How to lower your car insurance costs

It’s tempting to just ask “what’s the cheapest insurance I can get” and do that. Unfortunately that’s not always the right way to think about insurance. The purpose of insurance isn’t to check a box on the list of “things we must do,” it’s to protect yourself from bankruptcy. In the case of car insurance, it’s to protect you from bankruptcy following a car crash.

Insurance companies are in the business of predicting risk. The more of a risk you are, the more you pay for your insurance (also a big factor is how expensive the things you’re insuring actually are). Some risks come with a higher “premium penalty” than others. Reducing your risk factors reduces your bills.

Here are some ideas about what you can do to reduce your car insurance costs (and the things you can’t change).

What drives car insurance costs up?

There are a lot of factors which go into your car insurance premium. That doesn’t mean you need to pay attention to all of them. Here are a few factors to pay attention to and a few to skip.

The biggest impacts

Insurance you don’t need

A lot of car insurance policies come with extras you may not need and may not want to pay for. Be sure to check your policy (not just your declaration page), to see what you’re paying for. Here are some examples of additional car insurance coverages.

Learn which coverage you actually need for your financial situation. A lot of people pay a lot of money for comprehensive and collision coverage even though they could easily afford to repair or replace their vehicle in a catastrophe.

If you ask your broker for “full coverage” make sure you know what coverage you’re buying.

Your credit score

In most states, and for most insurance companies, your credit score (FICO) is considered alongside your driving record and marital status when they assess what kind of risk you might be.

“FICO estimates approximately 95% of auto insurers and 85% of homeowners' insurers use credit-based insurance scores in states where it is a legally allowed underwriting or risk classification factor.” — NAIC

While it takes time to improve your credit score, doing so has many benefits including reducing your insurance premiums. This effort will be most impactful for people with clean driving records but lower credit scores.

Your driving habits

While you can’t change your driving record, you can definitely change your driving habits so that you can clear your record and enjoy lower rates as quickly as possible. Certain driving violations have a more expensive toll on your insurance premiums. Here are the factors driving the biggest percentage increases on car insurance premiums.

• Add 20-25%: Driving too slowly, speeding in a school zone, cell phone violations, texting while driving, failure to stop at a red light, failure to yield, making an illegal turn, going the wrong way or driving in the wrong lane, following too closely (tailgating), and improper passing.
• Add 25-30%: Operating a vehicle without permission, passing a school bus, having an open alcohol container in the car, getting in an at-fault accident, and speeding.
• Add 50-70%: Driving with a suspended license, reckless driving, refusal to submit to a chemical test, DUI, racing, and hit and run.
• Speeding tickets, at any amount more than 6 mph over the limit, adds 20-30% to your premiums.
• Distracted driving adds 20% or more to your premiums.

If you had a run of bad luck but you’re generally a safe driver, consider an insurer who uses Telematics (the Big Brother device installed in your car to monitor your driving). They might forgive your past bad driving habits sooner than a traditional insurance company who can’t monitor what you’re doing all the time.

Bundling multiple insurance policies

Insurance companies have sold America on multi-policy discounts thanks to endless commercials from Progressive Insurance on the subject. While it’s true you can sometimes get better rates by having all of your policies with one company (homeowners/renters, car, and liability coverage), the reality is sometimes your best prices come by “unbundling.”

Many smaller, well-priced car insurance companies don’t offer other forms of insurance. Sometimes a big company offers great prices for homeowners or liability insurance but charges a lot for car insurance.

Don’t take your insurance company’s word for it – shop around for your policies separately, too.

Drive less

If you don’t need to drive your car as much as you currently do, you can save money on your insurance. Some companies offer reduced rates for “leisure” vehicles and some charge extra for long-haul commuters. If you only occasionally use your car, you can even explore pay-per-mile insurance policies. Bonus: your fuel costs will go down, too.

Here are some things to consider:

• If you commute five days a week and don’t drive much on the weekend, changing your commuting habits just one day a week reduces your mileage by up to 20%. Consider carpooling once a week, biking to work once a week, or taking public transit once a week.
• Combining your errands into a single trip can really add up.
• Try to get your mileage under 7500 per year for maximum benefit (around 20 miles per day). This has the most impact in California where there’s a 32% difference in premium costs between people who drive less than 7500 miles per year and those who drive 15000 or more.

Discount eligibility

Car insurance companies offer all kinds of discounts to get you to pick their service or stay with their service. Most of these discounts are provided by the well-known insurance companies like State Farm, Geico, Allstate, Travelers, and Nationwide. 

It’s important to remember that just because an expensive insurance policy offers you a token discount doesn’t mean you’re getting best-priced insurance for you. A company may choose not to offer discounts because they’ve already priced your policy as cheaply as they can.

 Nonetheless, it’s worthing knowing discounts are sometimes available for:

• Safe drivers
  • Drivers who take a defensive driving class (as an adult)
  • Accident-free drivers
  • “Safe” and “good” drivers, which may require a monitoring system installed in your car
  • Low mileage drivers
• Special groups
  • Good students
  • Students away at college
  • Military, veteran, and federal employees
  • Professional and academic organizations
  • Senior drivers
• How much insurance you buy
  • Multiple cars
  • Bundled (multi-policy) insurance policies
  • Loyalty (how long you remain a policyholder)
• How you pay for your insurance
  • Electronic billing
  • Early policy renewal
  • Buying / paying online
  • Prepaying six months or a whole year

Deductibles

Liability coverage (the part of your insurance that’s required) doesn’t have a deductible, but collision and comprehensive coverage do. So does Personal Injury Protection (PIP). In general, when you choose your deductibles, choose higher ones. 

Depending on your insurer, there might be something a little unexpected going on with the relationship between your deductible and your premiums. Our research suggests that if Progressive is your insurer, the sweet spot for lowest premium-deductible ratio is for a $750 deductible (even though you can set it higher).

With many websites where you can get an online quote, you may be offered choices like “minimum”, “better,” and “best” without a lot of description of what goes into those quotes. Be sure you know what they’re suggesting you’re paying for, especially in terms of how they’ve set your deductibles.

Things you can’t control

Each car insurance company sets their own rates (they vary wildly)

There is no standard rate for any driver profile, which means you need to get multiple quotes in order to accurately compare insurance. They all use their own risk models and choose or exclude drivers to include in their insurance pool.

Where you live impacts the cost of your car insurance

Which city you live in definitely impacts how much you pay, but are you going to move to get cheaper car insurance? Probably not. If you’re planning to move, are you going to pick where based on how much the car insurance costs? Probably not. Is the insurance company going to mistakenly give you an insurance policy that doesn’t apply to the town you live in? Definitely not. Some people try to skip telling their insurer they’ve moved – that doesn’t work out too well.

Your gender affects the cost of your car insurance

Again, no matter how it might impact your cost of car insurance, you’re probably not going to change your gender to get cheaper car insurance.

Your age affects the cost of your car insurance

Again, no matter how it might impact your cost of car insurance, you are as old as you are. And if you make a habit of lying about your age to your acquaintances, just remember that lying about your age when you apply for car insurance is considered insurance fraud.

Inflation affects the cost of your car insurance

I think we’re probably all tired of inflation changing the cost of absolutely everything (at least it seems that way). Car insurance is not immune. 

According to Bankrate, the cost of cars has increased at least 9.2% in this recent bout of inflation. Your car insurance reflects that directly in the value of what it costs to replace or repair your vehicle (repair costs have gone up 12%), but it may also incorporate increased labor and other overhead costs. Car insurance is reported to have gone up 13.4% from 2021 to 2022.