How to Lower Your Auto Insurance Premium

The average cost of an auto insurance premium in the United States is around $880 per year. But many people are paying much more than average, and for a variety of reasons. Maybe they drive a convertible sports car. Maybe they fall into a high-risk demographic, like a teenage male. Or maybe they just live in a state with higher-than-average premiums. Regardless of these factors, there are certain things you can do to lower your auto insurance premium. Doing so could save hundreds of dollars a year.

In this article, we will talk about the ins and outs of car insurance premiums. What are they? How do they work? What's the relationship between the deductible and the premium? And how can you lower the annual cost of your auto insurance premium? These are some of the questions we will address. But let's start at the beginning with a basic definition...

What is an Auto Insurance Premium?

We will talk about the ways to lower your auto insurance premium in a moment. First, we need to define the terminology being used here. You can think of your premium as the annual cost of insurance coverage. This is the amount you pay each year to have a policy protecting your vehicle. This is not to be confused with your deductible, which is something else entirely. We will discuss the deductible (and its relationship to the insurance premium) a bit later.

In the United States, drivers pay an average of $880 per year on auto insurance. But the actual cost you incur will vary, based on several factors. These factors include your age, location, vehicle type, driving record, and the way you use your vehicle.

1. Age: A 45-year-old driver will generally have a much lower auto insurance premium than a sixteen-year-old (with all other things being equal). Statistically speaking, younger drivers have a much higher risk of car accidents. That's why insurers typically charge more for teenagers.

2. Location: Where you live can affect the amount you pay for an auto insurance premium. For example, drivers in that state of Florida pay nearly twice as much for car insurance as drivers in Idaho (on average). Keep this in mind when you start getting quotes from insurers. The only way to know if you're getting a good or bad deal on your premium is to know what the average is for your state. So get on Google and conduct some state-specific research.

3. Type of Vehicle: You could lower your auto insurance premium by choosing a car with a strong safety record. Cars with a higher likelihood of accidents and damage will bring a higher premium. These ratings usually come from the National Highway Traffic Safety Administration (NHTSA) and similar organizations. Your premium will also be affected by the "steal-ability" of your car. For example, if you choose a vehicle that is frequently stolen (like a Honda Accord), your auto insurance costs will be higher.

4. Driving Record: Most people are well aware of the connection between their driving record and their insurance premium. The more accidents and violations you have, the more they will charge you for coverage. Enough said.

If an insurance company offers you a premium that is higher than average, you want to know why. There might be a good reason for it. Maybe you're in a high-priced demographic, like a teenaged male driver. Maybe you're driving a car with a statistically higher risk level, like a convertible Corvette or a jeep. Or perhaps you have a few citations on your driving record. All of these things will make it harder for you to lower your auto insurance premium.

Sometimes, there isn't much justification for a higher rate-quote. Maybe it's just part of the business model for that particular insurance company. This is why you need to get quotes from at least three different insurers, before you choose a policy.

How to Lower Your Premium Costs

We've talked about some of the factors that affect your insurance costs. Let's move on to discuss some of the things you can do to get a lower premium on your auto policy.

1. Compare quotes from several insurers.

I once read a statistic that said nearly half of all insurance shoppers chose the first policy offered to them. In other words, they didn't even bother to shop around or compare quotes. This is a big mistake. In some cases, the quotes from three different companies might come in very close to one another. Other times, one company could be much cheaper than the others. You won't know until you compare quotes. The only way to determine which company has the lowest auto insurance premium is to get multiple offers.

Fortunately, the Internet has made this process a lot easier for you. There are a variety of insurance "portals" online today, through which you can obtain quotes from a handful of insurers. You submit your information only once through the website, and you then receive policy quotes from several different companies. It's a highly efficient approach to comparison-shopping.

InsureMe.com is an example of such a website:
Shop and Compare multiple Auto Insurance quotes for free.

The point is, you have to shop around if you want to lower your auto insurance premium. Don't be part of the 50% of consumers who choose the first quote offered to them. See what other companies are willing to offer. 

2. Ask about discounts.

Most insurance companies offer a wide range of discounts to their customers. But you won't know about them unless you ask. If you qualify for one or more discounts, it could help you lower the cost of your auto insurance policy.

Here are some of the discounts being offered by many companies:

  • Accident-free discounts
  • Good student discounts, based on school grades
  • Driver training discounts, for completing a certain training course
  • Mature driver discounts, for people over a certain age
  • Multi-car discounts, if you have more than one vehicle on your policy
  • Multi-policy discounts for auto, life, home insurance, etc.
  • Antitheft device discount, if your car is equipped with one

This list is by no means exhaustive. These are just some of the most common discounts offered by insurance companies. Ask about these and other discounts when you are gathering quotes from insurers. It's a great way to lower your auto insurance premium.

3. Raise the deductible to lower the premium.

Your insurance deductible is the amount of money you have to pay toward a claim before your insurance company will cover the rest. For example, if you have a $250 deductible and $2,000 worth of damage to your car, you would have to pay the first $250 of repair costs. After that, your insurer would cover the remaining $1,750 (2,000 - 250 = 1,750).

There is an inverse relationship between the deductible and the premium. In most cases, you can lower your auto insurance premium by choosing a higher deductible on your policy. By raising your deductible from $250 to $500, you could reduce your annual premium by up to 30 percent.

Many financial advisors recommend this strategy, with the logic that deductibles are a potential expense you might never have to pay. You know you're going to pay the premium -- that's a given. But you'll only face a deductible charge if you make a claim against your policy (for auto repairs, as an example). If you think you can go claim-free for an extended period of time, you might want to opt for a higher deductible to lower the premium.

You need to do the math before making a decision like this. Your insurance company should help you in this regard. They can tell you how much you might save by choosing a higher deductible.

For example, if raising your deductible from $500 to $1,000 would only save you $60 a year, it might be best to stay with the lower deductible. That way you'd have less to pay if you ever filed a claim, and the annual premium cost would be almost the same. But if you could lower your auto insurance premium by a significant amount, it might be a good idea to choose the higher deductible. You need to do the math and decide how much risk you're comfortable with.   

4. Go for the multiple policy discount.

I touched on this earlier, when we were discussing the different types of discounts offered by insurance companies. It bears repeating. If you have an existing relationship with an insurer (say, for homeowners or renter's insurance), they might offer you a better deal than other companies. They refer to this as the multiple-policy discount. For example, it's common for insurers to reduce the annual premium by 10 percent if you have another type of policy with them.

Summary and Conclusion

In this article, we have covered several of the ways you could lower your auto insurance premiums. The most important things to take away from this article are:

  • You should get quotes from at least two insurers (the more the better).
  • You should ask about the various discounts offered by each company.
  • You should find out how much you might save by raising your deductible.
  • You should consider "bundling" your different insurance policies to save money.

If you would like to learn more about this subject, you can use the search tool at the top of this page. It gives you instant access to an ever-growing library of consumer-finance articles.