In these trying economic times, it may be tempting to cancel or reduce insurance coverage to save money. But it’s a disastrous idea, especially since there are simple ways you can slash insurance costs without reducing coverage.  In this four-part series, I will explain 1. why cutting insurance coverage is a very, very bad idea and 2. how to reduce insurance premiums so you won’t have to cancel much-needed coverage.  First up, part one: auto insurance.  With the recession keeping unemployment rates high (9.4 percent*), cash-strapped drivers are taking the risk of driving without insurance. In fact, 1 in 7 drivers–roughly 14 percent–is now driving uninsured**.  Driving without auto insurance, which is required by law in most states, is serious business. Violators face vehicle seizure, driver’s license suspension, fees and jail time. Also, drivers may be considered “high-risk” by insurance companies and charged hundreds more per year–or rejected outright–the next time they apply for auto insurance.

However, not all drivers cancel coverage altogether: some opt to reduce their coverage to the state-required minimum. But even this is risky. In the event of a major accident, the state minimum may not be enough to fully cover damages, and the driver will be responsible for paying the remainder out-of-pocket.  And remember: With more uninsured and underinsured drivers on the roadways, drivers should seriously consider adding uninsured/underinsured motorist coverage to their policies.

Fortunately, there are plenty of ways to cut auto insurance costs without reducing coverage. Here are three of the best:

• Raise your deductible. If your deductible is currently $250, can you afford $1,000? Your coverage level will remain exactly the same but you will save up to 40 percent*** on the collision and comprehensive portion of your policy.
• Dig for discounts you may have overlooked. Good drivers, safe vehicles, long-time customers, multi-policy customers, good students, senior drivers and new car owners may qualify for significant discounts. Even military veterans and schoolteachers may receive discounts, depending on the insurer.
• Shop around for a cheaper policy. Premiums vary by hundreds of dollars by company, so you could get similar coverage for much less with another insurer.

Stay tuned for part two when I take a look at homeowners who cancel home insurance to cut costs.

*U.S. Department of Labor, January 2011

**Insurance Research Council

***Insurance Information Institute