Updated on 09.16.14

7 Tips on How To Save Money on Car Insurance

Trent Hamm

My wife and I switched our auto insurance coverage recently and paid our full annual premium up front. It was a painful little payment, even though we had shopped around and such. This led us to both researching various methods with which one could save money on auto insurance. Here are seven useful and applicable tips that we discovered to save money on car insurance.

Look at a combination homeowners policy and car insurance policy. We did this (because we happened to be moving at the time as well) and found that a combination package that covered both of our vehicles as well as our home was substantially less expensive than the independent insurances would have been. If you’ve got home and auto insurance through separate companies, call up your agents and ask for quotes on combination packages – likely, that will save money.

Take a defensive driving course. If you have a speeding ticket or other minor violation on your record, it generally boosts your premiums on your auto insurance. Most states keep track of your violations through a point system – each violation earns you a number of points and each year sees a small reduction in points. Your point total is what insurers use to adjust your premiums upward – the more points, the more you pay. Taking an optional defensive driving course offered by your state for a small fee (some states, like Idaho, even offer these online) can net you a reduction of a few points, directly saving money on your insurance. A $30 course and a few hours can see as much as a 10% reduction in your premiums over the next few years.

Increase your deductibles. If you’re in good financial shape with a well-built emergency fund, look at raising your deductibles. This will directly lower your premiums, but still cover you in the case of a major accident. I found that if I raised my deductible from $500 to $1,000, that $500 difference is paid for in just over a year by letting me put that $500 in my emergency fund instead. After that, it’s just cheaper monthly bills.

Work on improving your credit. If you have some dings on your credit report, this can negatively influence your premiums. Insurance companies use as much information as they can get to estimate how risky of a driver you are, and if you have lots of credit issues, you’re much more prone to risky behavior. Keep all of your bills paid on time and work on lowering your credit card debt.

If your car is old, remove collision coverage and just go with liability coverage. My rule of thumb is that if a car’s cash and/or trade-in value approaches $1,000 (or less), you should just go with liability coverage. A car in that state is nearing the point of replacement anyway, so if you get in an accident, it’s probably going to simply need replacement and the cash value of the car is negligible – you’ll probably not get much less selling it for scrap. So don’t throw out good money in this situation – move to just liability coverage.

Buy a car that’s less prone to theft or accident. Insurers also take the type of car you’re buying into account, even down to the color. A flame-red Mustang is going to have far higher premiums than a silver-colored Honda Odyssey, for example. Why? Aggressive colors are often linked to aggressive drivers, and vans are often a sign of a stable and secure situation (what kind of person drives a minivan versus what kind of person drives a Mustang). Consider the statement that your car makes about you – and consider that same statement is being made to the insurance company.

Pay your annual premium all at once. If you pay semiannually, quarterly, or monthly, you’re likely paying a fee each month for this “convenience.” Instead, just save up the premium in a savings account and pay it once a year. Let’s use an example of a person whose annual premium is $900 a year, and each payment plan charges a fee of $8.95 a payment. If one pays monthly, that means a monthly bill of $83.95 every month. Instead, a person could put only $73.50 a month into a 5% APY savings account and pay the whole thing once a year without payment fees. That’s a savings of more than $10 a month.

Remember, if you do all of these things and your premiums don’t budge, it may be time to shop around for new insurance. Don’t hesitate to get quotes from other insurers if you suspect your current insurance is way overpriced.

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  1. Kevin says:

    Car color has nothing to do with insurance rates. This is a commonly held belief which is completely untrue.

  2. Mitch says:

    Renter’s insurance also often gets you the combination discount. In my case renter’s plus auto costs something like $30 a year more than auto alone, and the auto coverage was competitively priced.

    In addition, if you move, change your job, etc., see if you drop below 7,500 miles a year. I just got a refund check on that myself.

    Also run your own numbers on using annual vs. regular payments. With my old company, ten payments a year had a $1 surcharge each time, withdrawn electronically, and with my new company (one year now!), it’s more like $5 a payment if I don’t pay every six months and I write a check (so $5.41). With the old company savings interest and convenience fee were a toss-up, and the cushion of liquidity was important when I was first out of undergrad and had less of an emergency fund.

  3. Kevin Spring says:

    I got 10% off my car insurance by automatically having the money deducted from my checking account each month.

  4. baker says:

    Ditto on the car color–that’s not true at all, but it is a common myth. The type of car also matters because it determines how likely the car is to manage well in case of an accident.

  5. navid says:

    I think the #1 tip should be to shop around for insurance…for the past 12 years I had allstate and never thought about it. This past month I switched my condo/auto to statefarm and the bill is 50% lower with the same coverage/deductible! No matter what shop around. there is no loyalty in this business.

  6. Chris Carpinello says:

    It’s not required that you have any points on your license in order to gain the auto insurance discount from a defensive driving course. It really is worth spending the time to complete the course every 3 years. YMMV, but for me the time spent taking the six-hour course in Georgia translates into making $48/hour.

    I’d like to hear what online sites you recommend to obtain insurance quotes. It’s been 9 years since I shopped around for auto, home, life, umbrella and disability insurance and it’s time to make my local insurance agent sweat.

  7. Kenny says:

    My brother, no lie, just went from $270 to $145 every 6 months by calling up different car insurance companies for quoted. He left Progressive and hooked up with USAA.

    It pays do do your own legwork!

  8. Trent Hamm Trent says:

    That’s interesting that it’s a myth. If it’s a myth, I can’t comprehend why my insurer would ask for the color of my vehicle.

  9. Karen says:

    I disagree with your guideline about when to drop collision. Insurance is supposed to protect you from an unacceptable risk. Which is why it’s absurd to buy insurance on something like a $15 answering machine or headphones.

    If you are a careful driver and it would not be a disaster if you had to all of a sudden replace a car it’s time to drop collision. Anyone who has enough money set aside to buy the car they are driving fits this category.

    I first read this concept in Money magazine.

  10. Minimum Wage says:

    My credit went in the tank several years ago and I can’t get it out of the tank on a minimum wage income. So I don’t have a car any more.

  11. Minimum Wage says:

    I wanna see some factual data on the “risky behavior” of people with “lots of credit issues”. I’ve always had an excellent driving record and I don’t believe I somehow became a bad risk just because I got sick couldn’t work and my credit went in the tank.

  12. Laurel says:

    @Trent – my insurer didn’t ask for our vehicles’ colors. If yours does so, it may be just for identification purposes?

    I can tell you one thing – I was paying $360/6 months for liability on my older truck with Geico. My fiancé was paying $680/6 months for full coverage on his 2001 truck with USAA. We recently got married, and I just added my truck to his plan on USAA. Our combined premium is now $600/6 months – effectively insuring my truck for “free,” and giving us back $80 of what he was paying.

    That multiple user discount pays off!

  13. Roo says:

    I agree with paying the premium upfront as you will save on fees. It also doesn’t make much sense to have full coverage on a vehicle that has a value slightly higher than the collision deductible. THis is throwing money down the drain.

  14. Daniel says:

    These are all good tips on saving on auto insurance. Another thing to remember is what kind of agent you have. Among themselves, agents who only represent 1 company are called captive. Agents who represent many companies are called independent. I have found much more value having an independent agent. He always shops my renewals with all of his companies and usually finds me a better rate. This not only saves me money but I don’t have to spend time online or with a 1-800 operator trying to figure all this stuff out.

  15. Great tips here but I have to warn everyone about this tip you gave:
    “Look at a combination home and auto insurance policy.”

    I thought this was always going to be the best bet as well until I decided to inspect other companies for our homeowners insurance. I was shocked that Erie was less than half of the cost of our Allstate policy even with the Allstate combo for home/auto with 3 cars!

    Apparently Allstate and many others are having to recoup losses from Katrina whereas Erie has never insured beach property.

    Disclosure: I am involved in the insurance business but have never made any money from either Erie or Allstate.

  16. Macie S says:

    Thanks for the tips Trent. This is really very helpful. The car insurance is one of the insurance where you need to pay regularly if you own a car. The tips really help to reduce the car insurance. At temporary car insurance you can get the information of schemes/policies for car insurance for single day or for 28 days. It also provides the details of the benefits provided by the insurance company. carinsurancetemporary.co.uk

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