Minimizing Auto Insurance Costs During Covid-19 Pandemic

The COVID-19 pandemic has had a significant impact on auto insurance rates, with premiums rising due to various factors such as an increase in the cost of auto claims, supply chain issues, and changes in driving habits. However, there are several ways to reduce auto insurance costs during this challenging period. Firstly, it's essential to shop around for insurance and compare quotes from different providers to find the most competitive rates. Additionally, bundling multiple policies, such as homeowners and auto insurance, under one insurer can often lead to substantial discounts. Increasing your deductible, the amount you pay before the insurance coverage kicks in, is another effective way to lower your monthly premium. Furthermore, taking advantage of discounts offered by insurers, such as those for safe drivers, students, or military members, can also reduce costs. It's worth noting that some insurers provide specific coronavirus-related financial relief, so contacting your provider to discuss options is always a good idea.

Shop around for insurance every six months

Shopping around for car insurance every six months can help you save a lot of money. This is because insurance companies thrive on consumer complacency, with most people happy to stick with the same carrier year after year. However, insurance rates can vary wildly between carriers, and shopping around can help you find a better deal. Here are some reasons why you should shop around for car insurance every six months:

Your Car Depreciates

Your car insurance rates are heavily based on the value of your car. As your car gets older, its value decreases, and your insurance rates should reflect that. If your insurance carrier isn't adjusting your premiums to account for depreciation, you may be paying too much. Ordinary vehicles like Hondas and Toyotas depreciate at a regular rate, while luxury vehicles like BMWs and Mercedes tend to depreciate twice as fast.

Insurance Rates Fluctuate

Insurance rates can change frequently due to factors outside of your control, such as the number of policyholders in your state, the company's payouts in the past year, and company growth. These factors can cause your insurance rates to increase even if you haven't had any accidents or violations. Shopping around can help you find a carrier with more stable rates or one that hasn't had as many claims in the past year.

Tickets and Violations May Have Fallen Off Your Record

Traffic violations and accidents can cause your insurance premiums to increase, but these usually only stay on your driving record for three years. After that, shopping around for a new carrier can help you get lower rates since they won't be factoring in those past incidents.

Your Credit Score Could Have Increased

Your credit score is another factor that can affect your insurance rates. In most states, insurance companies use your credit history to determine your premium. If you've been working on improving your credit score, shopping around for insurance every six months can help you find a carrier that will offer you a lower rate based on your improved creditworthiness.

Life Events Can Lead to Premium Increases

Life events such as getting married, moving to a new city, adding a new driver to your policy, or even celebrating a birthday can cause your insurance rates to increase with your current provider. Shopping around every six months allows you to reassess your coverage and find a carrier that can offer you a better rate based on your current circumstances.

Remember, the best time to start shopping around is when your current policy has about a month left on its term. This gives you enough time to get quotes and make the transition to a new carrier if you find a better deal. By being an active consumer and regularly comparing rates, you can save hundreds, if not thousands, of dollars over the course of your car's life.

Pay your premium in advance

One way to reduce your auto insurance costs is to pay your premium in advance. This means paying your entire premium upfront instead of spreading it out over several months. Many insurers charge a fee for dividing your premium into monthly payments, so you can save money by paying in full and on time at the time of renewal. For example, Auto-Owners Insurance will reduce your rate if you pay upfront.

When you pay your premium in advance, you are demonstrating your financial commitment to the insurance company. This can be seen as a positive sign and may result in a reduction in your insurance rate. It is important to note that not all insurance companies offer this option, so be sure to check with your provider. Additionally, paying in advance can help you avoid late fees and other penalties associated with missed payments.

Another benefit of paying your premium in advance is that it can simplify your finances. By paying upfront, you won't have to worry about making monthly payments or setting aside money each month. This can be especially helpful if you have other financial commitments or if you want to free up your monthly budget. Paying in advance can also give you a sense of security, knowing that your insurance is paid for and one less thing to worry about.

When considering paying your premium in advance, it is important to weigh your financial options. Paying a large sum upfront may not be feasible for everyone, and it is crucial to ensure that you have enough money set aside for other expenses. Additionally, if you choose to pay in advance, be sure to review the insurance company's refund policy in case you need to cancel your policy or make changes to your coverage.

Increase your deductible

One way 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 starts paying. For example, if your vehicle incurs $1,500 of damage, and your deductible is $500, you will pay that amount, and your insurer will cover the remaining $1,000.

Increasing your deductible can result in lower premium costs. For instance, increasing your deductible from $200 to $500 could reduce the cost of collision and comprehensive coverage by 15% to 30%. Going to a $1,000 deductible could save you 40% or more.

However, it's important to ensure you have enough money to cover the higher deductible in the event of an accident. You should consider your emergency fund before opting for a higher deductible. While it can help lower your premium costs, it's not a good idea if you don't have enough savings to cover the higher deductible.

Additionally, if your deductible exceeds the amount of repairs needed for your car, it may not make financial sense to file a claim. For example, if your repair bill is $800 but your collision deductible is $1,000, you would be responsible for the entire repair bill since the repair costs are lower than the deductible amount.

Improve your credit score

Improving your credit score takes time and effort. Here are some tips to improve your credit score by focusing on your credit history:

• Make on-time payments: Payment history is the most important factor in determining your credit score. Always make your payments on time to maintain a positive payment history. Set up autopay for at least the minimum amount due and create calendar reminders to ensure timely payments.
• Pay down revolving account balances: The amount you owe is a significant factor in your credit score. Aim to keep your credit utilisation rate, or the percentage of available credit you're using, as low as possible. If you have high credit card balances, make paying them off a priority.
• Don't close your oldest account: The length of your credit history also matters. Avoid closing old credit accounts, even if you no longer use them, as this will shorten the overall length of your credit history. Instead, consider using them occasionally or putting a small recurring bill on the card to keep it active.
• Diversify your credit: Lenders like to see that you can manage different types of credit responsibly. This includes a mix of credit cards, student loans, mortgages, and other types of credit.
• Limit new credit applications: Every time you apply for new credit, a hard inquiry is made on your credit report, which can negatively impact your score. Only apply for new credit when necessary and consider the impact on the average age of your credit accounts.
• Dispute inaccurate information: Regularly review your credit reports for any inaccuracies or signs of identity theft. If you find any errors, dispute them with the credit bureaus to have them corrected or removed.

Additionally, here are some other strategies to improve your credit score:

• Become an authorised user: If you know someone with a good credit history who uses their credit cards responsibly, ask them to add you as an authorised user on their account. This can have an immediate positive impact on your credit score.
• Get credit for on-time bill payments: Services like Experian Boost allow you to add your utility, phone, rent, and streaming service payments to your credit file, which can help boost your score.
• Use a secured credit card: Secured credit cards require a cash deposit upfront, which serves as collateral. By making timely payments, you can build a positive credit history.

Sign up for usage-based insurance

Signing up for usage-based insurance (UBI) is a great way to save money on your auto insurance policy during the COVID-19 pandemic. UBI gives drivers the option to have their premiums determined by how often they drive, how far, and when. If you are working from home or are off work during the pandemic, UBI can save you money each month. There are two types of UBI: pay-as-you-go and pay-how-you-drive. Both give you the opportunity to earn a discount on your monthly premium.

UBI helps align your auto policy's cost with your driving habits. While auto insurers have traditionally used factors such as your age, location, and motor vehicle report to determine your risk of an accident, UBI helps calculate your rate by analyzing how often and how safely you drive. Many auto insurers offer optional UBI programs, which can benefit both the insurer and the insured. Insurers can use the data to more appropriately price policies, and drivers can earn rate reductions by proving they are safe drivers.

UBI programs typically measure your driving behaviour using a plug-in device or a mobile app for a period of months. After the program concludes, your insurance company will take the data into account when calculating your premium. The guidelines and level of savings will vary by insurer. While your rate could be substantially discounted based on the results of your UBI program, it's possible that your policy's premium will increase if you are found to be a high-risk driver.

There are two basic types of UBI programs: driving-based and mileage-based. Driving-based programs measure factors like how hard and how often you brake, how quickly you accelerate, and the time of day you drive. Mileage-based programs only measure how many miles you drive. Both programs rely on telematics to gather information about your driving behaviour.

UBI has become popular as it leverages technology to help auto insurers more accurately measure your risk of an accident. Advantages of UBI include discounted premiums, safer driving, improved driving habits, and easier accident investigations. However, not all drivers will get cheaper car insurance rates with UBI programs. If you frequently engage in high-risk driving behaviours, your insurer could raise the cost of your policy.

Frequently asked questions