With a new wave of coronavirus lock-downs looming, many of us could again be stuck at home — and overpaying for car insurance. The good news is you don’t have to wait for handouts from insurance companies to cut your bill.
There are plenty of ways to deliver significant savings, although most come with risks, too. And as stay-at-home orders return, it’s possible car owners will have their car insurance costs drop automatically, with no work required. As happened in the spring, renewed shutdowns may lead insurers to pass along to customers what they’re saving from reduced driving, fewer crashes, and less money spent on claims.
But those savings could be slim — they totaled only $50 or so in the spring. That's a tiny chunk of the $1,500 a year Americans are spending on average to insure a car, according to The Zebra. You’ll likely realize greater savings by actively taking steps to pare back your premiums, at least for a while.
Read on for five ways to do that. We’ve listed them in rough order of desirability, from best to worst, based on risk, reward, and the potential hassle of making them happen.
Increase your deductible
If you’re like most drivers, you’re on the hook for the first $500 of the cost of any claim you submit under your auto insurance. Increasing that amount ups the financial hit should you in fact have an accident for which you claim. But it can also reduce your premiums to the tune of hundreds of dollars per year.
Only some parts of your insurance are governed by a deductible, most notably your collision and comprehensive coverage, according to the Insurance Information Institute. After the deductible is met, this coverage takes care of damage to your car from colliding with another object (collision) or from theft, inclement weather, falling objects, fire, vandalism, or collision with animals (comprehensive).
Upping your deductible can cut premiums for so-called “C&C” substantially, especially if your deductible is low to begin with. For instance, price examples from Progressive show that boosting a deductible from $250 to the more customary $500 could save around $150 a year. Moving the deductible from $500 to $1,000 would save about $125.
As with most other features of your policy, your deductible can be changed instantly, in a phone call to the company or its agent, and stay in effect for only as long as you want, after which another can restore it to the original amount. So if, say, you decided to increase your deductible during a three-month lockdown, you might save $40 or so in premiums for no more than 20 minutes of work.
However, reflect for at least a moment before picking up the phone. Accidents happen, lockdowns or not, and you should be ready and able to pay a bigger chunk of repair costs should your car be damaged. As online insurer Insuramatch recommends, “Never raise your deductible higher than your bank account can comfortably handle in the case of an incident.”
Eliminate optional coverage
There’s more to save — along with potentially higher risk — if you outright cancel coverage that isn’t required by law, such as collision and comprehensive. But dropping one or both may make sense, especially if you expect to drive minimally during a lockdown, and if you own an older car.
And by own here, we mean own outright. If you drive a car that’s financed, “you may be required to purchase both collision and comprehensive coverage” by the lender, the Insurance Information Institute warns. And dropping these policies for a car valued in the tens of thousands of dollars would almost certainly violate the rule of thumb noted above for increased deductibles: to avoid changes that would leave you unable to cover a catastrophe with what’s in your bank account.
For an older car, though, dropping one of both of these policies can make financial sense, and not necessarily only in a pandemic. While rates vary widely by state, the average combined premiums for “C&C'' coverage are about $425 a year, according to the Insurance Information Institute. Consumer Reports is among the expert sources that recommend dropping “collision and/or comprehensive [coverage] when the annual premium equals or exceeds 10% of your car’s cash value.” Using that measure, and assuming you pay average premiums, you might consider dropping C&C coverage if your car is worth less than about $4,500.
Comprehensive coverage is about half as costly as collision, though. It might make sense during lockdown to keep comprehensive even as you drop collision coverage. A car that’s mostly parked in your driveway during lockdown may still be vulnerable to theft, for example, or damage from falling tree limbs. Being protected against those and other calamities might justify continuing to spend the $20 or less a month comprehensive coverage typically costs.
Temporarily pause your insurance
This is a way to preserve your auto-insurance policy by putting it on hold until you’re ready to drive again. That’s a lot less risky than canceling the policy entirely, which could pose additional issues with both the insurance company and state regulators.
But pausing your coverage has its own problems. For one, as online insurance marketplace Policygenius points out, not all insurers allow such pauses. And when they do, they may well allow only the liability to be dropped.
But for liability coverage to be suspended, the vehicle may need to be put into storage, whether in a garage or long-term storage facility, and comprehensive coverage may need to be continued, in order to preserve at least part of the policy. That makes this option essentially a partial pause, then.
Also, in contrast to some other cost-saving options, you’ll be prevented from driving at all. To drive a car without liability leaves you financially unprotected against any mishap that may damage others. In most states, it's also against the law, according to online insurance marketplace The Zebra.
But there are still more potential complications to such a pause, according to Policygenius. You may need to file an “affidavit of non-use" with your state’s DMV, attesting that your vehicle will not be operated for an extended period of time. In New York State, you also need to return to the agency the plates of any car for which liability coverage is suspended. And drivers who’ve financed or leased their cars may need to consult with their lienholders or lessors before suspending their liability coverage.
Reduce Liability Coverage
Chances are the liability coverage on your policy covers you against injuring others or their property in a crash to the tune of hundreds of thousands of dollars. That’s far more than the mandated state minimums for liability, which are in the tens of thousands of dollars.
However, those mandated levels fall far short of the minimum of $100,000 per person and $300,000 per accident that most experts recommend, according to insurance broker National General. And a price analysis by The Zebra shows that reducing liability coverage to state levels will typically save no more than $10 or $15 a month. That’s a modest return given the potentially high stakes of lower protection in an accident.
Cancel the insurance outright
This is the most lucrative way to cut insurance costs in the short term. In the long run, though, the move might cost you as much or more as you save.
Canceling a car’s insurance while you still own it risks black marks with both insurers and regulators. According to Policygenius, “if you cancel your car insurance while you still have a car, future insurers will see that you had a lapse in coverage, which can raise your rates.” And Clearsurance, another online insurance vendor, adds that “if you go too long without insurance coverage, your new insurers may see you as a “‘risk taker,’ which could increase your rates.”
As with pausing coverage, cancellation may mean you may need to file an “affidavit of non-use,” notifying your state’s DMV that your vehicle will not be operated for an extended period of time, and perhaps even return the car’s plates to the agency. And drivers who’ve financed or leased their cars may need to consult with their lienholders or lessors before suspending their liability coverage.
Finally, fees might offset your savings, according to Clearsurance. Although some of the nation’s largest car insurance companies (including State Farm, Geico, Allstate, Progressive and Farmers), don’t charge a cancellation fee if you decide to cancel mid-policy, the site says, other companies may impose one. Check with your insurer about such penalties before pulling the plug on your auto insurance.