And what you can do about it
Nobody wants to pay high insurance premiums for a car. Although auto insurance is a fact of life for car owners who want to stay legal, high auto insurance premiums don't have to be.
Those who are seeking to lower their auto insurance might be helped by understanding the following five ways that guarantee a spike in auto insurance costs. Some of these conditions may be unavoidable. In those cases, try the tips for keeping premiums as low as possible for each situation.
1. Buy a super-charged sports car.
Sports cars annually top the list for most expensive cars to insure. Insurance companies assume that if you buy a car built for speed, you want to drive fast. They base their premiums on more than just assumptions – among other things, frequency of claims are studied.
You could be a safe driver with a clean record, but if you choose the wrong kind of car your insurance premiums will be higher. Maybe not as high as the next guy who buys a sports car and has a few moving violations on his record, but you'll pay more than you would if you bought a car in the lower risk categories.
What makes a car more expensive to insure? It depends on several things, such as the car's susceptibility to theft and the cost of repairs. Sports cars, luxury cars and convertibles easily fit into higher risk categories. Family type vehicles with safety features that are less expensive to repair are a lower risk, so the insurance premiums will also be lower.
Those in the market for a new vehicle usually do a lot of research about their priorities, but few remember to estimate the cost of insurance premiums in their budget. Before you buy, compare the premiums of several vehicles on your wish list with the help of your insurance agent.
2. Buy a new car.
Those who have driven an old beater through college and the early years of their career may be in for a shock when they finally reach that day when they can afford to buy a new – or newer – vehicle. Recent models cost a lot more to insure than old beaters. According to Insurance.com, the average cost of insurance premiums for a current-year model (2009) hovers around $1,000 per year for a Honda Civic.
In addition, those who drive old beaters usually choose to carry a liability-only policy. A car purchased with a loan will always require comprehensive/collision coverage. How can you go from beater to respectable ride without suffering the shock of paying higher coverage? Choose a newer car, but not brand new.
Comprehensive and collision coverage is a good idea for newer cars, but the price of coverage will be more affordable if the car is not right off the lot. Another option is to pay cash for a slightly older car in great condition and choose comprehensive coverage only. Comprehensive will not cover an accident, but it covers many other mishaps like animal damage (colliding with a deer), acts of nature (hail), and theft.
3. Drive with abandon.
Go ahead, let your hair down and put the pedal to the metal. Whip in and out of traffic lanes to pass blue-haired ladies on their Sunday drive. Ignore stoplights and traffic signs, and by all means park wherever you like.
Once you've collected several moving violation tickets, DUIs, or experienced a your-fault traffic accident you can look forward to that special category insurance agents term SR-22. For the privilege of being special, you'll pay a mint on your premiums. Some companies won't even touch your application.
What can you do to get out of that special category (aside from the obvious advice to adopt safe driving habits)? Let a little time pass; each state has different requirements but in general you'll have to wait 3-5 years to escape your SR-22 status. In the meantime, take a safe driving course.
If it hasn't been mandated by a judge you can earn a discount on your premiums from the insurance company. When you find a company who will take you in spite of your tainted past, stay with them. Your loyalty could earn additional discounts after a period of time.
4. Forget to pay your bills or renew your policy.
Insurance companies look at your credit score, but they also consult your insurance score. Your insurance score reveals how faithful you've been to pay your premiums on time and renew your policy without letting it lapse. Just like skipping a mortgage payment can affect your credit score, forgetting to renew your policy can damage your insurance score.
Those who find it difficult to keep up with financial details might want to consider automatic payments with an electronic fund transfer (EFT). Once you set it up, you don't have to think about paying your premium. Like other bills, the bank automatically sends the payment on the pre-set date.
Insurance companies charge fees for handling payments made by mail, up to five dollars for each monthly payment. They might also charge for EFTs, but the fee will be much less, normally about $1 per monthly payment and sometimes free. Free is much better than $60 per year just for making payments. Or, if you can afford to, pay the premium in one lump annual sum.
5. Have a teenager.
It's not your fault your child turned 16. These things just happen. But when that magical birthday arrives, your auto insurance may send a notice that your premiums are going up.
Your premiums may be higher for teen boys than teen girls, since history shows boys (in general) don't have a good auto safety record between the ages of 16 and 25. However, teenage girls are gaining a bad reputation for cell phone use while driving.
While your previously lower premiums may not be possible, you may be able to keep them lower if your driving teen takes a drivers instruction course. Some companies also offer discounts for your student's good grades. If your kids go away to college you can get another discount for a distant student – if they are not driving one of your cars.
Address your concerns
Maybe you've been able to ignore auto insurance concerns in the past, and drive whatever and however you like. With the recent downturn of the economy, few can afford to ignore anything related to personal finances.
If you can alter even one of the above points you'll see a difference; alter more than one and the savings could make the difference in a freer cash flow, increased investment, or paying down debt. Ask your insurance agent for details about your auto insurance policy.
See also: Easy ways to save money on car insurance