Why is car insurance sold in 6 month policy terms?
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UPDATED: Mar 13, 2020
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Car insurance is based on risk and a large part of risk is based on future events. Car insurance companies sell auto insurance coverage in 6 month terms for a number of reasons ranging from legal to simply minimizing risk. There are some companies who sell 12 month policies but most car insurance companies only commit to insuring you for 6 months. Over 90% of all policies are estimated to be automatically renewed every 6 months but these small windows of time provide advantages to both the insurance provider and the consumer.
Consumer Advantages of a 6 Month Policy
While most drivers certainly want car insurance coverage locked in for a longer period of time the 6 month policy insures that car insurance companies cannot change the coverage during the term of the policy. You can certainly add, reduce coverage and make changes to your existing policy during this time but the car insurance company cannot. Only the policyholder can so if you happen to become a higher risk driver a car insurance company cannot just drop you from coverage the next day but has to wait until the policy term is over.
You are buying guaranteed insurance coverage for a period of time (as long as the premiums are paid) and the 6 month policy provides some stability to accommodate changes in your profile without being exposed to a lapse in coverage. Of course, when the policy expires its up to the car insurance company whether or not to offer you a renewal option.
Car Insurance Companies Point of View
Car insurance companies are for-profit companies and since premiums are based on risk they want minimal exposure to future risk. Although a 6 month policy certainly is not zero exposure to risk it certainly is a fair enough window of time where a car insurance company can accurately forecast risk. On the other hand some car insurance laws require auto insurance companies to sell at least 6 month policy terms and you can bet if there were no laws requiring this many drivers would be dropped the day after an accident.
Can a car insurance company change my coverage mid-term?
No. When you purchase car insurance you are buying coverage for the term of the policy and as long as premiums are paid the insurance company cannot change the terms of coverage. You can request changes and modify your insurance but the car insurance company cannot selectively choose to lower your limits or exclude coverage that is covered by the terms of the policy while a policy is in-force. Once the policy expires however they have no obligation to renew coverage.
Should I look for 12 month policies?
Car insurance companies who offer 12 month policies are a little harder to find with only a couple of the bigger brand names offering them. You also want to consider what your current situation is. If you have a good driver discount and good credit score then its very advantageous to secure a 12 month policy however if you happen to have some blemishes on your record maybe a 6 month policy is not that bad and you can shop around for new car insurance in 6 months when your record improves and can possibly qualify for better rates.
Who has the Best Car Insurance Rates?
This question is asked over and over but the reality is there are many competitive car insurance companies and no single insurance provider is the best for everyone. Risk formula and premiums are calculated differently depending on the insurer and while you may score a low risk rating with one company, another may see you as higher risk. Car insurance comparison is the only way to compare rates and most people start searching for a car insurance company online.
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