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By some estimates, there are as many as 50 main insurance companies in the United States along with hundreds of combined subsidiaries. With so many companies to choose from, it would seem there should be some ways we can work with at least a few of them to lower our prices for car insurance. Thankfully, there are.
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Despite the fact that car insurance is highly regulated there is still room for competition among those who sell insurance in your state. It’s up to consumers to take advantage of that competition in order to help keep rates as low as possible. In the following paragraphs, you’ll find some common industry suggestions that might be helpful to you.
How Auto Insurance Works
Before we discuss ways to keep the price of auto insurance down, it might be helpful to explain how the whole car insurance system works. Once you understand the mechanics, it makes it easier for you to figure out ways to make it work to your advantage. To begin with, we’ll start with a description of car insurance provided by the Minnesota Department of Commerce.
According to a 16-page brochure they publish for their state’s residents, car insurance is a way for drivers to make sure they can be reimbursed for the costs associated with having an accident. In essence, you pay a certain amount of money into the system with the expectation that your insurance company will cover your financial losses should something happen down the road.
As long as both parties live up to their bargain all is well. However, that brings up the next point.
The North Dakota Insurance Department gives an explanation on its website that auto insurance is a legal contract between you and your insurance company. That contract stipulates:
- What kind of coverage the insurance company is offering
- The limits of that coverage
- How much you will pay
- Any other customer obligations you will be responsible for
If either you or your insurance company violate the terms of the contract, the other party is under no obligation to continue honoring it.
Avoid Unnecessary Coverage
Now that you understand car insurance as a contract, it makes sense to look over the terms of your contract to make sure you’re not agreeing to unnecessary coverage or excessive limits. A good place to start is the foundation of all car insurance policies: liability coverage. No fewer than 49 states have some sort of mandatory proof of financial responsibility law applying to all drivers with registered vehicles; most of us fulfill that requirement by purchasing liability insurance.
In all likelihood, your car insurance company is providing only minimum amounts of liability coverage through your current policy. Usually they’ll ask before they increase those limits. But if you’re searching auto insurance quotes among multiple companies you may notice some of them have liability limits higher than what your state mandates. You can take a little bit off your bill if you make sure those limits stay at the minimum level allowed by law.
If you choose to do so just keep in mind that most state minimums don’t offer very much when compared to the cost of modern medical care and car repair bills. You may want to carry a little more liability insurance if you’re afraid of losing personal assets in a lawsuit.
Collision and Comprehensive Coverage
If you carry collision and comprehensive coverage because you still have a loan on your vehicle, you might be able to save a little bit of money depending on where you live. For example, insurance companies in Michigan are required to provide three different levels of collision coverage, all of which will have different rates.
Limited collision is the cheapest level but it only pays if a police investigation reveals you are less than 50% responsible for an accident. The other two levels are known as Standard and Broad Form collision. They obviously cost more.
You could save quite a bit of money by dropping comprehensive and collision insurance altogether. You probably won’t be able to do so while you’re still paying off your loan, but once your loan is satisfied there’s no longer a requirement for you to have it.
People driving older cars with excessive mileage and minor to moderate body damage sometimes choose to drop collision and comprehensive. If you’re unsure, check the NADA or Kelly Blue Book value of your car to see if it’s worth enough money to warrant the extra insurance.
Bundle Your Policies
A great tip for older individuals with multiple insurance policies is to bundle those policies with a single provider. For example, you may have auto, home, and life insurance with multiple companies. But many insurance providers will give you a better rate on all three policies if you purchase them all from them. You save based on the principle of volume.
Younger individuals who are not carrying homeowners and life insurance can still bundle if they are purchasing renters insurance. If you’re a young person living on your own without renters insurance, this might be a good time to suggest you change that.
Renters insurance protects your personal property from loss due to theft, fire, etc. It even covers personal property that might be damaged in a car accident; something your car insurance policy will not cover.
As far as your insurance company goes, bundling your policies is good for them because it provides more capital upfront that they can invest in different types of securities. Investing is how an insurance company makes its money.
When you purchase multiple policies that combined money you pay in premiums gives them more to work with and significantly reduces their risk of loss. Insurance companies are more than happy to pass some of that savings on to you in the form of lower prices.
Ask for Discounts
We began this discussion on keeping insurance prices low by mentioning the competition among America’s car insurance providers. That competition is encouraging them to think of creative ways to attract new business, not the least of which is offering discounts. The only thing about discounts is that the customer must be diligent to inquire about them. Insurance companies may not necessarily volunteer the information on their own.
The New Hampshire Insurance Department recommends drivers ask about discounts whenever they are purchasing a new policy or renewing an existing one. They list some examples of possible discounts including those for low mileage, having multiple vehicles on the same policy, having vehicles with anti-theft devices, and so on.
You might even check with fraternal organizations or community service groups you belong to; sometimes these groups have worked on special deals with insurance companies.
Watch Those Points
Finally, the most important thing you can do to make sure your insurance costs are as low as possible is to avoid accidents and traffic violations. In terms of the former, accidents automatically mean a payout from your car insurance company if you file a claim. If the accident is one you caused, your insurance company also will have to pay out based on your liability. Every accident you have will trigger a rate increase.
In terms of violations, understanding how the system works in your state is a good starting place. Most states track a driver’s violation history and assess penalties by way of a points system. For example, drivers in Minnesota are subject to a demerit system by which every violation carries with it a certain point value. If the driver reaches 12 points within any 12-month period, a license suspension is inevitable.
All points you accumulate become part of your driving record for whatever length of time is established in the laws of your state. Your insurance company has access to DMV records, which they check regularly, so they will be aware of all the points you accumulate. More points equates to higher insurance rates, so by avoiding violations and their subsequent points you will help keep your insurance rates low.
Accident Forgiveness Option
If there’s any good news regarding accidents it’s the fact that some car insurance companies offer something known as accident forgiveness. This is a program whereby an insurance company will reward drivers with a long history of safety by agreeing to forgive minor accidents without raising rates.
Since the administration of such programs is different among insurance companies, you’ll need to ask specifically if your provider offers it and how it works.
Just to give you an idea, let’s just assume Acme Insurance Company offers accident forgiveness to drivers who maintain a clean record for least three years. If, after that initial three-year period of safe driving, you have an accident requiring $5,000 in repairs, your insurance company would pay the bill but leave your rates the same. In most cases, the three-year clock then starts ticking again and you won’t be eligible for accident forgiveness until you reach the three-year mark.
There’s a lot to think about if you’re trying to keep your car insurance prices as affordable as possible. But it is possible to reduce what you pay if you can learn to make the system work for you. No matter how many of these tips you utilize just remember that getting the best price requires you to compare auto insurance quotes from multiple companies.
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