Strategies To Lower Auto Insurance: A Guide To Savings

There are many ways to lower your auto insurance costs. Some of the most impactful ways include having a good driving record, increasing your deductible, and bundling your insurance policies.

A good driving record, free of accidents, violations, and claims, can help you qualify for lower rates or discounts on your insurance. Increasing your deductible, the amount you pay before your insurance policy kicks in, can also substantially lower your costs. For example, increasing your deductible from $200 to $500 could reduce your collision and comprehensive coverage cost by 15 to 30 percent. Finally, bundling your insurance policies, such as combining your home and auto insurance with the same provider, can often lead to significant savings.

Other ways to lower your auto insurance costs include taking advantage of discounts, such as those offered for safe drivers, students, or members of certain groups, exploring usage-based insurance, and comparing rates from different insurance companies.

Increase your deductible

Increasing your deductible is a sure-fire way to lower your auto insurance payments. A deductible is the amount you pay out of pocket before your insurance coverage kicks in. By requesting a higher deductible, you can lower your insurance costs. The amount you pay for auto insurance is dependent on the value of your vehicle, your driving habits, and other factors.

The deductible amount you choose when you buy or renew your car insurance policy typically ranges from $250 to $2,000, with $500 being the most common choice. A lower deductible means higher auto insurance rates because your insurance company will need to pay out more if you make a claim. For example, if you choose a $250 deductible, you will have higher insurance rates than if you choose a $2,000 deductible.

You can save between 7% and 28% annually by increasing your deductible, according to a Forbes Advisor analysis. The biggest savings are usually available to drivers who make a substantial change to their deductible, such as increasing it from $250 to $2,000. The amount you save depends on your current deductible, your new deductible, and your auto insurance company. For example, increasing your deductible from $200 to $500 could reduce your collision and comprehensive coverage cost by 15% to 30%, and going to a $1,000 deductible can save you 40% or more.

Before choosing a higher deductible, be sure you have enough money set aside to pay it if you have a claim. You don't want to be left with an unusable car because you can't afford to get it fixed. It's important to do some calculations to see how much you'll save versus how much you'll risk by choosing a higher deductible. For example, if you currently have a $500 deductible and a monthly premium of $80, increasing your deductible to $1,000 might only save you $96 per year. It would take almost five years without any claims to make up the difference in the deductible.

Increasing your deductible is assuming more risk, and the savings might not be worth it if you get into an accident. You need to be prepared to pay the deductible amount yourself if you get into an accident, so make sure you have enough savings to cover it.

Compare quotes from different insurers

Comparing quotes from different insurers is one of the best ways to lower your auto insurance costs. Prices and rates vary from company to company, so it's worth shopping around to find the best deal. Get at least three quotes to compare, and consider using an insurance comparison website to make this process easier.

When comparing quotes, it's important to ensure you're getting like-for-like. The quotes should be based on the same coverage, limits, and deductibles. This will give you an accurate idea of which insurer is offering the best price.

As well as the price, there are other things to consider when comparing insurers. You'll want to pick a company that is financially stable, so check the financial health of insurance companies with rating agencies. Also, ask friends and family for recommendations, and check consumer reviews and complaints.

You can get online quotes from multiple insurers, and you'll usually need to provide the following information:

• Your vehicle's make, model, year, and mileage
• Your driving history, including any accidents or violations
• Your age, gender, and marital status
• Your location
• Your current insurance status

Take a defensive driving course

Taking a defensive driving course is a great way to lower your auto insurance. Defensive driving courses are designed to improve your driving skills and teach you techniques to help you avoid accidents. They cover topics such as crash prevention techniques, safe following distances, sharing the road, and how to handle distractions and poor weather conditions.

These courses are typically short, with some lasting only four hours, and can be completed online or in person. They are also generally affordable, ranging from $15 to $100, with most online courses costing between $20 and $40.

Upon completion of the course, you will receive a certificate that you can submit to your insurance provider to qualify for a discount. The amount of the discount will vary depending on your insurer, age, state, and other factors, but it typically ranges from 5% to 20% and can last for several years. In some states, insurers are required by law to offer a defensive driving discount.

Before enrolling in a defensive driving course, be sure to check your state's regulations and your insurer's specific requirements and discounts. It's important to choose a course that is approved by your state and insurer to ensure that you qualify for the discount.

In addition to lowering your insurance rates, defensive driving courses can also help you become a safer driver, dismiss tickets or citations, and remove points from your license. They are particularly beneficial for younger and older drivers who may have higher insurance premiums due to their age.

Improve your credit score

Improving your credit score is an effective way to lower your auto insurance costs. Here are some detailed tips to help you improve your credit score:

Make On-Time Payments

Paying your bills on time is crucial for improving your credit score. Your payment history accounts for 35% of your FICO® Score and is the most important factor influencing your credit score. Late or missed payments are reported to national consumer credit bureaus and can negatively impact your score. Setting up autopay and creating calendar reminders can help ensure timely payments. Additionally, consider registering for Experian Boost to receive credit for eligible rent, utilities, cellphone, insurance, and streaming subscription payments.

Pay Down Revolving Account Balances

The amount you owe makes up 30% of your FICO® Score. Aim to keep your credit utilization rate, the percentage of available credit you use, as low as possible. If you have high credit card balances, make paying them off a priority. Consider debt consolidation loans, balance transfer credit cards, debt management plans, or debt repayment strategies. If you consistently pay your credit card bill in full but have a high utilization rate due to low credit limits, pay your bill shortly before the monthly statement date or make multiple payments to maintain a low balance.

Don't Close Your Oldest Account

The length of your credit history accounts for 15% of your FICO® Score and is influenced by the age of your oldest account and the average age of all your accounts. Avoid closing your oldest credit card, as this can negatively impact your score. Instead, consider using it occasionally or putting a small recurring bill on autopay to keep it active. If the card no longer suits your needs or charges an annual fee, explore options to upgrade or downgrade to a more suitable card.

Diversify the Types of Credit You Have

Credit mix accounts for 10% of your FICO® Score. It involves managing different types of credit, such as credit cards, auto loans, and mortgages. Your credit mix will likely improve over time as you apply for various types of credit to meet your financial needs. If you're just starting, consider applying for a starter credit card and a credit-builder loan to establish a solid credit mix. Avoid taking on unnecessary debt just for the sake of building credit.

Limit New Credit Applications

Each time you apply for new credit, the lender performs a hard inquiry, which can knock a few points off your credit score. These inquiries and the time since you last opened a new account make up 10% of your FICO® Score. Only apply for new credit when necessary, and consider prequalification, which uses a soft credit check that won't impact your score.

Dispute Inaccurate Information on Your Credit Report

Inaccurate information on your credit report can significantly harm your credit score. Review your reports from the three major credit bureaus (Equifax, Experian, and TransUnion) for any discrepancies and dispute errors promptly. Common issues include late payments, high credit card balances, or fraudulent accounts due to identity theft. Credit disputes are typically resolved within 30 days, and negative information can be corrected or removed.

Become an Authorized User

If you're new to credit or rebuilding your score, consider asking a loved one to add you as an authorized user on their credit card. Ensure the account has a positive payment history and a low credit utilization rate. Once added, the positive payment history of the account can positively impact your credit score within a month or two.

Review your current policy

Reviewing your current policy is an important step in lowering your auto insurance costs. Here are some detailed tips to help you through the process:

Firstly, understand the different components of your policy. Your policy may include various types of coverage, such as liability, collision, and comprehensive insurance. Liability insurance covers any damage or injuries you cause to others, while collision and comprehensive insurance cover damage to your own vehicle. Familiarize yourself with the limits and deductibles associated with each type of coverage.

Next, assess your current coverage needs. Consider the age and value of your vehicle. If your car is older, it may be less costly to repair or replace, so you might be able to reduce your coverage limits or opt-out of certain coverages altogether. For example, if you've paid off any loans on your vehicle, you may no longer need gap insurance. Review your policy to identify areas where you may be over-insured or paying for coverage that is no longer necessary.

Additionally, keep an eye out for any changes in your personal circumstances that could impact your policy. Life events such as getting married, turning 25, buying a home, or having a teenager in the household may qualify you for discounts or lower rates. Insurance companies often offer lower rates to married couples, considering them a lower-risk group. Similarly, age and homeownership can also work in your favour when it comes to insurance rates. If you have a teenager on your policy, look into good student discounts or discounts for teens away at college without a car.

Furthermore, review your policy for any errors or outdated information. Ensure that all the details, such as your address, vehicle information, and annual mileage, are up to date. Even a small mistake or outdated information can impact your rates.

Finally, don't be afraid to ask your insurance provider questions about your policy. They can provide clarity on any confusing aspects of your policy and help you identify areas where you may be able to save money. They can also inform you about any new discounts or promotions that you may be eligible for. Remember to review your policy periodically, especially at renewal time, to ensure that it continues to meet your needs and that you're getting the best value for your money.

Frequently asked questions