consumers and preventing others from buying insurance at all.

To complicate matters further, each insurer gives a different weight to your credit score, and practices can vary from state to state. When one SmartMoney reporter went looking for renter's insurance for his Brooklyn, N.Y., apartment, he narrowed his search to American Express and Allstate. He asked them for quotes on the same day and got a bewildering pair of answers. AmEx wouldn't cover him at all: He and his wife had failed to pass their credit check (which his telephone sales rep confessed was "really strict"). But Allstate was eager to cover the couple — and offered them a 20% premium discount because their credit was so good.

As our reporter's experience suggests, you needn't get rattled by one rejection or high-price quote. You might be a victim of a mistake (as many as 30% of credit records include one, according to one State Farm agent), so order a copy of your credit report: You can get one instantaneously online at www.myfico.com for $12.95. In the event that you have genuine credit troubles — perhaps you've had a past bankruptcy or been late on recent bill payments — start your shopping with an independent agent, who'll be more likely to know carriers that will write policies for "credit risk" customers.

In credit trouble, but already insured? Consider sticking with your current carriers: In many states, insurers can use credit ratings against you only if you're applying for a brand-new policy.


How to Pick an Insurance-Friendly Car
By now you know that where you live and your driving history are the primary factors that determine how much you pay to insure your car. But more and more, size matters too — especially when it comes to your liability coverage.

While insurers traditionally considered your car model only when pricing collision, comprehensive and medical coverages, companies (including Allstate and Progressive) increasingly factor it in when pricing your liability coverage. What does that mean? You'll shell out more to insure that Toyota Land Cruiser capable of crushing small cars to dust.

Insurers rate car models based on their overall claims history. For example, the Ford Mustang and the Pontiac Sunfire tend to get stolen or end up in the repair shop more than cars of comparable price. That's why you'll also pay more to insure these two. On the flip side, sturdy, unglamorous minivans and land-yacht sedans are less expensive. (New models, such as this season's Nissan Murano, are assigned ratings similar to their competitors' until enough historical data is collected.)

But insurance-friendly doesn't necessarily mean boring. Let's say you're a 35-year-old woman in Ohio. You can drive a $19,000 Volkswagen New Beetle and pay $163 less to insure it than you would a $15,000 Hyundai Elantra hatchback.

Why? Mainly because the Elantra is more easily damaged in an accident. Similarly, the Mercedes M-class SUV, Nissan Xterra SUV and BMW Z3 roadster cost less to insure than competitors in comparable price ranges because of better-than-average claims histories.

To get a better sense of what you'd pay to insure a car you're considering, check with your agent or visit the Insurance Institute for Highway Safety's Web site. The comparative ratings are available by first clicking on the Vehicle Ratings button and then the Injury, Collision & Theft Losses button.


How to Insure Your Teenage Driver
Al Follin was paying just $1,200 a year to insure himself and his wife for their two cars. But when his youngest daughter, Sarah, reached driving age, he faced premiums of more than $2,000. His solution: He named Sarah as an occasional driver on the older car, a 1998 Dodge Caravan, and excluded her from their pricier Chrysler Concorde and later a Volkswagen Passat.

"Nobody wants to be seen in an old minivan with wood-grain siding," says Follin, a Framingham, Mass., construction manager. "But it saved money, so she couldn't argue with that." To save even more, he revised his policy once Sarah started college, removing her when she was at school and adding her back only when she was home for summer and winter breaks, until she finally bought her own car — and policy — last summer. These moves saved the Follins about $500 a year.

Nothing drives up your auto insurance bill like a newly licensed teenager. While teen boys traditionally have caused the biggest rate hikes, girls are catching up — and for good reason. As Madelyn Flannagan, vice president of education and research for the Independent Insurance Agents & Brokers of America, puts it, "Some companies don't differentiate between males and females at that age — because we're seeing almost no difference in accident rates."

You can still make your kid stand out, though. Many insurers offer discounts for teenagers who get good grades ("B" averages or better) or complete a driver's ed course. Allstate and State Farm are both instituting teen programs to instill safe driving habits, which involve following assigned reading on defensive driving techniques and keeping a log of trips. And MetLife Auto & Home rewards safe teen drivers with cash — $50 for each year they have a clean record. Other than taking advantage of these breaks, about all you can do is hold your breath until they head to college. At that point, if they are more than 100 miles away from home and don't have a car at school with them, some carriers will offer a lower rate — or you can remove them temporarily from the policy, as Follin did.