There are several ways to reduce the cost of car insurance, but here are 5 of the most effective, I think.
1. Buy cheaper cars
I know, probably not what you wanted to hear, but it’s true. The cheaper the car you buy, the cheaper the insurance.
Insurance companies are in the business to money, obviously. They’re not in business to lose money (that’s for sure). The way they make their money is by collecting more than they pay out – it’s pretty simple.
Obviously, if you buy a brand new car, the purchase price is going to be a lot higher, which means it will also be a lot higher to replace that car if totaled. Insurance companies will have to charge higher premiums to cover that. The more expensive the vehicle, the more expensive the premium.
That’s why if you have to borrow money in order to purchase a car, you’re required to carry full coverage on it (which is even more expensive). That’s why it’s best to buy used cars – cars you don’t have to take loans out for. I call these cars “cash cars,” cars you buy with cash.
When you buy cash cars, you can get by with carrying the cheapest insurance possible – liability – which allows for more savings (next point).
2. Buy liability
When you buy cars with cash, you have the freedom to carry cheaper insurance (liability). Here you will save a ton.
This is probably the single biggest saver when it comes to insurance costs, so I would strive to capitalize on it whenever possible. Doing so, will likely reduce your premiums by about $70 a month – which is pretty significant.
3. Shop around
We sometimes get comfortable with insurance providers and sit back while they increase our rates year after year (I’m guilty of this myself). But it’s good to know that you don’t have to do that. And if you decide to do something about it, you are going to find yourself saving even more money.
It literally takes seconds to go online and get a few quotes from other competitors, and you are almost guaranteed to find something cheaper.
The insurance business (like any business) is super competitive. A lot of other providers will offer several discounts and miscellaneous savings for new customers, hoping you might switch. You can almost guarantee a cheaper rate if you decide to shop around.
Granted, those discounts might go away when it comes time to renew, but then again they might not. All you have to do is ask, especially if you tell them you are thinking about switching again. If they’re a decent company, more than likely they’ll match (or beat) the competitor just to keep your business. And if they don’t, you can always go somewhere else. Like I said, the industry is super competitive, so use that to your advantage. Sit back and watch as the companies themselves drive the rates down for you, hoping you’ll choose them.
If you have multiple vehicles, a house, or some other item that needs insurance, you can bundle it all together under one provider to make it cheaper overall. That is what it means to “bundle.”
Some people use different insurance companies for many different things. And while that might make sense sometimes, most of the time it makes more sense to bundle them all together under one provider. You will save a lot more money that way.
5. Be a safe driver
Finally, just be a safe driver. Don’t drive like a moron. If you can avoid accidents, or at least avoid making a claim, your provider might offer even more savings.
This can work doubly in your favor. Not only will your premiums be cheaper because you’re accident free, but you might also get discounts, such as “claim free” and “safe driver.”
By driving safe and avoiding speeding tickets and accidents, you will save more on insurance, keeping premiums low and taking advantage of discounts.
If you’re like me, you will likely want to save money wherever you can. I would adopt this motto concerning car insurance (or any insurance for that matter): “Insurance is for having, not for using.” Might sound a bit odd, but hear me out.
If you endeavor to never use insurance, your insurance will not go up as a result of using it (or making a claim). If you do make a claim, your insurance is going to go up – plain and simple. So try not to use it; try not to make a claim. You can do this by being safe.
If you do end up in an accident, try to use the other person’s insurance instead of your own – this is why safe driving is so important. If you are being safe and paying attention, the other person will likely be at fault if you end up in an accident, so use their insurance.
That’s why I say, “Insurance is for having, not for using.”
Yes, you have insurance because you have to; it’s against the law not to. You have it in case you get into an accident, and it is your fault. You have it to protect you from having to pay thousands of dollars in damages, medical expenses, or other things. You have it because you have to; you don’t always have to use it, though.
Whenever you can, try to use the other person’s insurance.
Related: How to Save Money: 8 Simple Tips
Here’s a story of mine to illustrate
I made up my mind a long time ago to always buy “cash cars” (cars that you buy with cash, or write a check for) – to never have a car payment again.
One cash car in particular was a 2005 Mitsubishi Lancer (I bought it from my wife’s boss for $4000 cash).
I drove that car for about 6 years (or so) and carried liability insurance on it the entire time (I think insurance cost me about $30 a month).
One summer day when we were pulling into the neighborhood, a truck pulled out from a side street and crashed into the side of us. It wasn’t that bad because the truck had just pulled out from sitting still (not sure what he was doing exactly). But the damage was minimal, and no one was hurt (thankfully).
He was apologetic about the incident and admitted that it was his fault. I asked for his insurance information, and we went on our way.
After making the police report, I called his insurance company to file a claim (use his insurance, not yours).
As his insurance processed the claim, they had me take it to a service center to inspect and assess the damages. They gave me an estimate of what it would cost for the repairs, and this came out to about $3000 (remember, I bought the car for $4000 to begin with).
Once the claim was processed (this probably took a couple of weeks), they offered to write me a check for the damages (I could let the service center repair the damages, or I could take it else where to repair the damages). Since the car was still able to be driven, I was happy with just taking the check. And since I really didn’t care about driving a car that had a few dents and dings, I decided to go ahead and save the money instead and not get it fixed at all.
Not sure how many more years I drove it after that, but I know it was at least a few. And it was basically a $1000 car at that point (probably the best $1000 car ever). I was pretty thrilled about it.
I drove that car for years. It was cheap to begin with, but it was also cheap to operate. Liability insurance was only about $30 a month, and it was great on gas (about 30 miles per gallon). And when some guy crashed into me one day, I ended up getting $3000 for it. If you ask me, I call that winning.
Most people won’t drive a used and beat up car because they’re too proud. Not me. I’ll drive that car all day, especially if it saves me money.