Did you know that car insurance’s average cost in the United States ranges from $565 per year to $1,674? Yes, that’s about $133 a month.
And also, Americans overpay their car insurance by over $37 billion per year. If you are in this bracket and would like to avoid overpaying your auto insurance, we’ve got you covered. In this guide, we will discuss, in greater depth, how to save money on car insurance.
The reality is that Insurance premiums constitute the most expensive and often the most frustrating part of owning a car. However, it is good to understand that the insurance cost you incur is mainly dependent on a large number of variables.
Understanding these variables will give you an easier time knowing how to save money on car insurance. Of course, you may not control every factor affecting your car insurance rate. Still, this post will give you a guideline to follow when evaluating different insurance coverage and premium charged by various companies.
Let’s first briefly highlight these variables before we discuss how one can save money on car insurance.
Factors that affect your car insurance rate
NOTE: Some states have banned or are in the process of restricting the use of some of these factors in determining insurance pricing, so some may not apply to your state
Insurance rates charged by different companies may be dependent on the following personal issues;
- Your age. Insurance companies argue that young drivers are inexperienced and thus likely to be involved in an accident. That’s why they tend to charge higher premiums for drivers under 25 years.
- Gender. Although this is not common in many states, you can find insurers charging different rates for male and female drivers. Often, you will find rates for younger men higher than women of similar coverage options and lower rates for older men than older women.
- Marital status. Married drivers tend to be charged lower rates than single, divorced, widowed, or separated individuals.
- Education level. Drivers with college degrees are typically charged less by car insurance companies with the logic that they tend to file fewer claims. However, this has been disputed severally, and some states are now excluding this factor when deciding insurance rates for individuals.
Location, your occupation, and credit score
Insurance companies also use your occupation and financial status to calculate your rates.
- Location. An insurance company can also use your location to determine your insurance rate. For instance, drivers in rural areas tend to pay less than those in major cities, where crashes and theft are common.
- Occupation. Insurance companies also use certain occupations as one of the factors for determining insurance rates, arguing that drivers in certain occupations, such as advocates, are more likely to charge more. However, this has been challenged by consumers, and now many states have banned it.
- Homeownership. Some companies give homeowners discounts who take insurance policies for their homes and cars with the same company.
- Credit score. Your credit rating has a massive effect on your auto insurance rates. Statistics show that individuals with a poor credit score rating tend to file more claims. Thus insurance companies tend to charge them higher rates. However, this has been challenged severally. Therefore, some states have banned the use of credit reports in determining insurance rates.
Where and how you drive is also another factor that determines your insurance rates;
- Your driving record. Suppose you have been involved in accidents before or charged with traffic rules violations. In that case, you are likely to pay higher insurance rates than a driver with a clean slate.
- Mileage. Drivers with low mileages often attract cheaper car insurance rates as their chances of being involved in an accident are rare. Therefore, if you are a low-mileage driver, you can save on your insurance rates by choosing a pay-per-mile insurance policy.
- Driving experience. Your insurance rates are likely to decline as you get more driving experience.
- Insurance claims you have filed. After an insurance company pays an accident claim for you, they often charge you more on your next policy renewal.
Type of vehicle and safety features
The type of car you drive and the safety features that the vehicle has are also necessary. Here are some of the specifics an insurance company will look at:
- Type of car you are insuring. Some car models attract higher insurance rates than others. For instance, sporty cars and cars that are designed for speed tend to attract high insurance premiums. Also, the cost of replacement parts is another consideration.
- Safety features in your vehicle. Cars with high-end safety equipment tend to attract higher rates as the equipment installed can be expensive to replace or repair after an accident.
- Possibility of car theft. If you have a car model that tends to be targeted often by thieves, your insurance premiums may be higher due to added risks.
Your insurance choice and deductible
The type of insurance you pick and the corresponding deductible will impact how much you pay. To get more specific, here are how these factors affect your premium:
- The company you choose. Different car insurance companies have varying rates for similar policies. That’s why we advise that you shop around for cheaper options in your locality.
- The coverage you choose. This goes without saying. Full coverage car insurance policies cost more than 3rd party liability policies. Of course, this comes with plenty of add-ons and benefits.
- Your deductible. Your deductible is the amount your insurance company will subtract from the cost of repair or replacement. For example, if your car needs $2,000 for repairs and your deductible is $500, the insurance will pay $1,500. Choosing a higher deductible, such as $1,000, will lower your insurance rates.
Many other factors affect your insurance rates, but the ones we have discussed here are the most common.
Now that you have an idea of the factors used by an insurance company to determine rates for drivers let’s now discuss how you can lower your car insurance rates.
How to save money on car insurance
There are several ways of getting your car insurance reduced;
Increase your deductible
As we mentioned earlier, deductible on comprehensive and collision car insurance policies is the amount an insurance company subtracts from the cost of repairing or replacing the car.
A high deductible usually attracts lower premiums, which ultimately can help you save on your insurance rates. Therefore, if your deductible is currently at $500, raise it to $1,000. This will help reduce your insurance rates. However, make sure that you have set aside enough money to cover your deductible should an accident happen.
Suppose an accident didn’t cause any significant damage. In that case, you can pay for repairs from your pocket to avoid increasing your insurance premiums. In most cases, you will find many minor repairs to be within your deductible amount.
Cut back the cost on unnecessary coverage
The truth is that your insurance company wants you to take a policy that covers as many options as possible to increase your premiums. However, in most cases, you will find out that most of these coverage options are unnecessary.
Here are some of the primary coverage option you may need for your new car:
- Liability coverage – this caters to costs on damages you have caused. It doesn’t cover injuries to people in your car or outside the vehicle.
- BIL – Bodily Injury Liability cover caters for medical expenses of people injured in an accident that you caused.
- PIP – Personal Injury Protection caters to the medical costs of any accident-related injuries that occur to you and your passengers. In some cases, it may even cover lost wages if the injuries interfered with your work.
- Property damage liability coverage – This takes care of the cost of damages caused to other cars if the accident was your fault. This is typically offered in the ratio of 20:50:10 (Up to $20,000 cover for individual injuries, $50,000 for everyone injuries, and $10,000 for damages to the other car). Remember that if the damage cost exceeds this coverage, you will need to pay the remainder of the cost out of your pocket. If you can’t raise this amount, you could use your assets to settle the bill. The best way to avoid a scenario like this is to ensure your coverage exceeds your total assets’ value, including your savings and investments.
- Uninsured/underinsured motorist coverage. This caters to the cost of damages resulting from an accident caused by someone who is not insured or whose insurance cover doesn’t meet your damages. This is primarily a must-have in many states and is often inexpensive.
- Comprehensive coverage. This caters to all the costs related to your car getting stolen or damages to your vehicle due to other causes, apart from accident. The cover can help you replace your vehicle with another one of equal or lesser value.
- Collision coverage– this caters to repair costs to your car in case of an accident. Ensure that your coverage limit is set based on the type of car you own, as any expenses exceeding this limit will be your responsibility.
How do you know the coverage options to drop?
Well, your car value decreases with time, and thus there may come a time when your annual insurance premiums exceed the value of your car. If it gets to that point, then paying insurance premiums for the collision and comprehensive coverage doesn’t make economic sense.
Therefore, if your annual insurance premiums for comprehensive and collision cover exceed the value of your car, then paying them no longer makes sense.
The bottom line here is that your annual auto insurance premiums should not exceed your car’s value.
Ask about discounts available
In most cases, you will find insurance companies offering special discounts on insurance premiums. Suppose you are in the military, a student with good grades, or have been loyal to your insurance company. In that case, many insurance companies can offer you discounts. If you have never been involved in an accident, you can ask for a safe driver discount.
Suppose you have installed special safety features on your car, such as theft protection or anti-lock brakes. In that case, an insurance company can consider you for discounts.
In other words, different insurance companies offer a wide range of discounts, and it doesn’t hurt to ask if there is a discount you can qualify for.
Another way of obtaining a discount and lowering your insurance rate is by taking your home and car cover from the same insurance company. In most cases, you can get a substantial reduction on your insurance premiums or a discount by taking an insurance cover for both your home and car from one insurance company.
Make sure to inquire from your insurance company if there is a discount for you most of the time. The discounts are not made public.
Compare different insurance companies
Auto insurance rates can vary by hundreds of dollars a year among different insurance for a similar coverage limit, which is why it is essential to shop around.
If you are a good driver with a commendable credit score, you can save a lot of money by finding cheaper insurance in your state.
Savings can even be more considerable if you have poor credit or your clean driving record was stained by a recent accident you caused. The truth is that different insurance companies measure risks in different ways, and thus you may be viewed as a high-risk person by one insurance company and a medium-risk person by another. That’s why it is worth it to shop around and find out what other insurance companies charge for your desired coverage.
The best way to get started is to determine the coverage options you need, then analyze your prospects in different insurance companies. List insurance companies in your state and give them a call. Be sure to inquire about the discounts available so that you can have accurate final premium quotes.
You can also negotiate with your insurance company to lower your insurance premiums, mainly if you have found a cheaper company. In some cases, explaining your side of the story can make an insurance company reconsider your premiums in case of a poor credit rating or a recent at-fault accident.
Consider getting a different car
If you have a higher-end car, a sporty car with high horsepower, or a car with specific colors, say red. You are likely to pay more insurance premiums. Cars with luxury features and those made to be driven fast tend to attract higher insurance rates.
Therefore, if your insurance premiums are on the higher side and you would like to reduce them, consider trading your car for a big, stable car with non-flashy colors. These tend to attract cheaper insurance premiums.
We have discussed different options on saving money on car insurance, and we are hopeful the guide was an eye-opener to you. It may take some time to track the coverage options offered and premium charged by different companies, but you will get the best deal with time.
Once you see the company with the best premium quote for your desired coverage, it’s time to make the switch.