Auto Insurance: Strategies To Survive High Premiums

Auto insurance rates are on the rise, with car insurance rates up 39% in the U.S. compared to December 2019. There are several factors that influence the price of auto insurance, including age, gender, location, driving record, choice of car, deductible, and claim history. While some of these factors may be out of your control, there are ways to keep auto insurance costs down. Maintaining a good driving record is one of the best ways to keep insurance costs low. Safe drivers are less likely to be involved in accidents and receive discounts from insurance companies. Another way to reduce insurance costs is to increase your deductible, which is the amount you pay out of pocket before your insurance coverage kicks in. By choosing a higher deductible, you can lower your insurance premiums. Additionally, you can save on auto insurance by bundling your policies, such as combining your home and auto insurance with the same provider. Shopping around and comparing quotes from different insurance companies can also help you find the best rates. It's important to not only consider the price but also the financial strength and credibility of the insurance company. Finally, taking advantage of discounts offered by insurance companies, such as good student discounts or low-mileage discounts, can further reduce your insurance costs.

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 when your insurer pays for a claim. For example, if your insurance company approves $3000 worth of repairs and your deductible is $500, you will have to pay the $500 and your insurer will cover the remaining $2500.

By increasing your deductible, you can lower your insurance premium. This is because deductibles and premiums tend to have an inverse relationship. So, if you increase your deductible from $200 to $500, you could reduce your collision and comprehensive coverage cost by 15 to 30%. If you increase your deductible to $1000, you could save 40% or more.

However, it is important to ensure that you have enough money set aside to pay the higher deductible in the event of a claim. You should also consider whether you can afford a larger outlay if you need to get your car repaired. Increasing your deductible can be a good strategy if you don't drive very often and feel you are less likely to get into accidents or sustain vehicle damage.

Additionally, it is worth noting that if your deductible exceeds the amount of repairs needed for your car, it doesn't make financial sense to file a claim. For example, if the repair bill for your car is $800 but your collision deductible is $1000, you will have to pay the entire repair bill because the repair costs are lower than the deductible amount.

Before choosing a higher deductible, review your emergency fund to ensure that you can cover the higher costs associated with a higher deductible. Increasing your deductible can be a strategic move to lower your insurance costs, but it is important to have the financial means to support this decision.

Compare quotes from multiple insurers

Comparing quotes from multiple insurers is an effective way to find the best deal on auto insurance. Prices can vary significantly from company to company, so it's worth shopping around to find the most affordable option. Here are some tips to help you compare quotes from multiple insurers:

• Determine your budget and insurance needs: Before you start comparing quotes, it's essential to know your budget and the type and amount of insurance coverage you need. This will help you weed out options that are too expensive or don't meet your requirements.
• Gather relevant information: Have the necessary information on hand, such as your Social Security number, driver's license number, vehicle identification number (VIN), and current insurance coverage details. This will make the process of getting quotes faster and easier.
• Use an insurance comparison website: Insurance comparison websites allow you to compare quotes from multiple insurers at once, saving you time and effort. Look for trusted sites that provide real-time quotes without selling your personal information, such as Compare.com, Insurify, and The Zebra.
• Research companies with the best quotes: Don't just go with the cheapest option. Research the insurance companies providing the best quotes to ensure they have a good reputation and meet your specific needs. Check third-party reviews and ratings from websites like J.D. Power and AM Best to assess customer satisfaction, claims handling, and financial strength.
• Select the best quote for you: Consider your budget, coverage needs, and the reputation of the insurance company. Choose the quote that offers the best combination of price, coverage, and customer service.
• Compare quotes at renewal: Don't forget to compare quotes again when your policy comes up for renewal. Insurance rates can change over time, so it's worth checking to see if you can get a better deal.

By following these steps, you can effectively compare quotes from multiple insurers and find the best auto insurance policy for your needs.

Maintain a good driving record

Maintaining a good driving record is one of the most effective ways to keep your auto insurance costs down. A history of accidents, traffic violations, or other infractions can result in increased insurance rates, as these are red flags for insurers. They view such incidents as indicators of irresponsible behaviour and an increased risk of future claims.

• Avoid accidents and traffic violations: Accidents, especially those that are your fault, signal a higher risk to insurance providers. Similarly, traffic violations like speeding, reckless driving, or running red lights indicate a disregard for traffic laws and responsible driving behaviour. Multiple violations can have a cumulative effect, leading to higher insurance rates.
• Avoid driving under the influence (DUI): A DUI conviction is a serious offence that significantly impacts your insurance premiums. It indicates a high level of risk and irresponsible behaviour. Insurance companies may substantially increase your premiums or even refuse coverage due to the elevated risk associated with DUI offences.
• Be mindful of insurance points and surcharges: In some places, insurance companies use a point-based system to assess driver risk. Points are assigned for accidents, violations, and other driving-related offences, leading to premium surcharges and increased rates.
• Take a defensive driving course: Completing a defensive driving course demonstrates your commitment to safe driving and can potentially qualify you for insurance discounts. It also helps improve your driving skills and reduces the chances of future incidents.
• Maintain a clean driving record: Insurance companies favour drivers with a clean driving record and no violations. Keeping your record clean over an extended period can gradually improve your insurance rates, as insurers consider more recent driving history positively.
• Shop around for insurance quotes: If you have a less-than-perfect driving record, compare quotes from multiple insurance providers. Different companies may have varying policies and rates for drivers with infractions. You may find a provider who offers more competitive rates or is more lenient towards specific types of violations.
• Improve your credit score: In some states, insurance companies use credit scores as a factor when determining premiums. Improving your credit score can indirectly help lower your insurance costs, as it demonstrates financial responsibility and a lower risk of filing claims.

By following these steps, you can maintain a good driving record and minimise the impact of any past driving infractions. Remember that insurance companies favour low-risk drivers, so practising safe driving habits and maintaining a clean record are essential to keeping your auto insurance costs down.

Improve your credit score

Improving your credit score takes time and patience, and there's no one-size-fits-all solution. Here are some ways to improve your credit score:

• Pay your loans on time: Payment history is the biggest factor in calculating your credit score. Avoid late payments at all costs. Set up automatic payments or alerts to remind you to pay.
• Keep your credit utilisation rate low: Try to use less than 30% of your credit limit on any card. The people with the highest scores tend to have credit utilisation in the single digits. You can pay down your balance before the billing cycle ends or make multiple payments throughout the month.
• Ask for higher credit limits: When your credit limit increases and your balance stays the same, it immediately lowers your overall credit utilisation, which can improve your credit.
• Become an authorised user: If a relative or friend has a credit card account with a high credit limit and a good history of on-time payments, ask to be added as an authorised user.
• Review your credit reports: Check your credit reports from all three of the nationwide consumer reporting agencies for any unpaid balances or accounts that have gone into collections. Dispute any errors.
• Limit applying for new accounts: Applying for new lines of credit will usually lead to a hard inquiry, which can negatively affect your credit score.
• Keep old accounts open: Avoid closing any old accounts that have been paid off, even if you no longer use them. Keeping the accounts open will help maintain the length of your credit history.

Bundle your policies

One of the best ways to save money on insurance is to bundle your policies. This means purchasing multiple types of insurance, such as auto, home, and life insurance, from the same company. Many insurance companies offer discounts to customers who bundle their policies in this way.

The benefits of bundling insurance policies include:

• Saving money: Companies often offer multi-line discounts to customers who purchase multiple types of insurance from them. This can result in significant savings compared to buying each type of insurance separately. For example, Progressive offers a 5% discount on auto insurance for customers who bundle it with home, condo, or renters insurance.
• Convenience: Having all your insurance policies with one company makes it easier to manage and means less time spent dealing with paperwork and payments.
• Customer retention: Insurance companies benefit from having long-term customers, so they are often willing to offer discounts to retain customers who have multiple policies with them.
• Economies of scale: By combining your policies under one roof, insurance companies can benefit from economies of scale and pass some of those savings on to you.

When considering whether to bundle your insurance policies, it's important to compare rates and discounts from multiple companies. While bundling can often lead to significant savings, it's not always the cheapest option. Depending on your specific circumstances and the companies available in your area, you may find that purchasing policies from separate companies results in lower rates. Additionally, some insurance agencies package together policies from separate partnering companies and sell them as bundles, but you may not have access to the same payment or policy management perks that come with bundling with a single company.

Frequently asked questions