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…
Car insurance is a necessity to drive, but saving money is equally important.
Owning a car isn’t as simple or cost-effective as owning a band tee or the latest smartphone. Car ownership comes with a hefty financial burden, from the purchase price of a car (whether or not you bought with cash, leased, or took out a loan), maintenance and repairs, and insurance.
Even if you handle your finances perfectly, purchase your car with cash, and keep it in impeccable condition, one cost is a constant: your car insurance premium.
Your car insurance bill is one more bill in a heap of them. Between your housing costs, student loans, car payments, streaming subscriptions, gym membership fees, utilities, and other costs, auto insurance premiums can be one more smushed cherry on top of a melting ice cream sundae.
Learning how to save money on car insurance can keep more money in your pocket — or at least give you ample opportunity to direct that cash to your other bills and obligations.
Why You Need Car Insurance
Car insurance, as its name implies, is an insurance product designed to kick in and pay for, in whole or part, the expenses related to a covered event
In other words, by paying a little every month, you’re sparing yourself from forking over a lot all at once.
Car insurance covers the cost of repairs or replacing your vehicle when something unexpected happens, like an accident, theft, or act of nature. It doesn’t cover the cost of maintenance or wear-and-tear.
The average auto repair costs between $500 and $600. If the repair doesn’t stem from an event covered by your insurance, or you don’t have insurance, you’ll have to pay out-of-pocket.
Additionally, the average new car costs $37,851 and the average used car sells for $22,467. If your car is stolen or totaled in an accident, your insurance policy would kick in to cover the cost of repairs or replacement.
That means that while you’re responsible for handling the little stuff — wheel alignments, A/C repairs, and tire changes, to name some — auto insurance protects you from some of the most expensive and unexpected repairs and replacements.
What car insurance policies cover
Car insurance is made up of multiple types of varying coverages that outline what events and situations are covered, as well as the maximum amount of money that will be paid out after a given event.
Policies may or may not have certain types of coverage depending on the policyholder’s specific needs, as well as state and lender requirements and mandatory minimums.
|Type of coverage||What it covers||Optional or mandatory?|
|Bodily injury liability (BIL) coverage||Medical expenses and lost wages of the injured party resulting from an at-fault accident||Required in most states|
|Property damage liability (PDL) coverage||Damages caused to another party’s property resulting from an at-fault accident||Required in most states|
|Comprehensive coverage||Repair or replacement of your vehicle from a covered event other than a collision (weather, theft, vandalism, etc.)||Optional, though often required by lenders until the loan is paid off|
|Collision coverage||Repair or replacement of your vehicle from a collision with another vehicle or object||Optional, though often required by lenders until the loan is paid off|
|Uninsured or underinsured motorist coverage||Repairs or medical expenses following an accident in which the at-fault driver is uninsured or has insufficient coverage||Required in some states|
|Medical payment coverage (MedPay)||You or your passengers’ injuries in the event of an accident, regardless of fault||Required in some states|
|Personal injury protection (PIP)/No-fault insurance||Medical expenses, lost wages, substitute service costs (housekeeping, etc.), and funeral expenses related to an accident, regardless of fault||Required in some states|
Do I have to have car insurance?
By default, you are required to have car insurance in almost every state, with the exceptions of New Hampshire and Virginia (though you may be required to purchase car insurance following certain events, like DUI).
However, some states allow you to furnish proof of financial responsibility. Proof of financial responsibility is a type of “self-insurance” in which you prove your capacity to pay for damages and other expenses associated with an accident. Depending on your state, you may be required to purchase a bond or make a deposit to guarantee your proof of financial responsibility.
Each state maintains minimum coverage limits for each type of car insurance coverage. If you’re financing a car and still owe on your loan balance, your lender may require higher coverage limits, including the purchase of otherwise-optional coverage (like comprehensive and collision).
Failure to adhere to your state’s mandatory insurance limits can expose you to fines, prison time, license suspension, and more.
What Factors Impact the Cost of Car Insurance?
The average annual cost of car insurance is $1,548, according to The Zebra’s 2020 State of Auto Insurance Report.
That said, your premiums may be higher or lower depending on your:
- Driving record: accidents, motor vehicle violations, and lack of driving history can lead to higher premiums, whereas safe driver discounts are available for drivers who avoid accidents and claims
- Number of miles driven: the less you drive, the lower your premiums because of a lower likelihood you’ll be involved in an accident
- Location: the accident, theft, and vandalism rates in your area can lead to a higher or lower premium. Rural areas can lead to lower rates, while living in urban centers can lead to increased rates
- Garaging address: where your car is parked. Your car may be safer (and, thus, less risky to insure) if it’s parked in a garage or driveway vs. on the street
- Age: The Zebra’s State of Auto Insurance Report found that teens pay the highest rates (and can double their parent’s rate), while drivers in their 50s and 60s pay the lowest auto insurance premiums
- Gender: the same report found that women pay 1% more for car insurance than men do nationally, though this varies from state-to-state
- Marital status: married drivers are considered to be safer and more responsible than single drivers (who are likely younger) and may receive discounts averaging about 11%
- Car: the type of car you drive, its size, and its cost affect your insurance premium, as does its safety rating, likelihood of being stolen, and other factors
- Job: you may be considered a higher risk, and more expensive to insure, based on your occupation
- Credit: insurers may use your credit score or credit history to generate a credit-based insurance score that estimates how likely it is you’ll file a claim (though this is restricted or forbidden in a handful of states)
- Insurance coverage: naturally, the coverage types and limits you purchase, including any deductibles, impact your rate. If you purchase a more expansive policy with higher limits and lower deductibles, your rates (and protection) will be higher than if you purchased the minimums.
Not all states are alike in what factors they allow insurers to use, however. Some states forbid using credit scores to determine your insurance premiums, while others further restrict the use of factors such as age, gender, or occupation.
What if I Can’t Afford Car Insurance?
There’s no doubt about it: car insurance can be expensive. For some, it’s an expense that simply can’t be borne, especially if they’re just trying to make ends meet.
And, unlike the actual purchase of your vehicle, you can’t negotiate the cost of car insurance due to governmental regulations.
However, driving without insurance can lead to expensive fines and penalties. You could also be on the hook for personally paying for the cost of repairs (to either vehicle!) following an accident, or for somehow replacing your vehicle if it’s lost, stolen, or totaled.
Fortunately, usage-based, pay-per-mile, or pay-as-you-go car insurance use your driving behavior to determine your premiums. If you’re driving infrequently or for short distances, usage-based car insurance can keep your premiums low while keeping you out of trouble with the law.
Low-income drivers in California, Hawaii, and New Jersey can apply for state-sponsored low-income car insurance that provides minimum coverage at an affordable rate.
Paying for your policy in full can score you a discount, likely saving you money than if you paid on a month-to-month basis. Of course, this means you’d need to have six to 12 months of premiums saved up in advance, which isn’t always an easy feat.
10 Ways to Save Money on Car Insurance Costs
Even if your insurance premiums are or were affordable, there’s nothing wrong with trying to save a few bucks. Worse, car insurance rates can fluctuate through no fault of your own. If your state’s had particularly nasty weather or a rash of theft, insurers may raise premiums to compensate.
It makes sense, then, to stay on the lookout for any ways possible to reduce your premiums and keep more cash in your pocket, bank account, or under your mattress — wherever and however you like to save it.
1. Compare insurance quotes
Auto insurance, like your car itself, is a product. That means you should shop around to find the best deal for your needs and budget.
This is most easily done by getting quotes from a variety of insurance companies. When researching and comparing quotes, be sure to compare apples to apples: the coverage limits of a quote from one insurer should match the quotes from its competitors.
Familiarize yourself with both your state’s mandatory minimums and any coverage limits required by your lender or finance company, too. The last thing you want to do is find a great policy at an affordable price point, only to discover it’s insufficient for your state or lender.
Insurance brokers can simplify comparison shopping. Brokers take into account your needs, budget, and situation to find the best and most affordable process for you in exchange for a nominal fee. In many cases, a policy found by an insurance broker may save you more in premiums than you’d have to pay as a broker fee, so you should come out ahead.
2. Work toward good credit
Improving your credit is a wise financial decision no matter what you’re trying to do. Boost your creditworthiness by reducing your credit utilization, paying your bills on time, and checking your credit report to ensure it’s accurate.
3. Bundle policies
Many car insurance companies offer discounts for bundling multiple policies together. If you already have life, renters, or homeowners insurance, look into bundling it with an auto insurance policy.
In addition, bundling policies can save you money on the original policy, too. You could feasibly save money on your existing life, renters, homeowners, or other insurance policy or policies as well as on your new car insurance policy. In some cases, the savings can amount to up to 35%.
Just be sure to compare the cost of bundling to standalone premiums from other insurers. Bundling isn’t always guaranteed to be the cheapest route, but isn’t an option to overlook, either.
4. Look for discounts
Auto insurance companies offer a wealth of discounts for a wide range of reasons. Oftentimes, you’re able to specify qualifying conditions when applying for a quote; in other cases, you’ll need to speak directly to an insurance agent or broker to have certain discounts applied to your quote.
Common car insurance discounts include:
- A good driving record within a certain period of time (no at-fault accidents or claims paid out by your insurer)
- Multi-car (insuring two or more vehicles on the same policy)
- Good student (student drivers between a certain age range achieving and maintaining good grades)
- Owning a home
- Affinity or affiliation (a discount earned through your relationship with an organization)
- Emergency roadside assistance (for driving a car with it included or purchasing it as part of your policy)
- Passing driver’s training or a defensive driving course
- Certain car features, such as anti-theft devices, anti-lock brakes, and other safety features, like airbags
- Setting up autopay, paying in full, and/or subscribing to paperless/electronic billing
Discounts don’t necessarily apply to your entire policy and may simply discount the premium paid for a portion of your coverage. Still, they can add up, potentially amounting to hundreds of dollars in savings over your policy’s term.
5. Choose a higher deductible
A deductible is how much you’re responsible for paying when filing a claim against your policy. Though a lower deductible is alluring, it means your insurance provider would have to pay out a larger amount for a covered event.
Insurers, then, charge a higher premium to offset that increase in coverage. Increasing your deductible — and your personal responsibility — can lower the cost of insurance by as much as 31%.
If you have a car loan and are considering increasing your insurance deductible, take a look at your policy documents for any restrictions set in place by your lender. Some lenders may require a lower deductible to ensure you follow through with repairs following an accident, as opposed to you being unable to afford the deductible, throwing your hands up, and defaulting on the loan.
Remember, though, that you’re on the hook for paying that deductible in most situations where you’d file a claim. Don’t choose a deductible that’s too far out of your budget in a worst-case-scenario. You could be making a mistake that’s penny wise, dollar stupid.
6. Drop unnecessary coverage
Old beaters don’t require the same amount of insurance coverage as a brand new Tesla Cybertruck (unless someone is constantly throwing metal balls at its windows). If you’re putting around in a $2,000 hunk-o’-junk, there aren’t many good reasons for it to be covered by much more than your state’s mandatory minimum insurance limits.
Depreciation, mileage, your car’s age, and other factors all contribute to its actual cash value (or ACV), the amount of money an insurer will pay out to you following a covered event. Because of this, you’re not going to get a huge windfall if your older car is totaled.
That means you can either drop or forego purchasing optional coverage, such as comprehensive and collision insurance, on an older car, especially if the total cost of both coverages exceeds 10% of your vehicle’s ACV.
Carefully consider your situation before dropping either uninsured motorist or medical payments coverage, however.
Protection from uninsured motorists is often optional, but it becomes much more important when you’re driving without comprehensive or collision coverage. Similarly, optional MedPay coverage may seem like coverage you’ll never use, but it can pay for expenses that exceed or aren’t covered by your health insurance coverage.
Bear in mind that you may not be able to drop or reduce certain coverage if you’re leasing or still owe on a loan.
7. Avoid tickets, accidents, and claims
Tickets, moving violations, and accidents remain on your driving record for three years. Worse offenses, like DUIs and hit-and-runs, may remain on your record for 10 years and, in some states, even longer.
In addition to paying fines and penalties arising from an accident or a ticket, you can expect your insurance premiums to increase, too. How much they increase depends on the type of violation and where you live. Your insurer may also choose not to renew your policy for particularly egregious violations.
Practice safe driving habits to lessen the likelihood of a claim against your policy and a potentially expensive premium hike.
8. Maintain continuous coverage
Maintaining car insurance coverage, even if you’re not currently driving, helps insurers to perceive you as a low-risk driver, especially if you’re not accumulating claims. By dropping your policy or allowing it to lapse, you’ll be treated as a new driver the next time you purchase a policy, leading to higher premiums than if you had maintained coverage.
Though you can cancel your policy at any time, you should only do so if you’re replacing it with other coverage, including a non-owner policy, in order to avoid a coverage gap. Your insurer may assess a penalty or fee for canceling, so make sure to look over your policy before dropping your coverage.
9. Review your policy at renewal and check for lower rates elsewhere
Car insurance policies generally last for a term of six months to one year. Near the end of the term, your insurance carrier will provide you with options for renewing, including any changes that will go into effect in your policy’s new term.
Review this material well to make note of any discounts that no longer apply and to see why and how your premium has increased, if it has at all.
Then, before you renew your policy, shop around to compare your rates upon renewal with those offered by other insurers, the same way you (hopefully) did when you originally took out your current policy.
If your present insurer is still the most affordable and you’re happy with its service, contact them to apply any new discounts to your renewal policy or adjust any coverage that needs tweaking.
10. Pay off your car loan
Most lenders and leasing companies require you to maintain coverage minimums above those required by your state.
Paying off your car loan gives you the ability to not only save money on interest, but have more wiggle-room to adjust your insurance policy by dropping collision and comprehensive coverage, raising your deductible, or otherwise reducing coverage to your state’s mandatory minimums (or anything above them).
For this reason, it may make more financial sense to buy a used car as opposed to a new vehicle. Used cars are more affordable and can be easier to pay off quicker, which means you can reduce your insurance coverage that much sooner. Win/win.
Don’t Skimp on Insurance Just to Save a Few Bucks
Car insurance is often an expensive aspect of owning a car. Tempting as it may be to rip your policy to shreds or gut your coverage, remember why you have insurance in the first place: to protect yourself and your finances from the burdensome costs of repairing or replacing your vehicle after an accident or loss.
That doesn’t mean you need to give in and accept expensive premiums, however. Trim your premiums down by earning and applying discounts toward your policy, shopping around for the best deal possible (at both the time of purchase and before your policy renews), driving safely, and steadily improving other areas of your finances.