Economic Trends Impacting Car Insurance Rates

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UPDATED: Mar 13, 2020

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The recession has impacted decisions consumers make, and that can result in changes to auto insurance rates.

The recession has impacted decisions consumers make, and that can result in changes to auto insurance rates. (image by spaceja.com)

The downturn in the economy has lead a majority of Americans to make financial changes that can have a dramatic impact the amount they pay for car insurance, according to a new study released by the National Association of Insurance Commissioners (NAIC). 53 percent of all American consumers have made such decisions in the last year, an many of them are unaware that these decisions can affect the costs they pay for their auto policies.

The most common auto-related decisions made by Americans were:

  • Almost 40 percent of Americans are driving much less, or utilizing public transportation options more often.
  • Nearly 20 percent of all car owners downgraded to a lower-priced car or disposed of a second vehicle.
  • Close to 20 percent of drivers have cancelled or lowered their coverage amount in order to obtain relief in their financial situation, and many of these are unaware that such decisions can impact future car insurance premiums. Even worse, the economic effects of being involved in an at-fault car crash could be devastating since they are driving without insurance.

There are a number of things that can lead to differences in car insurance rates, and consumers should focus on making smart decisions rather than looking for quick ways to save money that could end up costing them more in the end. Driving less and taking public transportation, paying off a lien so a vehicle can have lower coverages are smart decisions, but simply canceling a policy and driving without insurance is a perfect example of a decision that isn’t wise.

The top financial decisions that can affect your car insurance premiums include:

  • Moving: A relocation, either by choice (downsizing your home, buying a new home to take advantage of the historic lows on interest rates) or due to factors outside of your control (foreclosure) can impact your auto premiums. Keep in mind that car insurance rates are based on factors such as the zip code in which the car is parked, and even if it is kept in a garage overnight. Futhermore, car insurance costs vary by the state in which you live, since liability minimums and coverage types are different.
  • Changing cars: Beyond living expenses, car ownership is likely the second greatest financial expense most American have, and things like auto insurance should be budgeted into any decision. Every make and model has its own insurance rate, so be sure to obtain quotes before you trade a car in or purchase a new car. Lower priced cars are normally cheaper to insure, since car insurance companies will have less payout in a loss claim. Keep in mind that adding a new driver, such as a teenager, or adding a new car can also impact car insurance costs. Be sure you ask your insurer about multiple car or family discounts that may be available to you.
  • Swapping jobs: National unemployment rates are still at nearly nine percent, meaning many have been impacted by the loss of a job. Others may simply move to a new job or even relocate to a new area for a job. Any changes in your driving habits (driving more, driving less) can impact your auto policy rates. Some that remain unemployed have simply cancelled their car insurance as a way to make ends meet. Not only do they face grave financial impacts as a result of an at-fault crash, but they’ll also face much higher premiums once they reinstate their insurance, as they’ll lose their loyalty and renewal discounts, but they’ll also be considered a much higher risk to insure.
  • Driving less: All car insurance policies factor in the annual miles driven, so driving less means you’ll pay less for car insurance. If you’re driving less because you’re taking advantage of public transportation or options such as carpooling or ride sharing, ask your insurer if you’re eligible for a low-milage discount. You can also consider insurance companies that provide policies on a pay-as-you go rate, although options are limited there, as they’re only available in a handful of states.
  • Credit score: If you’ve fallen behind on bills or made purchases you could not afford, you’ve likely damaged your credit score. Many insurers utilize elements of your credit report to quote your policy, since it has proven to be an indicator of potential for losses. According to the NAIC survey, more than one-third of all Americans do not realize their credit can result in higher rates, as well as difficulty in obtaining insurance.

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