Want to save money on your car insurance? Try these tips.
Full-coverage car insurance for a new car now can cost well over $1500 per year, and in some cases, costs can run much higher.
Even if you've had a recent accident, however, there are several ways to save money on car insurance. You've probably heard a few tips before, but how many are actually worth pursuing? Here are 10 good strategies to reduce the cost of car insurance without sacrificing the coverage you need.
What Goes into A Car Insurance Premium?
Car insurance premiums reflect risk. In this case, the risk is that the insurer might have to pay a claim. As you add more coverages or increase coverage limits, the insurer's risk of paying a claim increases, and premiums also increase.
But this risk can also come from driving behavior. For example, if you get a speeding ticket or have an at-fault accident, these incidents become rating factors that can increase the cost of your coverage. Both of these can also cause you to lose a safe driving or accident-free discount, which can drive insurance costs higher.
So, insurance rates consider two major questions:
How much is the potential loss? A more expensive car or a vehicle that's expensive to repair costs more to insure than a less valuable vehicle with affordable repair costs. Similarly, higher coverage limits for liability or medical coverage can lead to higher premiums. The insurer has more financial exposure, so premiums are higher.
What is the probability of the potential loss? Where the first question focuses on how much a loss costs, the second question tries to calculate how likely a loss is. Factors that indicate a higher risk of a claim, such as moving violations, or an accident-prone driver(s) can lead to higher premiums.
Some insurers look at thousands of data points when setting premiums, ranging from whether your car has daytime running lights to your marital or homeowner status, so it's impossible to optimize for everything. Instead, we'll examine the areas that often provide the largest cost savings.
- Compare Rates from Different Insurers
Sometimes, the best way to reduce your car insurance costs is simply to switch insurers. Insurance companies usually use very similar rating factors when setting insurance premiums, but each insurer might weigh these factors differently. While these factors are many, we here at Rizzo Insurance Group have rating software designed to rate most prominent carriers from our area ensuring that you will get the best pricing.
Although it isn't always advertised, insurers often cater to a certain market demographics. Some insurance companies might have better rates and more available discounts for young drivers, while others might be a better fit for married homeowners. It often pays to compare rates every year or two to be sure you're not paying too much for your coverage. We do automatic annual coverage reviews for anyone whose premium goes up 10% or more.
- Price Out Coverage Costs Before Buying A Car
Few things beat the feeling of a new car or even a new-to-you car. But the costs to insure cars can vary wildly, even among cars from the same automaker.
Several factors affect the price of insurance for a given car including the cost of repair, the value of the car itself, and even theft statistics. Sometimes, it's not just the theft of the entire car at issue. Wheel and tires and even catalytic converters are also common theft targets.
On the other side of the equation, the safety features of your vehicle can often lower rates.
It makes sense to be prepared. Before signing on the dotted line for a new vehicle, get some quotes to be sure the overall costs (including insurance) still fit your budget.
- Keep an Eye on Your Credit
It doesn't seem quite fair. In most states, insurers can use your credit history as a rating factor to set insurance premiums. Fortunately, here in Massachusetts, credit checks are forbidden for auto insurance rating (It is allowed for homeowner’s insurance). We run into these issues when rating auto insurance for the surrounding states in which our clients reside.
You might ask, why would states allow insurance companies to use credit scoring for an auto insurance rate? Well, insurance actuarial studies discovered statistical data that suggests a policyholder with poor credit is more likely to place an insurance claim compared to a policyholder with good credit. Based on this, most states allow the practice of using credit as a rating factor, although some restrict using credit as a rating factor to only auto policies. If you are reading this and live in Massachusetts, again, you need not be concerned.
Federal law allows you to check your credit report for free once every 12 months. Take steps to correct any inaccuracies you find on your credit report and look for ways to improve your overall credit history. The improvements you make now can affect more than just your interest rates and can save you hundreds or even thousands of dollars over time.
- Take Advantage of Bundling Discounts
Most insurance providers sell more than one type of insurance, and many insurers offer multi-policy discounts, also known as bundling. For example, if you buy both auto insurance and home insurance from the same insurer, you can earn a significant discount on one or both policies.
Discounts vary by insurer, but here are some possible combinations that can earn extra savings:
- Auto and home insurance
- Auto and renter's insurance
- Auto, home, and umbrella insurance
- Auto and life insurance
Ask your agent which bundling offers are available. It may make sense to consolidate your policies with one insurer.
And if you're renting but don't have a renter's policy, ask about bundling it with auto. Often the savings on the auto policy can pay for the cost of the renter's insurance policy!
- Reduce Your Annual Mileage
The recent pandemic changed the meaning of the workplace for many people, offering more opportunities to work from home. Reduced mileage without the commute might work in your favor. Not only can you sleep in a bit longer, but the reduced driving can mean insurance savings.
The average mileage per year approaches 15,000 miles in the U.S. But many insurance companies offer a discount for vehicles that travel 7,500 miles per year or less. With a few adjustments, many people can now qualify for low-mileage discounts.
Mileage-based discounts apply on a per-car basis, so you may be able to shift longer trips to a second vehicle to earn the discount on the first vehicle.
- Consider Usage-Based Car Insurance
Usage-based insurance matches car insurance rates to risk more closely via technology that measures usage or risk. While a handful of insurers offer true usage-based insurance where policyholders pay by the mile, most implementations use a traditional rating approach while offering additional discounts based on reduced usage or reduced risk.
Each insurer uses a different marketing name for usage-based coverage, but the industry name is telematics. With telematics, a device installed in your car or a smartphone app monitors driving habits and miles driven.
Telematics devices can monitor the following driving characteristics:
- Time of day
- Miles driven
- Sudden stops or swerving
- Speeding and acceleration
By taking conscious steps to improve driving safety and reduce usage, you can often earn generous discounts. If you are interested in companies that we represent that offer these types of discounts, please give us a call.
- Examine Optional Coverages for Older Vehicles
State-mandated insurance requirements include liability insurance and may also include medical coverage. But physical damage coverage isn't required by law. If you have an older car that's paid off, the math might support dropping collision and/or comprehensive coverage.
Your coverage limit for these insurance types is based on the value of the car. If you have a claim, the insurer will deduct the amount you've chosen for your deductible. For collision, this amount is usually $500 or more.
If your car isn't worth much on paper, ask your agent to break out the cost of physical damage coverage so you can make an informed decision. You can also find the numbers you need on your declarations page for your car insurance policy.
Does it still make sense to pay hundreds of dollars per year for a coverage option that might only pay $500 or $1,000 if you have a claim? The answer might be different for each household.
- Ask About Other Car Insurance Discounts
Many auto insurance companies offer a dozen or more ways to save, but some may require some action on your end. For example, some of our carriers offer a discount for completing a defensive driving course. The courses take about six hours to complete (usually online) and can earn a discount that lasts for up to three years.
- Manage Insurance Costs with Deductibles
The deductible is the part of the claim paid by the policyholder. However, not all claim types use a deductible. You'll find deductibles for collision and comprehensive losses, as well as for medical payments coverage in some cases.
Choosing a higher deductible can lead to lower premiums. In effect, you're choosing to self-insure a larger part of the claim. The caveat, however, is that claims falling below the deductible won't be paid at all, and claim payouts exceeding the deductible will be reduced by the deductible amount.
Ask us or your agent to compare prices with a higher deductible before making a change, though. Sometimes the cost savings may not justify the increased financial risk.
- Consider Your Options After an Accident
The Bureau of Transportation Statistics reported over 5.2 million crashes in the U.S. in 2020. For most drivers, it's not a question of if—but when.
If you have an accident in which you are at fault or partially at fault, it's not unusual to see rates increase. In some cases, an accident-free discount saving you money might also be on the chopping block.
When an accident changes your premiums, you won't see an increase the next day. Instead, you may see an increase at renewal. Most car insurance policies renew annually, however, more and more companies are now offering 6-month policy terms.
Sadly, in some cases, you may even receive a notice that your insurer will not renew your coverage following an accident. The most common reason for non-renewal is a DUI violation. In this situation, it's time to let us shop around and help you to compare options.
If an accident causes rates to spike, review the options discussed earlier in the article. In particular, look for defensive driving discounts or multi-policy discounts.
The Big-Picture Approach To Saving Money On Car Insurance
When looking to trim car insurance costs, it can be tempting to start slashing at the biggest numbers you see. But rather than eliminating coverages or reducing coverage limits, a better approach is to look for additional discounts or adjust deductibles.
An experienced agent can walk you through your options and help explain how the various parts of your policy work together to protect your vehicle and your family. We have been helping people for over 35 years- we know where to look and how to help you maximize your insurance dollars.
While price isn't the only consideration, it's often near the top of the list for many households. Fortunately, there are ways to save money on car insurance without sacrificing the coverage you need.
Call us at 781-289-7445 or at www.rizzoinsurance.com
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