Protect Insurance

Why You May Be Paying Too Much For Your Auto Insurance (And Covered For Too Little)

Casandra Andrews  |  January 14, 2021

All the questions to ask and factors to consider when searching for new auto insurance ... And why you want to switch insurers every year.

When was the last time you really looked at how much you’re paying for auto insurance coverage? (And, no, we don’t mean just checking your quarterly statement.) We know how easy it is to select the auto-pay option, then sit back, do nothing and let your policy renew year after year, as you cross your fingers and hope the price doesn’t increase too much. But chances are, if you haven’t compared prices in a year or more, (like that incessant advertisement reminded us all) you’re probably paying too much for your car insurance.

“We recommend at a minimum you shop around on a yearly basis,” says Sterling Price, an insurance expert at ValuePenguin, a personal finance site that offers price comparisons, research and analysis. “That allows you to evaluate the market and your financial situation. Insurers are changing prices every year and the real change (a drop in price) will come by changing insurers.”

This means that with the dawn of a New Year it’s time — and possibly long overdue — for an auto insurance annual check-in. Here’s a look at  the questions you should ask and the most important factors to consider when you’re searching for a new policy that best meets your needs … because who wouldn’t want to save a bunch of money on their car insurance?

Should you wait for a renewal period to shop around?

No. Many insurance experts say shopping around every six months is how to get the very best deals. And you can always get a partial refund if you paid ahead on a higher-priced plan. When significant life events come along, like adding a new teenage driver to your policy, or households combining due to a marriage, that’s typically when you should start searching for a better rate.

Just be prepared for sticker shock if you are insuring a teenage male driver. In 2020, 18-year old male drivers paid on average about $700 more per month in the U.S. for auto insurance than 18-year old female drivers did, research from Statista shows. Young male drivers have more frequent accidents. But just how much you will pay depends on several factors including the state where you live.

Should you stick with state minimum requirements for coverage?

We know it may be tempting to just go with the cheapest rate, but if that means skimping on how much protection you get, experts say you should reconsider.

“Auto insurance can be tricky,” says Marianne M. Nolte, a certified financial planner with Imagine Financial Services who helps her clients spend strategically. “In most states, you must carry liability insurance to help pay for the expenses of the other party if you are involved in an accident. Unlike liability insurance, comprehensive auto insurance is not a state requirement. So the choice is up to you.”

When would you consider the added expense? If you still owe money on your car or it is newer and has retained its value, Nolte says, comprehensive coverage will help mitigate your loss in the event of damage or loss.

Comprehensive coverage, according to NerdWallet, typically pays for the value of your car if it’s stolen and not recovered, damage from severe weather such as tornadoes or hail, floods, fire, falling objects, explosions, collisions with an animal such as striking a deer and riots.

What factors should you consider beyond price?

Thanks to the internet, reading reviews about car insurance companies is pretty simple. Price suggests looking up a company’s customer satisfaction ratings on a site such as J.D. Power, a consumer data firm. In its 2020 auto insurance claims satisfaction survey, the company polled more than 11,000 drivers who filed a claim in 2020 to determine which companies’ customers were most satisfied with the claims process.

“J.D. Power ratings give you insight into a company’s customer service, and that helps determine if they care about the customers,” Price says. “Also consider how easy it is to file a claim and how many hours you have to wait on the phone for service if you have a claim.”

And then there’s the really big one to consider: Will your rates go through the roof if you have an accident? ValuePenguin recently compared rates before and after an accident for the five biggest car insurance companies in the U.S.  The takeaway? Those insured by Allstate saw the largest increase in rates after an accident, while State Farm tended to penalize drivers less, according to the ValuePenguin comparison.

What discounts should you ask about?

Depending on the company, you may qualify for a discount and then some if you have a clean driving record, which means no accidents or traffic violations in several years, if you are a student or a more mature driver, if you bundle home and auto, if you drive very little (low mileage), or if you are part of a military family and/or if you are a federal employee.

Can your credit score impact your premiums?

Most of the time, yes. Here’s a little secret many companies don’t advertise. Unless you live in Alaska, Hawaii or California, your credit score will likely be used to help determine how much you are charged.

ValuePenguin compared average annual insurance rates for 13 major insurers, showing how rates changed between the same drivers if they had either poor or excellent credit. When everything else was equal, it found that drivers with excellent credit could save an average of 35 percent on premiums compared to those with poor credit.

Which also means if your credit score goes up, Price notes, you should shop around to see if your new higher score equates to a better rate.

Use online comparison tools to evaluate similar policies

Price recommends using a general online comparison to save time. The automated tools let you evaluate companies side by side to see what insurer may be best for you before ever asking for a quote.

Nerdwallet offers a lengthy guide for finding the best rates on auto insurance that includes a price comparison tool as well. Data on the site features average annual rates for minimum and full coverage car insurance policies by state and by company, from the top 10 private auto insurers in the U.S. based on data from the National Association of Insurance Commissioners.

For the best rates, compare three or four companies at a minimum, Price says. Other online destinations with comparison tools for auto insurance include insurify, and Policygenius.

The answer is always no if you don’t ask

If you really like your auto insurance agent and/or company but need to pay less in premiums, consider shopping around for new quotes on the policy you have now. With the hopefully lower-priced quotes in hand, ask your current agent to match the price or offer a similar discount. If they can do it, great. If not, you’ve done your research and can jump to a new company, guilt free.


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