Most automobile insurance policies are issued for either six or twelve months. It’s tempting just to pay the premium and stay with the same insurer. Many advisers recommend shopping your automobile policy every two to three years. There are many factors that could have changed since you began insuring through your current carrier. Consumer advocates estimate savings of 5 to 50 percent may be possible just by shopping around. Here are some steps to take when shopping/swapping your automobile policy.
1. Review your credit score
Having bad credit doesn’t make you a risky driver or careless homeowner. However, insurance companies have found enough patterns to use the information in your credit report to affect the premiums you pay.
According to the Insurance Information Institute, insurers have created a formula from credit information to establish an “insurance risk score”. They believe this score helps them to determine how likely you are to file an insurance claim. Your premiums may go higher if you have a bad credit score, even if you haven’t filed a claim. Statistically, people who have a poor insurance score are more likely to file a claim1.
Drivers with poor credit scores (524 or less) have an average insurance premium of $2,411, while drivers with excellent credit scores (823 or higher) pay only $1,130 on average, which is a savings of 53 percent2.
You may not agree with this practice and not all insurers use credit information to set premiums. However, if you can demonstrate that you use credit responsibly and keep your balances low, your insurance risk score should improve. That could translate into lower insurance premiums for your coverage.
2. Bundle your coverage
Consider bundling your automobile, homeowners (renters), and life insurance with one insurer to get a discount on your premiums. It wouldn’t be unusual for a family to spend several thousand dollars annually for these three coverages. Combining your policies with one insurer provides an incentive to discount your total premiums. Discounts can range anywhere from 10 to 30 percent per year. When you add a second car or another life insurance policy, the discounts will keep adding up.
Bundling insurance is not always the best solution. Shopping bundled policies is more time consuming because underwriting multiple lines of coverage requires more time to consider all the factors involved. However, the potential savings is worth the time invested.
3. Raise your deductible
A quick way to cut the cost of auto insurance premiums is to raise the deductible. However, a consumer should first have adequate savings set aside to cover a claim. You are essentially self-insuring for some of the risk that a claim will arise. You save upfront on the premiums but could end up spending more in the long run if you have a claim. You want a deductible you are comfortable with. The amount of premium saved will vary by insurer and where you live. The median estimated premium savings raising a deductible from $500 to $1,000 is 11%.
4. Change the car you drive
Those who are serious about lowering the cost of their auto insurance will want to start by carefully selecting the kind of car they drive. Insurance rates can vary significantly based on the car’s safety and theft record. Edmunds.com is a good source for information on safety records. Edmunds True Cost to Own research tool is valuable for comparing models based on depreciation and historical maintenance costs.
The Insurance Information Institute provides monthly updates on car models that are most frequently targeted by auto thieves. The website also breaks down the worst cities for vehicle theft. This is useful information should you want to consider moving and already own a vehicle on the theft list. The lowest cost vehicles to insure in 2018 were the Subaru Outback, the Ford Escape and the Chevrolet Equinox3.
Plan to gather rate quotes from at least three different carriers. Be sure you understand the coverage and that you are comparing policies that provide the same protection in each policy quote. Specifically, details such as the amount of liability protection, bodily injury protection and the kind of coverage provided if you’re hit by an uninsured or underinsured motorist. Ask about potential discounts and whether you would qualify for them. Certain clubs and organizations have partnerships with insurers to offer member discounts. There are discounts for payments in advance, taking a driving course, student & professional organization discounts, discounts for low mileage driving, married couples, etc. Unfortunately, you often need to ask.
This might seem like a lot of work and research to evaluate. An independent insurance agent is an option. They can shop your needs with multiple companies and make sure you are comparing apples to apples. It pays to find a good one who can keep you informed of changes in coverages and things you can do to reduce your premiums.
- Many advisers recommend shopping your automobile policy every two to three years.
- Drivers with excellent credit scores usually pay lower auto insurance premiums.
- Bundling your policies with one insurer provides an incentive to discount total premiums anywhere from 10 to 30 percent per year.
1 Source: Insurance Information Institute
2 The State of Auto Insurance 2018. The Zebra.
3 Ranking the Cheapest Cars to Insure. NerdWallet. August 24, 2018