A car is one of the most expensive things you can ever own. Not only do you have to buy the car, you've got to then fill it up with gas the more you drive. Then add on the costs of tickets, parking, maintenance, paying to fix your car after accidents, and the ongoing cost of insurance! With so many expenses, it's crucial to drive safely and save on car insurance.
If you're not following my 1/10th rule for car buying, I'm afraid you are hurting your finances and going to have to work longer than you need to or want to. Be smart with how you spend your money so each dollar can go farther. After all, the biggest cost of owning a car is opportunity cost.
This article will give you tips on saving money on car insurance. I've owned and operated a vehicle since 1995. Further, as a Financial Samurai, I've been able to reduce my car insurance premiums tremendously over time.
Factors For Car Insurance Cost
The main factors for car insurance cost are whether you get liability-only coverage (covers the other vehicle, but not you) or comprehensive (covers both), and the level of your deductible. The higher your deductible, the lower your car insurance premiums.
But here are some other factors that determine car insurance cost.
Who You Get Your Insurance From
The most expensive way to get car insurance is through a car insurance agent. S/he will charge a commission for their service.
This is why I recommend going online to get free car insurance quotes. The best place is Allstate. They have the most competitive quotes on the web in my opinion.
The Car You Drive
If you drive an expensive car, a fast car, or a car that is one of the most broken into cars, your car insurance will be higher than average.
Below is a picture of a Porsche GT, which costs $500,000. I saw the car spin out because he was going 65 mph in a 25 mph zone. It's going to probably cost at least $50,000 to fix his car. No wonder why he's sitting on the ground crying!
How You Drive
If you have a history of speeding tickets and accidents over a 6 – 24 month period, your car insurance will go up until the tickets and accidents drop off your record.
Drive slow and try not to get into any accidents! You can get a good driver's discount and save on car insurance that way.
How To Lower Your Car Insurance
Here are the main ways to lower your car insurance.
1) Shop Around
Always shop around and never settle for the first quote you can get. After going on Allstate, you should go on other websites and check their rates. After you get at least two quotes, you can make a much more informed decision. See if you can get your favorite carrier to match the better rate too.
You should also look at insurance companies that offer multiple products, such as life insurance, property insurance, and car insurance. If you can be a multi-product client, you might get a lower rate.
2) Examine your policy for excess
You might be paying for a policy you don't need. For example, what's the point of paying for comprehensive insurance at a 3X higher cost than liability only coverage when your car is only worth $5,000 or less?
You might be paying for other things you don't need, like roadside assistance or supplemental insurance. Or, you might have a deductible that's way too low, causing your premiums to be uncomfortably high. Examine your policy for excess.
3) You're driving way too much car
Like I said in the beginning, if you're paid much more than 1/10th your annual gross income on a car, you're not optimizing your finances.
Driving a Porsche 911 is nice, but you're going to pay out the wazoo for car insurance. Most sports car drivers hardly ever drive their cars at all, which makes their car insurance even more expensive on a per miles driven basis. You should check out Metromile as another car insurance option if you are a low mileage driver.
If you want to save money on your car insurance, buy a more modest car like a Honda Civic, Honda Accord, Toyota Camry, or Toyota Corolla. They aren't the most exciting cars, but they are great value and won't cost a fortune in car insurance.
4) Drive better please
There are over 40,000 automotive deaths a year in America. The reason? Reckless driving, distracted driving, and drunk driving. If you value your money and your life, please drive the speed limit and focus on the road without alcohol in your body.
If you must use a GPS, install a phone holder so you are hands free. My friend died in a car accident at age 15. He was the coolest kid I knew with a tremendous future that was cut way short.
One speeding ticket can boost your monthly premium by 20%. Two speeding tickets within a 6-24 month window can boost your monthly premium by 60%. Slow down and drive defensively!
5) Be a Financial Samurai
Financial Samurais have credit scores of 760 or higher. A high credit score can lower your car insurance premium, lower your car loan interest rate, lower your student loan interest rate, and lower your, mortgage interest rate. Did you know that average credit score for an approved mortgage is 760 nowadays?
Make sure that you pay all of your bills on time. Also avoid applying for too much credit too quickly. A good cadence is one credit card or line of credit every 6 months. Using a rewards credit card is a great way to build your credit score. Just take it slow and easy.
6) Ask for Discounts
The best way to get a discount is to ask. It's the same way with asking for a lower interest rate on your credit card or having your credit card wave the late payment fee.
Insurance companies will offer a number of different discounts, whether it is for good driving behavior, new sign-up, security devices, and so on. Always ask which discounts you might be eligible for to see which discounts are available from a given insurance company.
7) Bundle Up
If you have other policies such as property insurance or health insurance, it might pay to bundle them up. The more products you have with one company, the likely greater your discounts.
8) Increase Your Deductible
The lower the deductible you’re liable to pay, the higher your premium will be. Consider raising your deductible to $1,000 or greater if you want lower monthly premiums. If you do so, drive safer to avoid any accidents.
Save On Car Insurance Today
Everyone needs to at least have liability coverage. It's a legal requirement to drive and the cheapest option.
Get the right amount of car insurance to match your car, your driving frequency, your driving style, and your budget.
Hopefully this article has informed you of how to save on car insurance. Your first step is to get a free quote online from a company like Allstate. Once you have a free quote, you can play around with the options and shop around.
About the author: Sam worked in investment banking for 13 years at GS and CS. He received his undergraduate degree in Economics from The College of William & Mary and got his MBA from UC Berkeley. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $250,000 a year in passive income. He spends most of his time playing tennis, traveling, and taking care of his family.
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