If you’ve been scrutinizing your budget lately, and considering ways to save money, your monthly car payment is probably an expense you’d be happy to shrink. Fortunately, there are options available to drivers seeking to rein in the cost of car ownership without letting go of their ride. Loan modification is one approach to a…
Auto insurance rates rise over time. Shopping around for a new policy helps you secure better rates.
Maintaining an active car insurance policy is a legal necessity in most states. With that requirement comes a monthly bill in the form of your auto insurance premium, which must be paid to keep your policy active and in force.
On average, a car insurance policy with minimum liability coverage costs $53 per month or $635 per year. Drivers with outstanding loans are typically required to purchase full coverage, which costs an average of $1,730 annually or $144 per month.
Unfortunately, car insurance rates aren’t static: Your premium will typically increase over time.
On the other hand, the car insurance industry is highly competitive. With so many insurance providers competing for your business, knowing how often you should shop around for car insurance can help you secure the lowest premium and save you money.
How Do Insurers Calculate Car Insurance Rates?
Car insurance companies determine rates through a combination of two processes:
- Actuaries determine the insurance company’s risk in a broad sense, helping calculate general premiums. For example, they might use an increase in the number of claims within a given area to suggest an increase in rates for drivers within that location based on the greater risk.
- Underwriters use this actuarial data when determining the risk you represent for the insurance company based on the information you provide when you buy a policy. For example, if you drive a car that actuaries believe is more likely to be stolen, and you live in an area where cars are frequently damaged by hail, your premium will likely be higher than the baseline or someone who otherwise represents less risk for the insurer.
Factors that influence your auto insurance rate can include your:
- Credit score (Except in California, Hawaii, Massachusetts, and Michigan, which forbid auto insurance companies from using credit scores for car insurance policies.)
- Insurance score, which measures the likelihood you’ll file a claim (And is also prohibited from being used by insurers in California, Hawaii, Massachusetts, and Michigan.)
- Marital status
- Driving history and driving record, including past accidents, citations, and claims
- Driving habits, such as how much you drive and your primary purpose for driving
- Garaging, or where you store your car
- Type of car
- Coverage limits and the types of coverage you need, including your deductible
An increase in your car insurance premium is reflected when your policy renews. Typically, rate increases are due to a rise in claims in your area, changes you made to your policy (such as adding a teen driver), moving, lost discounts, and new claims or tickets.
What Is Price Optimization?
Small and infrequent car insurance rate increases are expected, even if they might annoy you. If you recently filed a claim or earned yourself a speeding ticket, you’re almost guaranteed to pay a higher rate come renewal time.
On the other hand, some car insurance companies use a practice called price optimization to raise rates. Price optimization is a separate formula on top of the one that insurers use to determine your risk factors, and is used to charge a higher premium based on your personal habits, like your recent purchases or browsing history.
But what if that same insurer gives you a loyalty discount too? An increase in your rate due to price optimization might surpass the discount you receive for remaining a policyholder, effectively canceling out any savings — and then some.
How Often Should I Shop Around for Auto Insurance?
There’s no one right time for deciding how often you should shop for car insurance. In some ways, how often you comparison shop for different auto insurance policies is similar to rate shopping for the best car loan. It depends on when you took out the policy, when it renews, and your unique personal and financial situation.
Before your policy renews
Most insurance policies renew every six months, though some renew annually. Insurance companies recalculate premiums during policy renewal, so shopping around before the end of your policy term might save you a few bucks.
But before you drop your current insurance policy, make sure there’s no lapse in coverage. Your new policy should come into force before your existing policy expires as driving without coverage is illegal (unless you live in New Hampshire or Virginia). Insurers also charge higher rates for drivers who let coverage lapse — sometimes, even if the lapse is only for one or two days.
You don’t need to wait for policy renewal to shop around for car insurance. In most cases, buying a new car insurance policy is quicker and simpler than switching phone or ISP plans.
If your renewal date is still a ways away, check your current policy’s terms and conditions for any cancellation fees. You might also receive a refund of a portion of paid premiums if you paid for your policy in advance rather than on a month-to-month basis.
Whenever you make changes to your current policy
Making changes to your policy, such as increasing coverage or adding a new car or driver, can increase your rate. Because each insurance company weighs these factors differently, shopping around for a different policy might help you save some overall cash, even if you’ll be paying more than before.
If you make a claim or have an accident
At-fault accidents and claims can increase your insurance rate by 45% for causing property damage and 47% for causing injuries. Such steep rate hikes can make a previously affordable premium impossible to pay going forward.
Accidents don’t remain on your driving record forever. On average, most insurance companies only look at your last three to five years of driving history. Still, paying higher rates during that period can strain your bank account — or otherwise feel the same as throwing your money away.
Fortunately, car insurance companies weigh accidents differently too. Shopping around for a new auto policy can help you secure the best rate, even if your driving record is less than spotless — or after an accident falls off of your record.
After major life events
You should shop around for car insurance whenever you experience significant changes in your life. According to The Zebra’s 2021 State of Auto Insurance report:
- Getting married can reduce your premium by about 6.5%.
- Becoming a homeowner results in average savings of 2.1% over drivers who don’t own a home or condo.
- Earning a Ph.D. helps drivers pay an average of 3.2% less than drivers with no high school diploma.
- Drivers who work full-time pay about $14 less per year on their auto insurance premiums.
Moving can also impact your car insurance rates. If one insurer has seen a high volume of claims in a location, its rates are likely higher than an insurance company that has had fewer claims. Similarly, shopping around for a new policy after moving from a location with a high degree of risk to one with a lower risk can help you secure a better rate.
A major life event is also a good time to look into bundling coverage to score an additional insurance discount. For example, bundling auto and homeowners policies can save you an average of 14%, with discounts typically ranging between 5% and 25%.
When you improve your credit
Auto insurance companies in most states can use your credit score to calculate your premium. Improving your credit score can help you get a lower rate.
Because it’s recommended that you check your credit report at least once per year, you can use this as a reminder for how often you shop for car insurance. If you’ve made progress with building your credit and overcoming any bad credit, search for a policy with a better rate and use the added savings to continue paying down debt.
How to Shop Around for the Best Car Insurance Quotes
Before you start shopping around for auto insurance quotes, look at your current policy. Make note of your coverage types, limits, and deductibles. When you’re comparing your current policy to new options, you need to compare like-to-like.
In other words, if your current policy provides $25,000/$50,000 of bodily injury liability (BIL) coverage, any new policy you’re considering should share the same limit — you can always add more coverage after you’ve found the right policy and before you purchase it.
Additionally, make sure that any new policy you consider purchasing meets your state’s minimum insurance requirements.
Once you’re armed with that knowledge, start reaching out to insurance agencies, brokers, and companies. In some cases, belonging to certain clubs, like AAA, or professional organizations might give you access to special discounts.
Though some car insurance companies look at your credit score to calculate your rate, shopping around doesn’t affect your credit score, so there’s no limit to how many insurance quotes you can request and compare.
Once you narrow down your search, try to avoid buying a policy on price alone. Make sure you’re buying a policy backed by a reputable insurance company that offers the level of convenience and customer service that meets your needs.
Work with an insurance agent
Insurance agents are licensed professionals who sell policies on behalf of an insurer or group of insurers. Agents are empowered to execute policies, so the transaction begins and ends with the agent.
There are two types of insurance agents:
- Captive, or exclusive, insurance agents represent a specific insurance company or group of insurance companies. Captive agents may only sell policies offered by the companies they represent. A captive agent typically works for an insurance company you’re familiar with.
- Independent insurance agents represent multiple insurance companies. Independent agents can offer and sell policies from any of the companies they represent. You might not be familiar with a specific independent agent and his or her agency, even if they represent products from insurers you are familiar with.
There’s no right or wrong choice when it comes to shopping around for car insurance with an agent. A captive agent should be very familiar with the policies their company sells, whereas independent agents have a broader selection of policies to suggest to you.
Insurance agents earn a commission for each policy they sell, including when they originally sell the policy and whenever it renews. Commissions are paid out by the insurer — not you — and are typically based on a percentage of the policy’s total price.
Connect with an insurance broker
Insurance brokers are similar to independent agents, with a couple of key differences:
- Brokers represent you, not any one insurance company. They have a fiduciary duty to you as the client, which means they must act in your best interests.
- Brokers can’t execute policies. A broker searches for and recommends auto insurance policies that meet your needs. Once you decide on a policy, your broker works with an insurance company or agent to complete the purchase.
Insurance brokers typically earn a fee for each policy they help sell. The fee is paid by the insurer you purchased a policy from, which essentially makes the broker fee a type of commission.
Some insurance brokers also function as advisors. In these situations, a broker provides ongoing support and advice about your insurance needs, typically in exchange for a fee that you must pay.
Buy auto insurance directly
You don’t need to be an insurance agent to shop around for better rates. Most auto insurance companies allow customers to purchase policies directly through the mail, the phone, or the internet.
Of course, shopping around for car insurance yourself takes a little footwork.
You can accomplish this by requesting car insurance quotes from insurers like Allstate, Geico, or Liberty Mutual. From there, compare rates to decide which policy fits your budget and needs.
You can simplify the process by using insurance marketplaces like Credit Karma, Insurify, or The Zebra. These marketplaces request quotes on your behalf, making it simple and convenient to compare quotes before you purchase a policy directly from the insurer.
Frequently Shop for Car Insurance To Secure the Best Rates
Car insurance is boring, so no one can blame you if shopping around for a better rate isn’t at the top of your to-do list. Still, your insurance premium can make up a significant portion of your expenses, so driving it down helps keep some extra cash in your pocket.
In general, the best times to shop around for auto insurance are before your renewal date and whenever you experience a major change in your life, whether that change is personal, such as getting married, or financial, like improving your credit.