UPDATED: Mar 13, 2020
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It’s a simple question of risk vs. reward: If you only buy the minimum amount of required insurance, and decline coverage for your own vehicle, medical injuries, theft, or other worst-case scenarios, then you risk paying hefty sums out of pocket if an accident happens. The reward is some extra money saved each month as a result of cheaper premiums.
For drivers whose vehicles aren’t worth much, or for those who only drive their cars very rarely, bare minimum liability-only coverage may suffice. For those of us who want to be covered for our own vehicle’s damage, medical injuries, or other unexpected accidents, there are ways to keep your costs down while still maintaining good coverage for those worst-case scenarios. Following are a handful of ways to keep your insurance costs down.
For the Bare Minimum
Insurance is regulated by the states, not the federal government. Thus, each state has its own laws and coverage requirements. Knowing what your minimum coverage options are will help you get the proper coverage to keep you legal at the lowest possible price. To see what your state requires, see our guide on state insurance information.
If you owe money on your car, you probably won’t be able to get by with straight liability insurance due to requirements of your bank or finance company. But knowing what the minimum level of coverage you require can put you on the right path of getting the cheapest coverage as well.
Raise Your Deductible
Choosing a higher deductible amount will lower your rates and your monthly premiums, but in turn it will likely require you to pay out of pocket for small claims that are less than your deductible. Keep your budget in mind and know when to use your deductible and when to pay out of pocket. If your deductible is $1,000, it will make sense to pay out of pocket and avoid filing a claim for anything less than about $1,500 or $2,000, depending on your budget. Be careful, however, and avoid choosing a deductible that is beyond your budget.
Pay Your Entire Premium Up Front
Most every insurance company will offer you a small discount in your overall payment if you pay for six months or a full year in advance, as opposed to monthly payments. You may even be able to open up a credit card specifically to pay the balance, and then pay off the credit card during a zero-interest period, and build your credit score at the same time as saving on your insurance. If you choose this route, be sure to budget ahead and set up automatic monthly payments to your creditor.
Drop Coverage You Don’t Use
If you need your car to be covered in case of an accident, you can always use Collision coverage. Insurers offer different types of coverage besides Collision for “no-fault” accidents like natural disasters and hit-and-run, but you can drop those from your policy and file such a claim under Collision if necessary. Keep in mind, using your Collision coverage may affect your rates differently than if you use other types of coverage to file a claim. Some types of coverage you can drop include:
- Comprehensive: This typically covers theft, vandalism, and natural disasters.
- Uninsured Motorist or Underinsured Motorist (UM or UIM): These cover hit-and-run accidents, or accidents where the other driver has no insurance or insufficient coverage to pay for your claim.
- Rental: If you can borrow a car or take the bus, dropping your rental coverage will be worth it. On the flip side, if you keep your rental coverage for an extra $10 or $20 per month, in the event of an accident you can just take the bus and ask your insurer to reimburse you for the daily rental cost it would take to rent a car while your car is in the shop. It might not be the best way to “work the system”, but keep it in mind before cancelling this coverage.
- Personal Injury Protection (PIP): We don’t recommend you drop this coverage unless you have good healthcare insurance coverage. Check with your healthcare insurer to ask about coverage in the event of a serious car accident before removing PIP from your policy. The last thing you need is to be injured or disabled, and potentially prevented from working and earning money, and with no way to pay the medical bills to recover.
Lower Coverage for Unused or Older Vehicles
If your car is worth only a few thousand dollars, you can start a savings fund for the cost of repairing or replacing an older vehicle, and within a year or two you’ll likely have enough saved up to replace the car entirely in the event of an accident.
Lower Your Limits
Check with your insurer to find out what your policy’s limits are for Liability, Bodily Injury Liability, Personal Injury Protection (PIP), and other parts of your policy. As mentioned before, most states require a bare minimum of liability coverage, so check to make sure you’re not paying for $1,000,000 in liability coverage when you could be paying for $10,000 instead.
Ask About Bundles and Discounts
If you insist on having coverage for every possible scenario, ask your insurer if you’re getting the best possible rate for having multiple lines of coverage, for bundling, and for combining homeowner’s or renter’s insurance along with your auto insurance. Most insurers will offer discounts for good driving records, students with good grades, good credit score, and other unexpected items, so make sure to ask.
Shop Around and Ask For A Rate Review
Even if you don’t plan on switching insurers, you can shop around and gather quotes from other companies, then present them to your insurance agent or a representative of the company. Ask them to match competitors’ prices if you can find a lower rate for similar coverage. If they won’t match the price, it might be time to switch.