Gas, oil changes, license plate stickers — the costs of a car can add up quickly. One of the most annoying expenses may be insurance because you never really see the benefit of your investment… until you really need it.
We all hope there is never a day we have to use insurance, but if that day comes, the last thing you want to be thinking about is if you are sufficiently covered. If you’re cutting back on coverage to save every month, there are alternatives to help you save more without sacrificing the support you may need in an emergency.
First, it’s important to understand how your premiums are calculated so you can address how to cut back. Let’s take a look at the seven factors that matter most:
- The kind of car you drive: Cars with higher vehicle safety ratings tend to be discounted, whereas flashy cars (which are statistically more susceptible to damage or theft) will bump up your premium.
- Your driving frequency and distance: Statistically speaking the more you drive, the more chances you have to get in an accident. The more miles you drive, the higher your premiums.
- Where you live: Areas of higher theft, vandalism and crashes — like most major cities — drive insurers to pay more than small towns or rural areas.
- Your driving record: As you can expect, those with a poor driving record and a history of collisions will have to pay more to be covered.
- Your policy and deductibles: If you opt for a lower monthly payment, that generally means you’ll have a higher deductible and vice versa.
- You age, sex and marital status: While it may not seem fair to be lumped in with other drivers this way, insurance providers look at hundreds of studies and analyze statistics to determine which groups tend towards higher crash rates and adjust the premium accordingly.
- Your credit history: Studies have shown that certain credit information is correlated to future insurance claims.1 When applicable, insurance companies will take these predictive figures into account when deciding on your premium.
Now that you know how insurance costs are calculated, you can probably identify areas you can address to help save more. We’ll include how to approach those premium-based cost factors as well as other routes for discounts. You’ll be on the road to bigger insurance savings in no time!
- Get multiple quotes and compare. Don’t be afraid to bring those quotes to another company to see if they will give you an even more competitive rate. Compare again at the end of every year to see if there were any major market changes or if you had an accident-free driving year.
- Have renters insurance? Homeowners insurance? Life insurance? Many insurance agencies will give you a discount for bundling your policies. See how much you pay individually and how much you would pay for all combined to see if you can save.
- Choose a higher deductible for lower monthly payments. However, it’s wise to note that this can be a riskier option, especially if you don’t have solid emergency savings set aside. Talk to an insurance agent to see which option is best for you.
- Cut back on mileage by integrating more public transit or car pools where you can. Try to use a bike when the weather is nice.
- Ever check to see if you’re eligible for a discount? Discounts aren’t just for safe drivers. Many agencies offer lower rates for students, customers who opt in for paperless statements, customers who pay bi-annually instead of monthly, etc. Check with your provider to see what you qualify for.
- Have an older car? Reassess your coverage. When you started out, your car may have been worth all the coverage you have. Now, would it cost more to repair your car after an accident rather than buy a new one? If your deductible outvalues the car itself, you may need to consider an update to your policy.
- Monitor and raise your credit. There are many reasons you should work towards an excellent credit score, and your auto insurance is one of them!
- There’s not much you can do about the car you drive until you’re in the market for a new one. When you are ready, check to see how your potential new car’s vehicle safety rating compares to others like it.
1State Farm. (October 26, 2018). These 7 factors determine car insurance premiums. Retrieved November 6, 2018, from https://www.statefarm.com/simple-insights/saving/these-7-factors-determine-car-insurance-premiums