Strategies To Lower Auto Insurance Premiums: Money-Saving Tips

Auto insurance premiums have been on the rise, with an average increase of 19% between June 2023 and June 2024, according to the Department of Labor. The reasons behind this include lingering inflation, rising repair costs, severe weather, and an increase in accidents. However, there are several ways to reduce your auto insurance premium. Firstly, you can shop around for better rates from competing insurers and compare quotes to find the best deal. Increasing your deductible, or the amount you pay before your insurance coverage begins, is another effective way to lower your premium. You can also reduce your coverage, especially on older cars, by dropping collision and comprehensive insurance. Additionally, taking advantage of discounts offered by insurance companies, such as bundling home and auto insurance, having a good driving record, or being a good student, can help reduce your premium. Improving your credit score, driving a safe car with low repair costs, and participating in usage-based insurance programs can also lead to significant savings on your auto insurance premium.

Increase your deductible

One of the best 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 coverage kicks in in the event of an incident. By increasing your deductible, you can decrease your auto insurance payments. This is because the higher your deductible, the lower your insurance premium will be. 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. Increasing your deductible from $500 to $1,000 can bring your annual premiums down by 20 to 25%.

However, it is important to note that increasing your deductible means you will have to pay more out of pocket if you get into an accident. Therefore, it is crucial to ensure that you have enough savings to cover the higher deductible. It is recommended to review your emergency fund before increasing your deductible to ensure that you can afford the higher out-of-pocket costs. Additionally, consider the likelihood of needing to file a claim. If you don't drive often or feel you are less likely to get into accidents or sustain vehicle damage, increasing your deductible may be a good option.

Before choosing a higher deductible, be sure to compare different insurance companies and their rates. Some companies may offer lower rates for higher deductibles, while others may not. It is also important to consider your vehicle's age and value when deciding whether to increase your deductible. If your vehicle is older and has a lower value, you may want to drop collision and comprehensive coverage instead of increasing your deductible.

When deciding whether to increase your deductible, weigh the potential savings on your premium against the risk of having to pay a higher amount out of pocket in the event of an incident. Ensure that you are comfortable with the financial burden of a higher deductible and that it aligns with your driving habits and vehicle characteristics.

Take a defensive driving course

One of the most effective ways to reduce your auto insurance premium is to take a defensive driving course. Not only will you become a safer driver, but you will also be able to benefit from the associated discounts that insurance companies offer.

Defensive driving courses are designed to improve your existing driving skills, enabling you to better anticipate situations that may cause accidents and to react quickly to dangerous scenarios. These courses cover the risks and reasons for accidents, statistics on prevalent safety concerns, and techniques to recognise and react to danger.

Insurance companies incentivise their customers to take defensive driving courses by offering discounts. The amount of the discount varies depending on the insurance company, your age, your state, and other factors. Some states even require insurance companies to offer these discounts, and a simple four-hour course can be enough to qualify for a reduction in your premium.

Before signing up for a defensive driving course, it is important to do your research. Check your state's regulations regarding defensive driver discounts, and find out if your insurance company offers any such discounts and whether there are any age limits. If a discount is available, make sure you select a course that is approved by your state and insurer. Compare the costs, timing, and formats (in-person or online) of the approved courses to find the best fit for you.

Defensive driving courses not only make you a safer driver but can also help you save money on your auto insurance. By investing a little time and effort, you can improve your driving skills and lower your insurance costs.

Improve your credit score

Improving your credit score takes time and patience. 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. It accounts for 35% of your FICO score and includes on-time, late, and missed payments. Always make payments on time to help improve your credit score. If you struggle to make payments on time, consider setting up autopay for at least the minimum amount due or creating calendar reminders and alerts.

Pay Down Revolving Account Balances

The amount you owe accounts for 30% of your FICO score. Your credit utilization rate, or the percentage of available credit you're using, is a major factor. While experts recommend keeping your utilization rate below 30%, there is no hard-and-fast rule. Aim to keep it 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 makes up 15% of your FICO score and is influenced by the age of your oldest account and the average age of all your accounts. Closing a credit card, especially one of your oldest accounts, can hurt your credit score. If you no longer use your oldest credit card, consider using it occasionally or putting a small recurring bill on it to keep it active.

Limit New Credit Applications

Each time you apply for credit, a hard inquiry is made on your credit report, which can lower your credit score. Hard inquiries remain on your credit report for two years and impact your score for up to one year. Only apply for credit when necessary and consider using prequalification, which uses a soft credit check that won't affect your score.

Dispute Inaccurate Information on Your Credit Report

Inaccurate information on your credit report can negatively impact your score. Review your credit reports from the three major credit bureaus (Equifax, Experian, and TransUnion) and dispute any inaccuracies or signs of identity theft or fraud. Dispute processes typically take around 30 days to resolve.

Become an Authorized User

If you're new to credit or rebuilding your credit, you can ask a family member or loved one with a good credit history and low credit utilization rate to add you as an authorized user on their credit card. This can have an immediate positive impact on your credit score.

Shop around for car insurance

Shopping around for car insurance is one of the best ways to save money on your auto insurance premium. Here are some detailed tips to help you shop around effectively:

Understand Coverage Options

Firstly, it's important to understand the different types of coverage available. The most basic policy will include only auto liability coverage, which will get you a cheaper rate, but may not satisfy your needs. If you lease or finance your car, your lender likely requires comprehensive and collision insurance. Even if your car is paid off, consider adding these coverages to avoid paying expensive repair bills yourself. Your car insurance limit is the maximum amount your insurance will pay out for a claim, and this limit will vary depending on the type of coverage. For example, selecting your state's minimum required coverage for liability insurance will reduce your rate, but may not be sufficient to cover what you owe in the event of an accident. Therefore, it's important to understand the limits and deductibles for each type of coverage before making a decision.

Choose Your Deductible

Your car insurance deductible is the amount you need to pay towards a claim before your coverage kicks in. Typically, you will only have a deductible for comprehensive, collision, and gap insurance coverages. While a higher deductible will result in a lower premium, be sure that you can afford to pay the deductible amount in the event of a claim.

Compare Premium Quotes

The car insurance premium is the bottom line – the exact cost of your insurance per payment cycle. When comparing premium quotes, ensure that you are comparing "apples to apples". Each quote should include the same coverages, limits, and deductible amounts so that you can make an accurate cost comparison. Keep in mind that the cheapest insurance isn't always the best, and you should focus on finding a policy that satisfies all your needs at the best rate. Get quotes from multiple companies, both online and over the phone, to find the best deal. You can also use comparison tools, such as Progressive's AutoQuote Explorer®, to compare rates from different insurers.

When to Shop for Insurance

It's beneficial to shop around for car insurance at least once a year, as rates change frequently. Additionally, if you're adding a teenager to your policy, look for insurers that offer discounts for teen drivers. You can also ask about other discounts, such as multi-policy or multi-car discounts, continuous insurance discounts, or discounts for safe driving or low mileage.

Choosing an Insurer

When choosing an insurer, consider factors beyond just the price. Look for a company that offers the coverages you need, has a good reputation for customer service, and makes it easy to update your policy or file a claim. Check the financial strength of insurance companies through rating firms like AM Best, and investigate customer complaint records to ensure you're choosing a reliable insurer.

Buy insurance for multiple policies from the same provider

One of the best ways to reduce your auto insurance premium is to bundle your insurance policies. By purchasing multiple policies from the same provider, you can often qualify for a bundling or multi-policy discount. This means that you can insure your car, home, and other valuables with the same company and save money on your overall insurance costs.

Significant Cost Savings

Bundling your insurance policies can lead to significant cost savings. Many insurance companies offer discounts ranging from 5% to 25% or even higher when you purchase multiple policies from them. This can result in hundreds of dollars in savings each year. For example, Liberty Mutual offers a discount of up to $950 when you bundle your auto and home insurance with them.

Convenience and Streamlined Billing

By having all your insurance policies in one place, you can conveniently manage them through a single online account or mobile app. This makes it easier to view and download policy documents, pay and manage bills, and file and track claims. Additionally, bundling can simplify your billing process by combining bills for multiple policies into a single payment.

Single Deductible

In some cases, bundling your insurance policies can lead to a single deductible. This means that if your vehicle and home are damaged in a single covered event, such as a storm, you will only need to pay one deductible instead of separate deductibles for each policy. This can result in lower out-of-pocket expenses and a more straightforward claims process, as you only need to deal with one insurance company.

Loyalty and Long-Term Customer Discounts

Insurance companies often value long-term customers and may offer loyalty discounts when you have multiple policies with them. Staying with the same insurer for several years can lead to additional savings and make it easier to manage your insurance needs.

Access to a Wider Range of Coverage Options

When you purchase multiple policies from the same provider, you may gain access to a wider range of coverage options and endorsements. This can include home-sharing coverage, green improvement reimbursement, accident forgiveness coverage, and more.

Ease of Comparison and Shopping

When you're shopping for insurance, getting quotes for multiple policies from the same provider can make it easier to compare rates and coverage options. You can directly compare the premiums, discounts, and perks offered by the insurer across different types of insurance, making it simpler to make an informed decision.

In conclusion, buying insurance for multiple policies from the same provider can be a great way to reduce your auto insurance premium and overall insurance costs. It offers cost savings, convenience, and access to a wider range of coverage options. However, it's important to shop around and compare rates from multiple insurers to ensure you're getting the best value and coverage for your needs.

Frequently asked questions