Money Management

Understanding your car insurance policy can help you get better deals on auto insurance. See how knowing your policy can reduce your auto insurance premium. [[{“value”:”

Auto insurance can often seem mysterious and complicated. But during today’s times of skyrocketing auto insurance premiums, it can be worth opening your latest insurance statement and seeing what exactly you’re paying for. Understanding your car insurance policy can be the first step in getting a better deal on premiums.

Let’s look at a few reasons why understanding your car insurance policy can help you save money and make better-informed decisions for your personal finances.

1. Spot easy opportunities to reduce your car insurance premium

With car insurance rates up 37% since January 2020, millions of Americans are looking to cut their auto insurance premiums in 2024. One of the best ways to lower your premium is to dig into the details of your car insurance policy to see which coverages cost the most. Understanding which parts of your insurance policy are making up your premiums can help you decide which coverages to keep (or decline).

For example, here is a recent actual price quote that I got from a new auto insurance company for my family’s two vehicles:

The total 6-month estimated premium (for both vehicles combined) comes out to $865.04 ($144 per month).

When I got this price quote, I quickly noticed two good opportunities to save money. The car insurance company had put a couple of items into the price quote that I wouldn’t have chosen for myself: $500 deductibles and car rental coverage. I have enough emergency savings that I can afford to take my chances with a higher deductible, and pay for my own rental car in case my car gets stuck in the shop for a month.

So I asked the insurance company for a new quote with $1,000 deductibles and no car rental coverage. Just by making these two small changes, the premium ended up being $713.53 ($119 per month) — an extra savings of $25 per month.

2. Boost your confidence to shop around for auto insurance quotes

If you want to get new auto insurance quotes, you should go into the shopping process feeling confident and well-informed. Get a print-out (or saved PDF) of your current car insurance policy with all the coverage details. This will help you make an accurate, apples-to-apples comparison of your current insurance company’s policy vs. other companies’ price quotes.

For example, if you want to try a new car insurance company with the exact same coverages you have now, understanding your current policy’s details will help you know what to ask for. If you want to try a higher deductible or remove a few optional coverages, you can make those requests as part of your price-shopping. But knowledge is power. Knowing what auto insurance coverage you have now (and what it costs for each part of the policy) can help you get a better deal with new insurance companies — or even if you decide to stay with your current insurance carrier.

3. Know when to stay with your current insurance company

I am currently paying $1,931 per year ($161 per month) for auto insurance on my family’s two vehicles. But as shown in the table above, I recently got a new auto insurance price quote from a different insurance company. This new quote (with $1,000 deductibles) would save me about $42 per month. But when I took a closer look at the policy details, I realized that the new company’s cheaper coverage wasn’t as good as what I have now.

For example, the new (cheaper) insurance would only give me $250,000 per person/$500,000 per incident of bodily injury liability coverage, but my current insurance company gives me $500,000/$500,000 coverage. I like to have the highest possible amount of liability coverage, in case of worst-case scenario car crashes. Also, my current insurance company lets us bundle home and auto for additional savings. And since we have an old house with hard-to-insure “knob and tube” wiring, I don’t know if I could really get a better deal by switching.

In the end, I realized that in this case, I wouldn’t be better off switching insurance companies. But I wouldn’t have known this if I didn’t take time to compare and understand the details of both auto insurance policies. And I still might try to get a lower-cost premium from my current insurance company by raising my deductibles or choosing a pay-per-mile auto insurance plan.

Bottom line

Auto insurance doesn’t have to be a complicated mystery. Spend some time getting to know the different components of your insurance policy and see what’s really driving the cost of your premium. Understanding your car insurance policy can help you get better discounts from car insurance companies.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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This move could add $1,000 or more to your refund this year. But you’ll need to act fast. Learn what to do. [[{“value”:”

There aren’t many strategies you can use to save money on your taxes after the end of the year. But one big way to save on 2023 taxes — even though it’s already 2024 — is by taking advantage of the traditional IRA deduction. So let’s take a closer look at what you need to know.

What’s an IRA?

Individual retirement accounts, or IRAs, come in two different varieties — traditional and Roth. Both can be excellent ways to save for retirement, and while there are a few differences, the biggest is the tax treatment. Traditional IRA contributions can be deducted in the year they’re made, but eventual withdrawals in retirement are treated as taxable income, while Roth IRA contributions aren’t deductible, but qualified withdrawals are completely tax free.

In simple terms, traditional IRAs are usually the better choice for people who want to save money on their taxes now, while Roth IRAs are best for those who have relatively low taxes now and would prefer tax-free income in retirement.

The traditional IRA deduction

For 2023, Americans can contribute as much as $6,500 to their IRA, or $7,500 if the account owner is 50 or older. But one key point is that you can make 2023 contributions until the April 15 tax deadline. So, you still have time to get them in.

If you qualify, you can deduct traditional IRA contributions on your tax return. If you don’t have a retirement plan at work, you definitely qualify. If you do (or your spouse does) have a retirement plan at work, your eligibility depends on your income. So, be sure you qualify before you make your contribution.

If you don’t already have an IRA, opening one is easy. Check out some of our top IRA brokers to see which might be the best fit for you. Or, if you really want to keep your retirement investing simple, consider a robo-advisor, which will automatically choose an appropriate investment portfolio for you.

How much can you save?

The exact savings you can get depends on a few factors — mainly the amount of your IRA contribution and your marginal tax rate (tax bracket).

As an example, let’s say that you put the $6,500 max into a traditional IRA for the 2023 tax year. Assuming that you qualify for the traditional IRA deduction, this could mean an additional $1,430 on your tax refund if you’re in the 22% tax bracket.

You can take advantage even if you’ve already filed your taxes, too. Let’s say that you’ve already filed your 2023 tax return by the time you’re reading this, but you haven’t made IRA contributions yet. That doesn’t necessarily mean you’re out of luck.

The IRS allows taxpayers to file an amended tax return if something changes with your tax situation, and being able to claim an IRA deduction certainly counts. In other words, you can still contribute to an IRA for 2023 and file an amended return to claim the deduction (and the additional tax refund you’d be entitled to) if you qualify. In fact, as long as you make your contribution by the tax deadline, you can file an amended return anytime before the IRS statute of limitations expires (usually three years after you initially file.

The deduction is only half of it

As a final thought, contributing to a traditional IRA can be extremely rewarding in two big ways. We’ve already discussed the annual tax benefits, but there’s also the power of long-term, tax-deferred compounding in an IRA.

We won’t get into how you should invest in an IRA in this article or the best way to do it. But over long periods of time, the stock market as a whole has produced annualized total returns of about 10%.

Consider this example. Let’s say that you contribute $6,500 to an IRA in 2023 and your investments simply match the historical returns of the stock market over time. After 30 years, you could have more than $113,000 — and that assumes just a one-time $6,500 contribution. Imagine what could happen if you made an IRA contribution and invested the money every year.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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