By Jim McCafferty

Unraveling the mysteries of auto insurance can save money and hassle.

Knowing how the industry works can save you a lot of money and grief. Here are the secrets behind the premiums, and how you can save after an accident.

With all the advertisement about lower automobile insurance rates, you wouldn’t think getting a good deal on auto insurance would be so hard. Keeping your premiums from rising? That can feel like playing a game where the rule maker refuses to tell you the rules.

Here are a few inside secrets on how the industry works, with tips to help you save:

If you have good credit, you'll pay less. Almost all insurers -- pull your credit report. Why?

Studies have shown a direct correlation between your credit score and the likelihood that you will file a claim. Insurers also know that if you pay your bills in a timely fashion and have had the same credit accounts for a long time, you're more stable than someone who pays late and frequently opens and closes accounts. They use this information to create your "insurance risk score," which is one factor that determines your auto-insurance rate.

Helpful Idea: Your insurance-risk score is not available to you, but it may be similar to your credit score. If you have unusual credit activity, wait a month for it to return to normal before buying auto insurance. If your credit history is shaky, clean it up as soon as you can.

Your car model affects your premium. You won't get these numbers from your insurer; in fact, you may not be able to get them at all. But the auto insurers do have a rating system for every car make and model. Most use a system devised by the Insurance Services Office, which starts with the cost of the vehicle and then factors in safety and theft data. Cars are given a rating from 1 to 27, and the higher the number, the higher your premium.

Helpful Idea:. If you're buying a new car, ask your insurance company about the difference in premiums for cars you're considering.

Pay in full to avoid installment fees. "Fractional premium" fees are usually charged when you pay your annual premium in installments rather all at once. Payments usually are offered on a six-month, quarterly or monthly basis, but almost every insurance company charges an administrative fee for breaking up the payments. The more you break it down, the more those fees add up.

Helpful Idea: Ask about fees for paying in installments. If the fees are small enough, it may be worth it. Remember that insurance companies can cancel your policy for late payment, many times with minimal notification, so make sure you won't miss an installment. If you can pay the premium up front, it may simplify the process and save you a few dollars.

That Toby Keith CD in your car isn't covered. Stolen or damaged personal items like compact discs aren't covered by your auto insurance.

Helpful Idea: You can file a claim on your home insurance. Most home-insurance policies will cover smaller, less expensive items such as compact discs. However, if you carry expensive items such as computer equipment, ask about a rider to your home-insurance policy. It's wise to take photos or video of any expensive personal items before they go missing.

You'll pay for your bad driving. The industry standard is to increase your premium by 40% of the insurer's base rate after your first at-fault accident. For example, if the company's base rate is $400, your premium will go up by $160. Not all auto insurers play by this rule, though, and some may increase your individual rate by 40%. Regardless of what formula they use, in the majority of cases, your rates will go up.

You'll pay for your friend's bad driving, too. If your friend borrows your car and crashes it, you'll have to file a claim with your insurance company. You'll have to pay any deductible that applies, and your rates will probably go up as a result of your claim.

Helpful Idea: If your friend didn't have permission to take your car, in most cases you won't be held liable for the damage. But if your friend is uninsured and causes damage that exceeds your policy limits, the injured party can come after you for medical and property-damage expenses. Best bet? Don't lend out your car.

The value of your "totaled" car may surprise you. Auto-insurance companies don't use the standard Kelley Blue Book or National Association of Automobile Dealers value. Instead, each company has its own proprietary list of car values, and most have specialized software for valuing cars in each region. They take into consideration the car's mileage and pre-accident condition.

The insurance company may also ask local dealers what they'd charge for a similar replacement car. However, the insurer will consider quotes from suburban towns as reasonable estimates, even if you live in the city. You might have to drive several hours to reach the cheapest dealer, just to save the insurance company money. And they might be quoted a better deal than you could get if you walked onto the lot.

Helpful Ideas: If you disagree with your insurance company's value determination, there are several things you can do:

If you have maintenance records that show you've had the oil changed every 3,000 miles and you've had the car checked routinely by a mechanic, present copies to the insurance company to show the car was in good condition.

If you've been paying premiums on any special parts or upgrades, make sure those are included in the insurance company's evaluation. Get price quotes on replacement cars from three dealers within a reasonable driving distance and submit these to your insurance company. Ask the insurance company for a list of dealers within a specific distance who can sell you an equivalent car for the value the company is claiming.

If you still aren't satisfied, you can step up the process and go to mediation or arbitration. Mediation involves presenting your case to a neutral party for help in reaching a compromise; arbitration is a binding decision. You can also, of course, take the issue to court.

All insurer aren’t created equal.   While it seems every insurer can save you money, remember what your Dad told you, “You get what you pay for”.  Saving a few dollars in premiums could cost you a lot of money at claims time.

Helpful Idea:  At least once every three years shop around.  Don’t only check out the rates, but review the JD Power and other consumer reports.  Contact a local independent agent who can shop more than one insurer’s rates.  Call your AAA insurance consultant and let them do the shopping for you.  Their advice could be worth thousands of dollars.

Call AAA Insurance at (877) 766-6222 to find out today’s lowest insurance rates!
Jim McCafferty is President of The Members Insurance Company.