Managing and Reducing Your Car Insurance Costs

June 19, 2013

Both before and after you've paid off your car, you can use some time tested strategies for lowering your car insurance costs.

Of the common costs associated with automobiles, figuring out how much car insurance costs are related and how much is required for fuel and maintenance can help you pare down your expenses. The truth of the matter is that you might be paying too much for car insurance. If you are paying per month, you are certainly paying more than you have to.

Get Free Car Insurance Quotes >>

Additionally, better prices might be found with other companies, especially if your credit is good or has improved and if your driving record is clean. Unless you drive less, you probably cannot cut out fuel expenses, and maintenance is necessary from time to time. However, understanding the common costs of car insurance can help you figure out if you are paying too much.

Car Insurance Quotes
Getting initial car insurance quotes is the first step in insuring your vehicle. There are no costs associated with asking companies to give to a quote. In fact, you should make it a point to get several quotes. They are free, and the insurance companies do not need to access your credit report to offer you one. For that reason the quotes may not reflect the exact premium amount. Only after they pull your credit report can they give you an accurate figure. However, a quote will give you a good idea of how much a company will charge for your premium.

Car Insurance Premiums
After you have received several quotes and have decided on a company, they will finalize the contract and come up with a price—known as the premium—for your car insurance policy. Premium rates reflect many different variables including driver age, gender, neighborhood, credit score, driving history, make and model of the car and its safety and anti-theft features. Complicated formulas are used to calculate insurance rates for customers. The premium you pay represents the bulk of the cost you pay. This will vary greatly from customer to customer, as you have the option to buy only the minimum coverage or several types of extended coverage.

Associated Fees
Other common costs include fees. If you opt to pay by the month, every company will charge you a monthly processing fee. This can add as little as $18 to the cost of your 6-month premium. Keep in mind it can be much higher. It depends upon the company. To avoid this, pay your premiums in full up front. Some companies will charge a cancellation fee if you terminate the contract before it expires. Late charges may also apply depending on the insurer.

Raised Rates
Should you be at fault in an accident and your insurer is forced to pay out a settlement, almost without fail your insurance rates will increase. Raised rates are thus another common cost of car insurance. If you drive safely and avoid accidents, your rates will raise through no fault of your own. Unfortunately, hard and soft insurance fraud and the ever-increasing cost of medical expenses raise rates for everyone, even safe drivers.

At minimum, if you maintain the lowest level of coverage, you can expect to pay at least $400 per year provided your credit and driving records are in good standing. Of course, this number will vary depending on the car you drive, your age, place of dwelling and gender.

Get Free Car Insurance Quotes >>

Reducing Insurance Costs after You've Paid off Your Vehicle

Many of America's drivers find that a good time to look at their insurance costs is when they have paid off a vehicle in full. When a driver owns a vehicle free and clear, there's often an opportunity to reduce costs by looking at some of the insurance that may have been mandated by a lender, recommended by a dealer, or otherwise taken out to protect the investment in the vehicle.

  • Assess risk. Look at some of the extras on the policy, such as extensive theft, fire or flood insurance. Think realistically about your chances of these scenarios, and drop some of the extra policy riders accordingly.
  • Look at comprehensive or collision factors. Larger and more robust coverage for a vehicle, including basic collision and general liability insurance, tends to really bulk up premiums. What you will be looking at when deciding whether to drop coverage is how much the vehicle is worth, and whether you would want to "lose" that value in a possible collision. Drivers can choose to drop comprehensive in favor of a basic collision coverage, or, in the case of some used cars, drop collision and comprehensive insurance altogether and just take out basic liability insurance.
  • Proceed with moderation. Just because you're no longer mandated to have some types of coverage, that doesn't mean they're not essential to protect the investment in a vehicle. Drivers who are looking at dropping extra insurance costs should be careful when considering abandoning collision insurance altogether, as they may be liable for a real loss in assets if a collision occurs. Think about what is realistic for your specific investment in a new or used vehicle that now qualifies as one of your assets.
  • Get Free Car Insurance Quotes >>

These basic tips will help drivers determine when they can drop different kinds of insurance to lower their premiums.

5 Hidden Car Insurance Costs Revealed

Car insurance costs can be crippling. No matter what you do, it seems like you can't get the rates down to a really low point. What you might not know is there are things affecting your rates that aren't obvious. These are the hidden costs of auto insurance. Hidden car insurance costs are the things insurance companies don't tell you about. Some you can change, others are more out of your control.

  • Credit rating. Your credit rating has a direct impact on your car insurance costs. That might seem unlikely, but it's true. Insurance companies look at your credit record to determine whether you pay bills on time, if you've kept the same credit accounts for a long time, and if you have a habit of opening and closing accounts. They've also discovered a link between credit score and the chances of filing a car insurance claim. All these factors are put together to create what's called an insurance risk score—which you can't see. If you don't have a good score, your car insurance costs will be higher. To counter this, look at your credit history and clean it up.
  • Installment fees. If you opt to pay your car insurance costs in installments, then you'll pay extra. Pay in full when the premium is due and you'll pay less. If you want to know just how much extra your insurance company charges, ask them. The rate will vary from company to company, and how many installments are involved.
  • Teenagers. Many people add their teens to their car insurance policies as soon as they're old enough to drive, thinking they have to do so. It's not necessary. You don't need to do that until your kid has a license, or a permit, if they'll also be driving your car.
  • Cancellation. Legally, you have to cancel your policy in writing. Until you do that, your old policy is in effect, and your insurer can keep billing you. If you don't pay the bills, your credit rating will be affected (which, in turn, affects your car insurance costs). If you tell them, the company will send you a proper cancellation form. Complete and return it. If you have an auto loan, tell the lender you're changing insurance. Cheap car insurance is the general reason for changing.
  • Car model. Different models have different car insurance prices and rating. Insurers have a system that takes into account safety features on a vehicle, the likelihood of theft, and the cost of the vehicle, among other factors. This isn't information the insurer will give you. It's more information they consider and keep to themselves. The scale runs from 1 all the way up to 27. The higher the rating of your particular car, the greater your car insurance costs. It's worthwhile investigating the ratings different cars have (the tools for this are available online), and picking a car you like that enjoys a single figure rating to save money on car insurance costs.
  • Get Free Car Insurance Quotes >>

If you are planning to change your insurance carrier, it's a good idea to compare the insurance costs first. Not many consumers are actually aware of what they are paying for when they pay their monthly installments. If you feel that the car insurance payments are on the higher side, then here is how you can check your insurance costs at a glance.

Safety Gear

Safety gear can be really expensive, but it does reduce the cost of the insurance premium. Check with the insurance carrier before you buy the insurance and then install the basic requirements they ask for. For example, they will request safety belts, car bags, car alarms, anti-lock brakes and daytime running lights, which may seem expensive. But installing them will really reduce the cost of your premium. If you don't have these basic tools, then install them right away and get in touch with the company to ask for a discount on your rates.

Take on Additional Driving Courses

It's a good idea to take on additional driving classes for yourself and your family too. This reassures the underwriters and the insurance company you are interested in lowering any chances of accidents. Ensure you check the driving history of your family too before you take on insurance policies. If you have any tickets and infractions, remove them or get them settled as soon as possible to get a better rating on your driving record.

How Can I Lower My Insurance Costs for a Teenage Driver?

Any young driver just getting onto the road faces some problems related to insurance costs. Here are some quick tips for finding teenage driver insurance that a household can afford.

  • Add younger drivers to family policies. This is a hugely popular practice that helps families to avoid the costs of insuring "high risk" teenage driver separately. A parent can add the younger driver to a family policy to get better coverage at lower rates.
  • Look into assigned risk pools. Many states have assigned risk auto insurers that specialize in handling high-risk drivers such as teenagers and those who are just getting behind the wheel.
  • Enroll teenagers in driving classes. Many insurers offer lower rates for young drivers who have proved their competence with a specific grade level in driving classes or workshops.
  • Get reasonable first time driving vehicles. Some young drivers may want to start out in a specialty or luxury vehicle due to the flashy image that these cars provide. However, the reality is that combining a high risk team driver with a high value and high profile specialty car or sports vehicle adds up to astronomical premiums. Most often, a family or guardian should help a teenage driver find an older, lower value but reliable vehicle to drive while the new driver is proving themselves on the road and putting together a record that will lead to lower overall insurance rates.
  • Get Free Car Insurance Quotes >>

Keep these useful tips in mind when dealing with the high cost of finding insurance coverage for a teenage driver.

Which Car Insurance Costs Are Tax Deductible?

If you use your vehicle in the operation of a business, you may be able to deduct the auto insurance cost of your policy from your federal income tax return. In order to claim deductions for car insurance costs, you must itemize deductions for your business's used vehicle instead of taking the standard mileage deduction. Unfortunately, deductions for car insurance premiums are not available to people who use their vehicles for personal use only. There are a couple of types of deductible car insurance costs.

  • Deduct premiums and fees. If you itemize deductions, you can deduct the full amount of your auto insurance premiums on your federal income tax return. You can deduct the cost of your premiums, service fees and other charges that you pay to your car insurance company for maintaining coverage on a business vehicle.
  • Deduct deductible payments. Furthermore, once you meet your car insurance deductible limit for the year, you can deduct amounts over and beyond your deductible limit from your federal income tax return. Depending upon your situation there may be more deductions that are available; therefore, you should seek out the advice of a certified accountant to make sure that you and your business qualify for these and other types of tax deductions.

Can My Auto Insurance Cover Mechanical Problems?

New or inexperienced drivers have a lot to figure out when they are trying to get behind the wheel and may wonder exactly what auto insurance may cover. In addition to how to work the vehicle and how to deal with traffic, these novices have to contend with auto insurance questions, issues around auto maintenance and repair and a whole other range of topics related to the investment in a vehicle and its value. Simply put, owning and driving a car is expensive, no matter what kind of car it is.

What Basic Auto Insurance Covers

In case there was any doubt, let it be said that your auto insurer is not the place to go with auto repair questions. The kinds of scenarios covered by auto insurance hardly ever apply to anything related to the maintenance and repair of a vehicle. Basic auto insurance covers only the liability of keeping that car on the road. The state mandates this coverage so that drivers will have a way to pay for any traffic situations they create and any auto damage that they cause to another vehicle.

  • Comprehensive and collision insurance. Other types of insurance offer more protection of an investment in a vehicle. Collision insurance takes care of the damage that may be done to a vehicle in the event of a crash. Comprehensive insurance also covers such "extras" as fire damage, flooding, theft and vandalism. However, none of these insurance types deal with mechanical failure, costly maintenance, or repairs that may be needed for a car or truck that arise from natural wear and tear.
  • Auto repair insurance. There is, however, one kind of insurance that will cover basic repairs to a vehicle. It's called auto repair insurance. Drivers can take out repair policies on just one system (ex: electrical, fuel line, etc.) or one major vehicle part such as the engine or transmission. Drivers can also choose full repair coverage as a more costly option.
  • Getting auto repair insurance to pay. The problem with complicated auto repair insurance policies is that language written into the contract may make it difficult to actually collect on claims. When evaluating these policies, be sure to read them carefully, and ask questions about just what situations will be covered. In the event of a vehicle breakdown, keep all records handy, and provide correct documentation for a better chance at getting these claims paid out and getting help from insurers to fix the things that break on your car or truck.
  • Is auto repair insurance worth it? For many drivers, auto repair insurance is not worth the money or the hassle. Drivers who know a lot about their specific vehicles, or drivers who have friends in the "auto mechanic world," will generally not opt for auto repair insurance. However, this kind of repair insurance policy is good for drivers who have absolutely no idea about how to fix their car, drivers who live far away from any reliable mechanic shops and drivers who cannot negotiate with mechanics on the price of repairs, and may be getting taken advantage of.
  • Get Free Car Insurance Quotes >>

Take a look at the above to figure out whether auto repair insurance is right for your driving needs.

Related Questions and Answers

What Is the Easiest Way to Lower Insurance Costs on Your Car?

The easiest way to lower insurance costs is to raise your deductible. This requires nothing more than a phone call and can result in significant savings. It is important to remember that if an accident occurs, the higher deductible amount will come out of your pocket. Another quick way to lower premiums is to take and pass a defensive driving course. These courses only take an afternoon, are fairly inexpensive and can result in up to 30% savings. Discounts are another way to lower your insurance bill. Ask your agent if you are getting all of the discounts you are qualified to receive. Finally, the best way to keep your premiums low, is to maintain an excellent driving record and credit score.

Is Used Vehicle Insurance Higher or Lower than Insurance for a New Car?

In general, used vehicle insurance will be a bit cheaper than insurance on a new car, but there are many variables that affect insurance rates. The type of vehicle being insured will make a huge difference in insurance rates. A used Porsche will normally cost more to insure than a brand new Kia. The cost of replacing the vehicle, combined with the risk factor assigned to the driver determines the premium. While used vehicles are typically worth less than new cars, this is not always the case. The single most important factor in regards to insurance premiums is your driving record and credit rating.

What Are the Similarities Between Comprehensive and Collision Coverage?

There is one similarity between comprehensive and collision coverage, they both pay for damage to your vehicle. This is where the similarities end though. Comprehensive covers damage to you vehicle that is caused by things other than a collision or accident. Typically this would include things such as flood or fire damage. If the car is stolen and damaged, comprehensive will cover the costs of repairs. Collision on the other hand covers all repair claims that are caused by an accident or collision with another vehicle. If you are driving an older, low value car it may make financial sense to drop both of these types of coverage. The premiums can often exceed the value of the car.