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Tips to manage car insurance costs and possible rate changes

Added March 9, 2020
Lady sitting in a car behind the steering wheel

Owning a car can be a big investment. When most people budget for the expense of owning a vehicle, the amount of the monthly car payment is probably the first thing that comes to mind. You may also think about the cost of gas, oil changes, and other regular maintenance. But don’t forget about one other important expense—the cost of insurance premiums for your vehicle.

Insurance coverage isn’t just a nice-to-have option for protecting you and your investment—it’s the law. Nearly every state requires that anyone who owns or drives a vehicle must carry insurance. Penalties for driving without insurance can include significant fines, suspension of driving privileges, and even having your car impounded.

How do I plan for the average cost of car insurance?

The easiest way to estimate how much insurance will cost you is by getting an auto insurance quote. You can do this yourself online or by contacting an agent directly. To get a quote, you’ll need to tell the insurance company about:

  1. Yourself, including your age, credit score, driving record, and where you live
  2. Type of vehicle(s) you want to insure
  3. Others who live with you or those who will be driving your vehicle

When shopping for a car, you need to decide on the type of vehicle and the options you can afford. Insurance isn’t much different. You’ll have options to decide on the amount and type of comprehensive insurance coverage you want to protect yourself and your car.

Just as you have options for financing the car itself, you’ll also have options for how you want to pay for your insurance.

An insurance policy is a contract for a stated time period or term. Most companies offer either six-month or annual terms of liability coverage. To make paying for your policy more affordable, you’re typically offered payment plan options. You could choose to pay more up front to save on the overall cost of the auto insurance premiums or stretch your costs out by paying in regular installments over the term of the policy to ease the strain on your budget.

Whether you pay all at once or in regular installments, as long as you pay your bills on time, you’ll have coverage for the full term. And unless you report something inaccurately, decide to change your coverage, or your circumstances change (such as where you live or the vehicle you’re driving), your auto insurance costs remain the same for the full term of coverage.

What happens when my policy term ends?

Before your term of coverage comes to an end, your insurance company must decide whether to offer you another term of coverage and the cost for that new term. This is called a renewal offer.

You’ll have the option to accept the offer and continue your liability coverage with your current insurance company or shop for insurance from another insurer. The state in which you live will set a minimum number of days the renewal offer must be sent to you in advance of your current term expiring to give you time to review your coverage options.

The renewal offer could be for the same amount as your current car insurance premiums or it could change. Common examples of things that could cause your new term premium to change include:

  1. A driver’s record on the policy shows a driving violation citation such as a speeding ticket or involvement in an accident
  2. You’ve requested a change to your policy, such as adding a new vehicle or changing the type or amount of minimum coverage you carry
  3. You moved
  4. Your insurance company has implemented rate changes

In some instances, your insurance company may determine you’re no longer eligible for continuing liability coverage beyond your current policy. This is most often due to a significant change in your driving record (such as losing your driver’s license) or perhaps because you have moved out of state.

Should this happen, your insurance carrier is required to provide you a notice of non-renewal. Once again, the state in which you live will have requirements as to how far in advance of your current policy term ending the non-renewal notice must be provided to you so you have sufficient time to shop for replacement insurance from another insurer.

If nothing has changed, why would my insurance rates go up?

It’s true, your insurance rates can change even when you’re living in the same place, driving the same vehicle, and maintaining a clean driving record without any new accidents or driving violations.

Vehicles are becoming more expensive to repair, in part due to increased technology found in today’s vehicles. Likewise, medical expenses are constantly on the rise. As such, the cost of claims for injuries and car damage continue to rise, as well. Insurance companies will need to periodically update the rates they charge to keep up with those rising costs.

Rest assured that an insurance company can’t simply change rates without a valid reason to do so. Most states require that any requested rate changes be reviewed and approved by the Department of Insurance (DOI). The DOI in your state may limit how often an insurance company can request rate changes and may even restrict the amount of allowable rate change. In any case, insurance companies are required to prove the necessity of the requested changes.

Insurance fraud affects everyone

Do you know someone who has filed an insurance claim for a bodily injury when they weren’t actually hurt, or for car or property damage that didn’t occur in the way it was reported?

When insurance companies end up paying for these types of claims, it increases the expenses for the company. When those expenses increase, companies are forced to make rate changes to keep up with the rising costs of claims. When those rate changes occur, they affect everyone who’s insured with the company. Fighting insurance fraud can help hold down costs and lower rates for everyone.

Related links:

There are ways to keep your insurance costs down. Here are 10 ways to get cheap car insurance.

Why are car insurance rates higher for young drivers? Here are answers to that and other common questions about car insurance rates.