For many people, car insurance is a major expense category in the household budget. And because itâs against the law to drive without car insurance, itâs not a budget item that can be eliminated unless youâre willing to go car-free. That doesnât mean, though, that youâre stuck paying sky-high rates. Hereâs how to get cheap car insurance.
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How Insurance Companies Set Car Insurance Rates
Like health insurance, car insurance comes with both premiums and deductibles. The premiums are what you pay the insurance company every month to maintain your coverage. The deductible is what youâll pay when you start making claims, up to a certain annual cap of, say, $1,000.
Itâs worth noting that most people who say they want cheap car insurance mean that they want car insurance with low monthly premiums. But, as with health insurance, thereâs a risk to having a policy with low premiums and a high deductible. In the event of a serious accident, youâll have to meet that deductible. So, one way to get lower premiums is to opt for a higher deductible, but this is only a safe strategy if you have enough liquidity to cover your deductible in the event of an accident.
When car insurance companies set insurance premium rates they take several factors into account. These include applicantsâ age, gender and driving history, as well as the type of car the applicant drives and the driverâs state of residence. While you canât change your age, there are other steps you can take to get favorable rates from car insurance companies.
Types of Coverage
Insurance companies charge more for comprehensive car insurance than they do for basic coverage. In most states youâre required to have liability insurance to cover any damage you do to another car or driver. The extent of that coverage requirement varies by state. In most states, youâre not required to have insurance to cover damage to your own car, or injuries you might suffer in an accident.
If you choose to add insurance coverage for yourself, you can opt for comprehensive coverage or collision coverage. Collision coverage, as the name indicates, covers damage from an accident with another car or an object, and in the event that your car flips. Comprehensive coverage covers things like theft, vandalism and natural disasters, too.
So, while youâll almost definitely need to buy liability coverage to cover other driversâ damages, you might not need to buy physical damage coverage for your own vehicle. It will depend on the terms of your lease if youâre leasing a car, and on your own assessment of the risks you face.
If youâre buying a valuable new car, youâll probably want comprehensive coverage. If youâre paying cash for an older, used vehicle, you can probably get away with a more basic level of coverage. Whatever insurance option you choose for yourself, be sure to comply with state laws relating to liability insurance for any damage you might do to another driver. Once you have a car insurance policy, carry proof of insurance with you in your vehicle at all times.
How to Get Cheap Car Insurance Rates
In the long term, one of the best ways to get cheap car insurance is to be a safe, responsible driver. The worst drivers have high rates because the insurance company needs financial compensation for the high likelihood that it will have to pay out in the event these drivers get in an accident. If you have a spotless driving record, keep it up. If you have some accidents or tickets in your past, they shouldnât drive your rates up forever. If itâs been a few years since your last incident, you can try calling your insurance company and asking for a lower rate, using your recent, safe driving record as a bargaining chip.
Another way to get cheap car insurance is to use the same insurance company for more than one type of insurance and get a discount for your loyalty. For example, you can contact the insurance company that provides your homeowners insurance, life insurance or motorcycle insurance and ask if the company can give you a good deal on car insurance. If you have more than one car, you can bundle the insurance coverage on both vehicles.
Your credit score will also affect your car insurance rates, just like it affects the rates youâre offered when shopping for a mortgage. If your credit has improved since you last bought car insurance, you may be able to negotiate your way to cheaper car insurance. And if you pay your car insurance premiums and bills on time and in full, youâll build up goodwill with your insurer and might qualify for promotional rates.
If you donât drive very much during the year, you might get cheaper car insurance from a usage-based plan than you would from regular car insurance. Track your mileage before you start shopping for car insurance and see if your low mileage makes you eligible for a better deal.
If youâre under 25, youâll pay higher premiums, all things being equal. Thatâs because insurance companies judge young drivers to be riskier drivers. You can get lower rates by joining your parentsâ plan, or by using your good grades to get a discount on rates, if your insurance company offers that option. Once you reach your mid-20s thereâs no reason to keep paying the high rates that insurance companies levy on young drivers. You can ask your insurance company to lower your rate, or shop around for insurance from another provider.
Finally, the type of car you drive can affect your car insurance rates. Big, powerful and flashy cars are more likely to trigger high car insurance rates because the insurance company assumes youâll be more likely to speed in that kind of vehicle, and that the vehicle will be a target for theft. Vehicles with high repair costs (such as foreign-made cars) may be more expensive to cover, too. In some states, having a used car will mean lower rates because rates are affected by your carâs replacement value. But in other states, rates are based on vehiclesâ safety features, so having an older car wonât necessarily help you get cheap car insurance. If your car has special safety and/or anti-theft features, you may qualify for cheaper car insurance on that basis.
If you donât have a vehicle or youâre thinking about getting a new (or used) car, it may be worth doing some research to find out which kinds of cars will get you the lowest car insurance rates. And if youâre paying a lot for car insurance now, you may be able to get cheaper coverage by negotiating your premiums or switching providers.
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