Strategies To Lower Auto Insurance Costs

There are several ways to reduce your auto insurance premium. One of the most effective ways is to have a good driving record, which includes avoiding accidents, practising safe driving habits, and taking a defensive driving course. Maintaining a good credit score and comparing rates from different insurance companies can also help lower your premium. Additionally, you can consider increasing your deductible, reducing coverage on older cars, and bundling your auto insurance with other types of insurance policies.

Increase your deductible

One of the most effective ways to reduce your auto insurance premium 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.

For example, if you have a $500 deductible with your collision coverage and another car hits you, resulting in $3,000 in damage to your car, you will make a claim on your insurance for the damage. In this case, you are responsible for your $500 deductible, and your insurance company will cover the remaining $2,500.

By increasing your deductible, you can lower your monthly premium, but the difference may not be as much as you expect. The relationship between deductibles and premiums is not direct or proportional. When you raise your deductible, you assume more of the risk and financial cost. If you get into an accident, a higher deductible means you pay more out of pocket, and the insurance company pays less.

For example, increasing your deductible from $200 to $500 could reduce your collision and comprehensive coverage cost by 15 to 30%. Going to a $1,000 deductible can save you 40% or more. However, before choosing a higher deductible, ensure you have enough money set aside to pay it if you have a claim. You should also consider whether you can afford to pay the deductible out of pocket if you were in an accident.

You can also do some calculations to see how much you'll save versus how much you'll risk by increasing your deductible. For example, if you currently have a $500 deductible on your auto comprehensive coverage and your monthly premium is $80, increasing your deductible to $1,000 might lower your premium to $72 per month ($8 less). In this case, you're assuming $500 more in risk, but you're only saving $96 per year on your premium. It would take almost five years without any auto comprehensive claims to make up the difference in the deductible.

Therefore, while increasing your deductible can be a great way to reduce your auto insurance premium, it's important to carefully consider your financial situation and do the necessary calculations to ensure the savings are worth the increased risk.

Compare insurance quotes

Comparing insurance quotes is one of the best ways to reduce your auto insurance premium. Here's how to do it:

Determine your budget

Before you start comparing quotes, you need to determine your budget, the type of insurance you need, and how much coverage you require. By doing this first, you can quickly rule out insurance companies that are out of your price range and focus on those with the lowest prices. The average U.S. driver pays $135 per month for car insurance, so that can be a good starting point.

Gather the relevant information

Make sure you have the right information to hand, such as your Social Security number, driver's license number, vehicle identification number (VIN), and current coverage details.

Use an insurance comparison website

Insurance comparison websites allow you to compare quotes from multiple companies at the same time, and you only have to enter your information once. However, be aware that some sites are just lead-generation websites that sell your personal information. True comparison sites, such as Compare.com, Insurify, and Jerry, partner with insurance companies to provide real-time quotes.

Research companies with the best quotes

The largest insurance companies won't always have the best prices, so it's important to do your research. Third-party websites like J.D. Power and AM Best can help by providing analysis and customer feedback on insurance companies. You can also check a company's financial health with rating companies like AM Best and Standard & Poor's.

Select the best quote for you

After researching, narrow down your list to a few insurance companies, then review your auto insurance quotes again and select the best one for your needs. Then, complete the application for your new policy.

Compare quotes again at renewal

When your policy comes up for renewal, you'll usually get a renewal notice about 30 days before. Take this opportunity to compare car insurance quotes again to see if your current insurer is still the best deal for you.

Compare quotes from multiple companies

The more quotes you can compare, the better your chances of finding the cheapest insurance. The U.S. has hundreds of insurance companies to choose from, so get as many quotes as you can. Comparison sites make this process quicker and easier by allowing you to compare multiple quotes side by side.

Maintain a good driving record

Maintaining a good driving record is one of the best ways to keep your auto insurance costs down. A clean driving record is one that's free of accidents, moving violations, or other infractions. Here are some tips to help you maintain a good driving record:

• Obey all traffic laws: This includes following speed limits, using proper signals, and avoiding illegal manoeuvres such as U-turns.
• Be a defensive driver: Be aware of your surroundings and other drivers, maintain a safe distance, and avoid tailgating.
• Limit distractions: Give driving your full attention and avoid distractions such as talking on the phone, texting, eating, or grooming.
• Know your vehicle: Understand how your vehicle performs and keep it in good working condition. Check your mirrors, headlights, taillights, tires, and brake pads before driving.
• Follow traffic rules: Obey traffic laws and regulations, including speed limits, red lights, turn signals, and parking restrictions.
• Practise safe driving habits: Always wear your seatbelt, use turn signals, maintain a safe speed, and avoid aggressive driving.
• Avoid drunk driving: Alcohol impairs your judgment, coordination, and reaction times. DUI offences can lead to fines, jail time, and license suspension.
• Stay calm and patient: Traffic incidents can be stressful, but it's important to remain calm and patient to avoid making rash decisions that could lead to accidents.
• Strive for excellence: Continuously work on improving your driving skills and learn from the mistakes of others.
• Check your driving record regularly: Review your driving record periodically to ensure its accuracy and address any violations or inaccuracies.
• Take a defensive driving course: These courses can help you improve your driving skills, reduce your insurance rates, and possibly remove points from your driving record.
• Fix defective equipment: Address any issues with your vehicle, such as faulty brake lights or burned-out headlights, to avoid citations and ensure your safety.

Take a defensive driving course

One of the best ways to reduce your auto insurance premium is to take a defensive driving course. Not only will this make you a better, safer driver, but it will also prove to your insurance provider that you care about staying safe on the road. In many states, completing a defensive driving course can help you save on car insurance.

Defensive driving courses are similar to the driving school you may have attended as a teenager, but they are much shorter and more convenient. They usually cover things like crash prevention techniques, safe following distances, how to share the road, and how to avoid distractions like your cell phone.

The amount you can save on your insurance by taking a defensive driving course depends on your state and your insurance provider. Generally, discounts range from around 2% to 10%. For example, in Texas, the average driver pays $1,810 each year for auto insurance. A 10% discount would save them $181 annually. Some states, like New York, offer a 10% discount on your rate for three years after completing an approved driving safety course.

Before signing up for a defensive driving course, be sure to check with your insurance provider to see if they offer a discount and what specific course they require. It's also worth noting that most insurance providers will only offer the discount if you take the course voluntarily. If a court requires it after a traffic ticket, you probably won't see any savings on your insurance. However, taking a defensive driving course after a ticket can still be beneficial, as it may help you get points off your license and reduce fines or prevent license suspension for future violations.

Improve your credit score

Improving your credit score is one of the most effective ways to reduce your auto insurance premium. Here are some detailed, direct, and instructive tips to help you achieve that:

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 in credit scoring. Late or missed payments can stay on your credit report for up to seven years and negatively impact your score. Set up autopay or calendar reminders to ensure timely payments. Experian Boost® can also help you get 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 card balances 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. Keeping your credit utilization rate below 30% is advisable.

Don't Close Your Oldest Account

Closing your oldest credit account can hurt your credit score. The length of your credit history accounts for 15% of your FICO® Score and is influenced by the age of your oldest account. Instead of closing it, consider using it occasionally or putting a small recurring bill on it to keep it active. If the card no longer suits your needs, ask the card issuer about upgrading or downgrading to a more suitable option.

Diversify Your Types of Credit

Having different types of credit can strengthen your credit mix, which accounts for 10% of your FICO® Score. This includes a mix of credit cards, auto loans, mortgage loans, and other types of credit. However, avoid taking on unnecessary debt just for the sake of building credit. Your credit mix will likely improve naturally over time as you apply for different types of credit to meet your financial needs.

Limit New Credit Applications

Each time you apply for new credit, a hard inquiry is made on your credit report, which can lower your score. These inquiries account for 10% of your FICO® Score. Try to apply for new credit only when necessary and consider prequalification, which uses a soft credit check that won't impact your score. If you're shopping for a mortgage, auto loan, or student loan, newer FICO® Score versions combine multiple inquiries within a short timeframe as long as you complete the rate-shopping process promptly.

Dispute Inaccurate Information

Inaccurate information on your credit report can significantly harm your credit score. Regularly review your credit reports from Experian, Equifax, and TransUnion, and dispute any errors or fraudulent activity. The credit bureaus have 30 to 45 days to investigate and respond to disputes. Correcting inaccurate information can help improve your score.

Frequently asked questions