Strategies To Reduce Auto Insurance Costs: Tips And Tricks

Auto insurance can be expensive, but there are several ways to lower your costs. Firstly, shop around for the best rates and get multiple quotes. You can also take advantage of discounts, such as those for safe driving, being a student, or having multiple insurance policies with the same provider. Increasing your deductible can also lower your premium, but be mindful of your ability to pay more if you make a claim. Review your coverage and consider reducing it, especially for older cars. Improving your credit score can also help lower your insurance costs. Finally, consider pay-per-mile insurance if you don't drive often, and always review your policy before renewal to ensure it meets your needs.

Opt for a higher deductible

Opting for a higher deductible is a great way to lower your auto insurance costs. A deductible is the amount you pay out of pocket when you make a claim before your insurance policy kicks in to cover the rest. Typically, you can choose between a low and high deductible, and while a low deductible means a higher insurance rate, a high deductible means a lower insurance rate.

For example, if you have a deductible of $1,000 and you have an auto accident that costs $4,000 to repair your car, you will have to pay the $1,000 deductible out of pocket, and then your insurance will cover the remaining $3,000 (or up to your coverage limit). Your insurance company will then send you a cheque for the amount of the claim minus your deductible.

It's important to note that deductibles are usually a specific dollar amount, but they can also be a percentage of the total amount of insurance on the policy. Additionally, deductibles usually only apply to damage to your own property, as is the case with comprehensive and collision auto insurance. Liability coverage typically doesn't have a deductible, and your insurance company will pay the entire cost (up to your coverage limits) if you have to pay for another party's medical bills or damaged property.

When deciding whether to opt for a higher deductible, it's crucial to consider your financial situation and your driving history. While a higher deductible can lower your premium, it also means you'll have to pay more out of pocket in the event of an accident. Here are some factors to consider:

• Affordability: Ensure you can afford to pay a higher deductible in the event of an incident. Review your emergency fund and assess whether you can comfortably cover the higher deductible amount.
• Payback: Calculate the potential savings on your premium by opting for a higher deductible. Compare the annual savings on your premium with the amount of the higher deductible. Determine how long it would take for the premium savings to make up for the higher deductible.
• Driving Record: Consider your driving history and the likelihood of filing a claim. If you have a good driving record and haven't had any accidents in a long time, you may be more comfortable opting for a higher deductible. On the other hand, if you have a history of accidents or frequent claims, a lower deductible might be more suitable.
• Risk Aversion: Opting for a higher deductible is essentially taking on more risk. Assess your tolerance for risk and whether you prefer the security of a lower deductible or the potential savings of a higher one.
• Vehicle Value: Evaluate the value of your vehicle. If you have an expensive car, a higher deductible might make sense as it can result in higher savings on your premiums. Conversely, if you have a lower-value car, a lower deductible may be preferable to avoid paying a high deductible for minor repairs.
• Leasing or Financing: If you are leasing or financing your car, choosing a lower deductible is often recommended. This provides better coverage in the event of a claim, as you are responsible for returning the car in working condition, regardless of insurance payouts.
• Mix and Match: If you have a good driving record, you may be able to mix and match deductibles. Consider having a high deductible for collision coverage and a low deductible for comprehensive coverage. This approach ensures a higher line of coverage for unexpected incidents under comprehensive protection while taking advantage of the typically lower cost of comprehensive policies.

Remember, when opting for a higher deductible, ensure that you have enough money set aside to cover the deductible amount in case of a claim. While it can significantly reduce your insurance costs, a higher deductible also means taking on more financial responsibility in the event of an accident.

Reduce coverage on older cars

One way to lower your auto insurance costs is to reduce coverage on older cars. As a car gets older, its value decreases, so it may not be cost-effective to maintain the same level of insurance coverage.

Collision coverage pays for repairing or replacing your car, no matter who is at fault in an accident. Comprehensive coverage pays for losses not caused by collisions, such as fire, theft, vandalism, animal strikes, and broken glass. While these coverages are worthwhile for newer cars, they may not make financial sense for older vehicles.

If your car is worth less than ten times the premium, it may not be worth purchasing collision or comprehensive coverage. You can find out the worth of your car by contacting local auto dealers, consulting auto buyer guides such as the National Automobile Dealers Association or Kelley Blue Book, or looking it up online at Kelley's Blue Book.

Before dropping coverage, it's important to calculate your replacement cost. Repairing older cars is typically less costly than repairing newer vehicles, as they use less advanced technology and have cheaper replacement parts. If your older car has maintained a high resale value, it may make sense to keep full coverage.

Additionally, when you're paying off an auto loan or leasing a vehicle, you may be required to carry collision and comprehensive coverage until the loan is repaid. Lenders need to protect their financial interest in your vehicle. Once you own your car outright, you can decide whether the cost of collision and comprehensive coverage is worthwhile.

If you decide to reduce coverage on an older car, you may be able to save money by switching from full coverage to liability-only insurance. However, keep in mind that liability insurance only covers damages to another driver's vehicle if you are at fault in an accident. It does not cover repairs or replacement of your own vehicle.

It's also important to check the laws in your state before changing your insurance coverage. While comprehensive and collision coverage may not be required, liability insurance is typically mandatory.

Improve your credit score

Improving your credit score is an effective way to lower your auto insurance costs. Credit-based insurance scores are used by car insurance companies to set rates, and these differ from typical credit scores such as your FICO score. While the exact impact of a good credit score on insurance rates is hard to define, it generally indicates a lower likelihood of filing a claim, which results in more favourable rates.

• Pay your bills on time: Paying your bills on or before their due dates can positively impact your credit score. Late payments or credit delinquencies may indicate a higher risk of submitting insurance claims for minor damages.
• Minimise hard credit inquiries: Hard credit inquiries occur when a company pulls your credit report when you apply for a line of credit, and these can negatively impact your score. Soft inquiries, such as when insurance companies review your credit, do not affect your score.
• Monitor your score regularly: Keeping an eye on your credit score can help you take proactive measures to improve it. It also helps to identify errors or signs of identity theft early on.
• Maintain old lines of credit: Keeping long-standing credit accounts, such as an old credit card, can benefit your credit score. Using it sparingly and making timely payments can strengthen your credit history and lower your credit utilisation ratio.
• Be mindful of your credit utilisation ratio: This ratio measures how much credit you're using compared to how much is available. Finance professionals generally recommend using no more than 30% of your total available credit to maintain a good credit score.

By implementing these strategies, you can work towards improving your credit score, which can lead to lower auto insurance costs over time.

Take advantage of low mileage discounts

One of the best ways to keep your auto insurance costs down is to take advantage of low mileage discounts. Insurers take your annual mileage into account when they calculate your premium, so reducing your mileage can lower your insurance costs. Some companies offer discounts for drivers who travel a lower-than-average number of miles per year, usually under 7,500 or 8,000 miles. This is because if you don't drive as much as other policyholders, you're less likely to get into an accident and cost the insurance company money.

There are a few ways to take advantage of low mileage discounts. Firstly, you can ask your insurance company about any low mileage discounts they offer. Some companies may offer a discount if you drive under a certain number of miles, which is usually around 7,500 to 8,000 miles per year. You may need to provide proof of your low mileage, such as a photo of your odometer or service paperwork. Secondly, you can consider pay-per-mile insurance, where your rate is tied directly to your mileage. These programs usually include a base rate and a per-mile rate each month, and they track your mileage through a plug-in device or mobile app. Finally, you can look into usage-based insurance programs, which track your driving behaviour and mileage. While these programs consider factors beyond just mileage, they often offer significant discounts for low-mileage drivers.

In addition to taking advantage of low mileage discounts, there are other ways to reduce your auto insurance costs. One way is to shop around and compare rates from different insurance companies. Insurance companies charge different rates for the same coverage, so finding the company that best fits your needs can save you money. You can also reduce your coverage, especially if you have an older car that isn't worth much. Dropping collision and comprehensive coverage may not be cost-effective if your car is worth less than ten times the premium. Additionally, improving your credit history can lower your insurance costs, as most insurers use credit information to price auto insurance policies. By managing your credit effectively and maintaining a good credit record, you can reduce your insurance premiums over time.

Choose a car with a good safety rating

When it comes to choosing a car with a good safety rating, there are several factors to consider that can help lower your auto insurance costs. Firstly, safety ratings are a crucial aspect. Organizations like the National Highway Traffic Safety Administration (NHTSA) and the Insurance Institute for Highway Safety (IIHS) provide safety ratings based on crash tests, with the highest ratings given to vehicles with the lowest injury risk. NHTSA uses a 5-star rating system, while IIHS designates vehicles as Top Safety Pick or Top Safety Pick+. These ratings are important to insurance companies, as they factor them into calculating insurance premiums. Vehicles with higher safety ratings tend to have fewer and less expensive claims, leading to lower insurance costs.

In addition to safety ratings, consider the safety features of the vehicle. Many modern cars come equipped with advanced driver-assistance systems (ADAS) that can prevent crashes or reduce their severity. Examples of these features include forward collision warning, lane departure warning, automatic emergency braking, adaptive cruise control, and blind spot intervention. These features not only enhance your safety but may also contribute to lower insurance rates.

When purchasing a car, it is essential to compare insurance costs for different vehicles. Car insurance premiums are based on various factors, including the car's price, repair costs, safety record, and theft likelihood. By researching and comparing insurance quotes for vehicles with good safety ratings, you can make an informed decision about which car to buy. Additionally, consider the age, make, and model of the vehicle, as certain vehicles may be more prone to theft or have higher repair costs, which can impact insurance rates.

While safety ratings and features are crucial, it's important to remember that other factors also influence insurance costs. Your driving history, coverage amount, credit history, age, and driving activity can all impact your insurance rates. Therefore, it's advisable to get quotes from multiple insurance providers and weigh the cost of added safety features against your budget and potential savings over the life of the vehicle.

Frequently asked questions