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Top 3 Ways to Save Money on Auto Insurance

on July 11, 2018

Top 3 Ways to Save Money on Auto Insurance

on July 11, 2018

If you’re like most Americans, you probably rely on your car to keep you moving to and from where you need to be every day.  Whether you believe in it or not, auto insurance is something you possess as a driver, since it’s required by law in the United States of America. It can be extremely overwhelming to decide which insurance company can provide you with the best benefits for the most affordable price. 

DriveSmart has organized the top three tips and techniques that will save you money on automotive insurance.

1.    Understand Auto Insurance

Your auto insurance will either be your best friend or worst enemy in the incident of an accident.  As you decide which company to commit to, you should take a step back and understand the entire concept of auto insurance and how it works. 

It should be understood that like all insurance types, auto insurance rates are assessed based on risk.  Auto insurance providers calculate your likelihood of making a claim and base your premium on the level of that risk. 

The following factors are taken into consideration by auto insurance providers when determining your level of risk:

  • Your credit history*
  • Your occupation.
  • Your age, gender, and marital status.
  • Your vehicle’s make, model, year.
  • The number of miles you drive per month or year.

*Some states such as Louisiana have laws that prohibit or limit the use of one’s credit history when making decisions about auto insurance eligibility and rates.

Factoring Your Vehicle Into Your Expenses

Your Credit History

Your credit history and score will have a lot of influence on what you may or may not be eligible for and how much it will cost.  It’s a three-digit number that relates to how likely you are to repay a debt that you owe.  While your credit history will mostly be used by companies that provide loans, it can potentially be used by auto insurance providers. 

According to Wallet Hub, those who do not have a credit score pay on average 67 percent more for car insurance than those with excellent credit.  In New Jersey, drivers with no credit pay twice as much as those who have credit.  This is also the case for drivers with no credit in Michigan and Texas, which both rank the closest to New Jersey in premium fluctuation. 

Farmers Insurance relies on credit scores the most when determining eligibility and rates for new customers.  GEICO relies on credit scores the least. 

Your Occupation

Your occupation may be taken into consideration by auto insurance providers when calculating a proposed rate for you.  Some auto insurance providers view certain occupations as an indication of less risk.  Auto insurance companies usually offer lower premiums to those with the following occupations:

  • Medical Professionals – Nurses, EMT/paramedics, first responders, doctors, and pharmacists.
  • Military Personnel – US Navy, Air Force, Marines, Coast Guard, etc.
  • Law Enforcement – Police officers and other professionals associated with law enforcement.
  • Teachers – Elementary, secondary, university, etc.

Those who possess an entry-level job or a job that may not require a degree/certification are typically offered higher premium rates.

Your Age, Gender and Marital Status

Most consumers understand that younger drivers are usually charged higher rates for auto insurance than more mature drivers.  Insurance companies view those who are younger as more of a risk, as they have less driving experience.  However, it may be surprising to find out that a married 20-year-old will pay on average 21 percent less for auto insurance than a single 20-year-old.

Insurance companies view those who are married as more responsible, as marriage is one of the most important decisions that one will make in their life.  Generally speaking, those who are married are typically more mature, as marriage is something that is done later in adult-life.

This generalization can be supported by studies conducted on married peoples.  For example, the Centers for Disease Control and Prevention (CDC) found that married men are more focused on taking care of their health than single men.  With that said, marital status is used by insurance companies as they determine how responsible one may or may not be. 

Gender is also taken into consideration.  Women are statistically safer drivers and are less likely to file a claim than men.  Typically, age and gender matter the most to insurance providers.

Your Vehicle’s Make, Model, Year

Despite popular belief, having a red car does not mean you will automatically be charged a higher rate for your auto insurance.  The make, model and year are taken into consideration by auto insurance providers. 

The make and model matter the most, as “luxury” cars such as Mercedes Benz or BMW vehicles will cost more to insure.  This is due to the higher cost of parts associated with these vehicles.  Honda and Subaru vehicles are usually less expensive to insure. 

The age of your vehicle is used to determine the likelihood of a breakdown occurring.  Older vehicles are twice as likely to break down and four times more likely to require a towing service than vehicles that are only a few years old.  Also, it may be harder to obtain parts for older vehicles, as manufacturers typically discontinue the production of older and obsolete parts.

Another factor that may impact your insurance rate is the size of your vehicle.  Larger vehicles are safer than smaller vehicles in the event of an accident.  Larger cars with better safety ratings are usually offered lower rates than smaller vehicles.

Cars that have received mechanical or cosmetic modifications may also be charged more for auto insurance.  

The Amount of Miles You Drive Per Month or Year

The average amount of miles driven by each American every year is approximately 10,000 – 12,000 miles.  This includes the commute to and from work or school and other rides that people may take throughout everyday life. 

If you drive more than 10,000 – 12,000 miles a year, it’s likely that you will be offered a higher auto insurance rate.  High mileage driving is considered a big risk and most insurance companies would prefer you didn’t drive at all.  If you’re a high mileage driver, you’re more likely to not only have a bigger chance of breaking down but also are more likely to have an accident. 

2.    Raise Your Deductible

While it may seem counter-intuitive, raising your deductible can save you money on automotive insurance.  Your deductible is the amount of money you are responsible for when filing a claim.  If you have a low deductible, most companies will charge a higher premium rate to make up for potential profit loss. 

For example, you may have an auto insurance policy that includes a $200-flat deductible.  In the event you file a claim, you will only be responsible for paying $200, and your insurance will cover the rest.  As most repair bills are typically more than $200, your insurance provider covered the cost of your repair through your high monthly premium. 

However, if you raise your deductible, you may be entitled to a lower premium.  Though, you should keep in mind that while you will be able to enjoy a lower monthly cost, the amount due in the event of a claim could be significantly higher. 

Raising your deductible to lower the cost of your insurance may be a gamble.  If you are the type of driver that will never file a claim, this method will benefit you greatly.  If you are the type of driver that will make several claims throughout your policy, this method will offer little to no benefit. 

3.    Bundle Your Insurance Policies Together

Many insurance companies such as GEICO or Progressive offer the option to bundle home and auto insurance policies together under one single account.  These bundled plans usually come with a discount.  Although, not all auto insurance providers offer this type of policy.  If bundling your insurance policies together sounds like something right for you, you should inquire about options available with the representative for your insurance provider.

If you are not eligible or not interested in acquiring home insurance, keep in mind that you may be offered a discount for purchasing more than one policy from the same company.  If you have a spouse or children that drive, opening a new policy for them under your account can potentially save you money in the long run. 

Bonus: Always Compare Your Options

When we think about auto insurance, the most popular brands such as GEICO or State Farm immediately pop into our heads.  It’s important for you to remember that your options are not limited to these national auto insurance providers.

Check your local area for smaller auto insurance providers, as some may be able to offer you a lower premium rate than mainstream auto insurance providers.  Shopping locally can potentially benefit not only you but your local area and its economy as well!

Don’t Stress Over Auto Insurance

Auto insurance is something we all experience at one point or another in our lives.  While we cannot escape it, we can take it easy while shopping for it.  There’s no denying that auto insurance is expensive, with most policies costing more than $1,000 per year.  This high cost can be stressful and intimidating for many drivers.

Those who shop smart can avoid this stress.  Understand how auto insurance companies calculate premium rates and make any possible adjustments to your car or lifestyle to score a lower rate.  If you are a low-risk driver, consider raising your deductible to lower your monthly premium.  If you’re in the market for home insurance or have a home insurance policy, consider bundling it with your auto insurance to claim a potential discount on your policy. 

Finally, remember to keep local insurance companies in mind as you search for a company perfect for you.  Smaller companies that have less of a corporate culture often offer policies and rates tailored to you.  They usually have less of a hierarchy, and sometimes representatives can offer you unique solutions without the need for managerial approval.  

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