Understanding 6-Month Car Insurance Policies

June 19, 2013

Drivers who are new to the world of auto insurance may have many questions about how car insurance policies are written, as well as what they cover, how they respond to claims and why they are structured as they are. The more you learn about auto insurance, the better you can control the costs of staying on the road.

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What is 6-Month Auto Insurance Coverage?

A 6-month auto insurance policy is an alternative to an annual one. The 6-month policy "terms" or ends at the end of a 6-month period.

The Auto Insurance "Machine"

To understand the reason for 6-month auto insurance policies, it's helpful to understand the complexities that are involved in selling car insurance to the public. Behind the veneer of neat slogans, carefully prepared paperwork and handily quoted rates, there is an ever-changing sea of data that controls how auto insurance rates are calculated for drivers, and how the policies get sold. If all of the work that gets done on analyzing auto insurance rates across the country was presented all together, it would look like a huge, chaotic mess.

Factors in Change

The main factor in auto insurance is, of course, risk. The risk of an accident changes with location, driver history, and vehicle type, but it also changes over time due to the effect of local statistics, changes to roadways, policy changes or any number of other factors. That's why auto insurance companies need to continually recalculate their rates.

Competition

While the car insurance companies need to make sure they have a profit margin, they also need to develop the best prices available in order to keep clients. This means a particularly challenging "balancing act" for auto insurance companies who want to stay afloat. Companies use the risk factors mentioned above and continually evaluate them in order to change rates accordingly.

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How the 6-Month Policy Factors In

While this whole process goes on, it's often helpful for the car insurance company to use a shorter period of time when setting a particular rate for a customer. This can work to the advantage of the company, or to the advantage of the customer, depending on how risk changes. However, it's often in the customer's best interest, as it means there is a shorter amount of time "committed" to a specific rate. If, at the end of a 6-month period, the rate goes up, a customer can take his or her business elsewhere. If the rate is down, the customer has benefited from that rate dropping after 6 months rather than staying where it was for an entire year.

The bottom line is that a 6-month auto insurance policy can be advantageous to both the insurer and the customer. These policies can also include upfront payment options that make them easier to administrate. Next time you're in the market for auto insurance, ask about how biannual policies can help control your rates.

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