Orlando Harmon
Auto insurance is a necessary expense for drivers, but it can add a significant amount to the cost of driving. The good news is that there are many ways to save money on your auto insurance.
Firstly, it's important to shop around for the best deal. Prices differ from company to company, so it's worth getting multiple quotes and comparing insurance costs before buying a car. You can also save money by increasing your deductible, which is the amount you pay before the insurance company pays out. This will lower your premium, but make sure you can afford to pay the higher deductible if you need to make a claim.
Another way to save money is to reduce optional insurance on older cars. Collision and comprehensive coverage may not be cost-effective if the car's value is less than 10 times the insurance premium. You can also save by bundling your insurance or sticking with the same company for multiple policies, such as homeowners and auto insurance. Maintaining a good credit history and low mileage can also help lower your insurance costs.
Ask about group insurance and other discounts, such as those for safe driving, being a good student, or having safety features on your vehicle. Finally, review your coverage regularly to ensure it meets your needs and take advantage of any life changes, such as moving to a new location or changing your commute, which can impact your rates.
| Characteristics | Values |
|---|---|
| Compare insurance costs | Compare insurance costs before buying a car. Auto insurance premiums are based on the car's price, the cost to repair it, its safety record, and the likelihood of theft. |
| Raise your deductible | By choosing a higher deductible on your car insurance, you can significantly lower your premium costs. |
| Reduce optional insurance | Remove coverage you don't need. For example, if you have a second car, you might not need rental car reimbursement. |
| Bundle your insurance | Many insurers will give you a discount if you purchase multiple types of insurance from them or insure multiple vehicles. |
| Maintain a good credit history | Establishing a solid credit history has many benefits, including lower insurance costs. |
| Take advantage of low mileage discounts | Some companies offer discounts to motorists who drive less than the average number of miles per year. |
| Ask about group insurance | Some companies offer reductions to drivers who get insurance through a group plan from their employers or other associations. |
| Seek out other discounts | There are other discounts that your insurer may offer, such as for good students or accident-free periods. |
| Switch insurance companies | Switching insurance companies can save you money and increase satisfaction with your insurer. |
| Take a defensive driving course | Some insurance companies will allow you to take a safe-driving course to get a discount. |
| Pay upfront | Your insurance company might reward you with a discount if you pay upfront rather than in installments. |
| Improve your credit | Insurers often use a credit-based insurance score to help price premiums, so improving your credit score can lead to cheaper auto insurance. |
What You'll Learn
Shop around for insurance providers
Shopping around for insurance providers is a great way to save money on your auto insurance. Here are some tips to help you get started:
- Get multiple quotes: It is recommended to get at least three quotes from different insurance companies and different types of insurance companies. This includes those that sell through their own agents, independent agents, and those that sell directly to consumers. By comparing prices and offerings, you can find the best deal for your needs.
- Do your research: Before committing to an insurance company, be sure to research their reputation and read reviews from other customers. You can also check your state insurance department or online consumer information sites for complaints about the company.
- Understand your insurance needs: Educate yourself on the basics of auto insurance so that you can ask prospective insurers informed questions. This will help you make an informed decision and ensure you are comfortable with the service you will receive.
- Consider more than just price: While cost is an important factor, it is not the only consideration. Be sure to choose a reputable company that offers the coverage you need and provides good customer service. Remember, the lowest price option might not always be the best option.
- Ask for recommendations: Don't be afraid to ask friends and family for their recommendations based on their own experiences. Their insights can help guide your decision and narrow down your choices.
- Review your policy regularly: It is important to review your coverage at renewal time to ensure it still aligns with your needs. This will also help you identify areas where you may be able to save money or make necessary adjustments.
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Increase your deductible
One of the most effective ways to reduce your auto insurance costs is to increase your deductible. A deductible is the amount you pay out of pocket before your insurance company covers the rest of the repairs or replacement (up to your coverage limit) in the event of a claim. Typically, the higher the deductible, the lower the premium.
For example, if you have a $500 deductible with your collision coverage and your car sustains $3,000 worth of damage in a collision, you will be responsible for the $500 deductible, and your insurance company will cover the remaining $2,500. By increasing your deductible to $1,000, you can save up to 40% on your premium. This means that if your monthly premium is currently $80, it could be reduced to $72 by increasing your deductible.
However, it is important to ensure that you have enough savings to cover the higher deductible in the event of a claim. You should also be aware that the relationship between deductibles and premiums is not direct or proportional. Increasing your deductible significantly does not necessarily lead to a drastic reduction in your monthly premium. Therefore, it is recommended to do some calculations to determine if increasing your deductible is financially beneficial.
Consider the difference in premium costs between your current deductible and a higher one. Compare how much more risk you are assuming with the potential savings on your premium. For example, if you increase your deductible by $500, but your premium only decreases by $96 per year, it will take almost five years without any claims to make up the difference. On the other hand, if increasing your deductible results in a premium reduction of $264 per year, you will make up the difference in less than two years.
Additionally, consider how often you will use your insurance and make claims. If you are financially secure and prefer not to submit frequent insurance claims, a higher deductible may be advantageous since you are primarily concerned with major incidents rather than minor repairs. However, if you tend to use your auto insurance more frequently, a lower deductible might be more suitable.
It is also important to assess your risk tolerance. The savings from increasing your deductible may not always outweigh the risk of a higher financial burden in the event of an accident. While it may seem unlikely that you will need to file a claim, auto accidents can be unpredictable and beyond your control. Therefore, it is crucial to ensure that you can comfortably handle the increased deductible in case of an incident.
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Remove unnecessary coverage
One way to save money on auto insurance is to remove unnecessary coverage from your policy. This could mean removing duplicate coverage or coverage that is no longer needed. For example, if you have roadside assistance through another service, you may not need it through your auto insurance policy. Similarly, if you now have two cars, you may no longer need rental car reimbursement coverage.
Another way to save money is to choose between full coverage and liability-only insurance. Full coverage includes collision and comprehensive coverage, which may not be necessary if your car is older or has depreciated in value. Collision insurance covers damage to your car if you're in an accident or if your car flips over, while comprehensive insurance covers damage caused by things like storms, vandalism, or hitting an animal. If your car is worth less than your deductible plus the amount you pay for annual coverage, it may not be worth keeping these coverages.
However, before removing any coverage, it's important to consider the potential costs of repairs or a total loss. Make sure you can afford to pay for repairs or a new car if needed. Additionally, research your car's current value and average repair costs in your area to make an informed decision.
It's also a good idea to review your policy regularly, especially after major life changes, to ensure your coverage meets your needs and that you're not paying for unnecessary coverage.
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Take advantage of discounts
Taking advantage of discounts is a great way to save money on your auto insurance. Here are some common discounts offered by insurance companies:
Low Mileage Discount
If you drive fewer miles than the average number of miles per year, you may be eligible for a low mileage discount. Some companies offer this discount to motorists who drive less, as it indicates a lower risk of getting into an accident.
Multiple Policy Discount
You can often save money by bundling your auto insurance with other types of insurance, such as homeowners or renters insurance. Insuring multiple vehicles with the same carrier can also lead to significant savings.
Loyalty Discount
If you've been a loyal customer to your insurance company for several years, you may be eligible for a loyalty discount. Even if you're not, maintaining consistent coverage over time may still earn you a discount.
Safety Feature Discount
If your car has safety features such as anti-lock brakes, airbags, anti-theft devices, or blind-spot warning systems, you may be eligible for a safety feature discount. Insurance companies view these features as reducing the risk of accidents or mitigating potential damage.
Profession-Based Discount
Certain professions, such as teaching or nursing, may be eligible for profession-based discounts. Insurance companies often view these professions as lower-risk, which can lead to reduced premiums. Additionally, most insurers offer military discounts for deployed service members.
Good Student Discount
Younger drivers who maintain good grades in school, typically a B average or higher, may be eligible for a good student discount. Insurance companies view good students as more responsible and lower-risk drivers.
Paid-in-Full Discount
Paying your insurance premium upfront for the year rather than in monthly installments can often lead to savings. Insurance companies prefer this payment method as it guarantees their income and reduces administrative costs.
Paperless and Automatic Payment Discounts
Signing up for paperless billing and automatic payments can also lead to small discounts. This benefits the insurance company by reducing administrative costs and ensuring timely payments.
Driving Monitoring Program Discount
Some insurance companies offer discounts to drivers who agree to have their driving habits monitored through a smartphone app or a device installed in their car. This allows the insurance company to assess your driving behaviour and offer discounts for safe driving practices.
Group Memberships and Affiliations
Being a member of certain groups or affiliations, such as AAA (American Automobile Association) or university alumni programs, can often lead to discounts on your auto insurance. Insurance companies view these memberships as indicators of lower-risk driving behaviour.
Remember to regularly review your insurance policy and ask your insurance provider about any discounts you may be eligible for. Combining multiple discounts can lead to significant savings on your auto insurance premiums.
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Improve your credit score
Improving your credit score can help you save money on your auto insurance. Here are some ways to improve your credit score:
Make On-Time Payments
Your payment history is the most important factor in determining your credit score, accounting for 35% of your FICO® Score. Always make payments on time to help improve your credit. Set up autopay for at least the minimum amount due and create calendar reminders to ensure timely payments. Experian Boost® can also help you get credit for payments that are not traditionally reported, such as eligible rent, utilities, cellphone, insurance, and some streaming subscriptions.
Pay Down Revolving Account Balances
The amount you owe accounts for 30% of your FICO® Score, and your credit utilization rate is a significant factor. Keep your credit utilization as low as possible, ideally below 30%. If you have high credit card balances, make paying them off a priority. Consider different debt repayment strategies, such as debt consolidation loans, balance transfer credit cards, or debt management plans.
Don't Close Your Oldest Account
The length of your credit history makes up 15% of your FICO® Score and is influenced by the age of your oldest account. Avoid closing your oldest credit card, as this can negatively impact your credit score. Instead, consider using it occasionally or putting a small recurring bill on the card to keep it active. If the card is no longer suitable for your needs, check with your card issuer to see if you can upgrade or downgrade to a more appropriate option.
Diversify the Types of Credit You Have
Your credit mix accounts for 10% of your FICO® Score. Having a mix of different types of credit, such as credit cards, auto loans, and mortgages, can strengthen your credit score. Applying for a credit-builder loan or a starter credit card can help improve your credit mix over time. However, avoid taking on unnecessary debt just for the sake of building credit.
Limit New Credit Applications
Each time you apply for credit, a hard inquiry is made on your credit report, which can lower your score by a few points. These inquiries impact your score for up to one year. Only apply for credit when necessary, and consider prequalification, which uses a soft credit check that won't affect your score. Space out your credit applications, as applying for multiple new accounts within a short period can have a compounding negative effect.
Dispute Inaccurate Information on Your Credit Report
Inaccurate information on your credit report can significantly impact your credit score. Regularly review your credit reports from the three major credit bureaus (Equifax, Experian, and TransUnion) and dispute any errors or fraudulent activity. This process typically takes about 30 days, and negative information will be corrected or removed if your dispute is valid.
Become an Authorized User
If you're new to credit or rebuilding your score, consider becoming an authorized user on a loved one's credit card. Ensure the account has a positive payment history and a low credit utilization rate. Being added as an authorized user can positively impact your credit score within a month or two.
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Frequently asked questions
There are several ways to save money on your auto insurance. You can shop around for a better rate, take advantage of discounts, drop insurance you don't need, increase your deductible, improve your credit score, and bundle your policies.
By switching insurance companies, you can save hundreds of dollars on your car insurance and also benefit from higher satisfaction levels with your new insurer.
Common car insurance discounts include low mileage, multiple policy, loyalty, safety feature, profession-based, and good student discounts.
If your car is paid off or older, you may no longer need collision and comprehensive coverage, which pays for damage to your vehicle. Evaluate if the cost of this coverage is worth the potential payout.
