Avoid the Dangers of Lowering Car Insurance Costs

If you lower your car insurance coverage, you price for car insurance will go down, but you may not be protected if an accident occurs. Some discounts can save you up to $400 a year.

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Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Sep 15, 2020

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Here's what you need to know...

  • If you lower your coverage, your price for car insurance will go down
  • With lower coverage levels, you may not be adequately protected financially in the case of an accident
  • There are ways to reduce your payment without putting yourself at financial risk
  • Depending on the discount, you up save up to $400 a year on your insurance rates.

Car insurance is one of the biggest expenses associated with owning an automobile. For many drivers, the high cost of car insurance can present a major obstacle. Sometimes, it may seem like reducing the cost of car insurance is a necessity to balance your budget.

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Unfortunately, the trend is that car insurance costs are going up, not down. As the economy continues to be difficult for many Americans, lowering car insurance may seem like a viable option to save money.

Why Reduce Car Insurance Coverage?

There are several reasons that drivers may look to reduce their car insurance. Usually, they tie back to the amount of money that is spent on car insurance and a desire to save some cash.

The down economy has affected many Americans, and economic changes influence car insurance as well.

According to the National Association of Insurance Commissioners (NAIC) more than half of Americans have recently made changes that can influence the cost of their car insurance.

Additionally, some states are adding legislation that further raises the cost of auto insurance. States like New York and Florida require that drivers carry personal injury protection insurance in addition to liability insurance.

According to the Insurance Information Institute, mandating personal injury protection coverage can cause an increase in fraud that raises insurance prices for all drivers. In fact, it is estimated that up to 20 percent of all auto injury claims in some states are fraudulent.

Given all of these factors, it is no wonder that drivers are looking for ways to save money on car insurance! While reducing auto insurance coverage is one way to do so, it can come with some associated risks.

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Why You Shouldn’t Reduce Your Car Insurance Coverage

Of course, the main reason to reduce your car insurance coverage is to save money. But what if it ends up costing you even more? For many drivers, this is a very real possibility.

Reducing your car insurance may leave gaps in your coverage. In the event that you have an accident, your car is stolen or vandalized, or you need to make claim for some other reason, you need to have enough insurance to cover the damage.

If not you could be stuck paying out of pocket, sometimes as much as tens of thousands of dollars!

In such an event, saving a few dollars a month on your premium certainly doesn’t pay off. When you consider reducing your car insurance, you should carefully weigh the potential risks and benefits to make sure that you don’t end up spending more money in the long run.

Trying to reduce your car insurance could also sometimes, in rare cases, lead to an increase in your monthly payment.

If you haven’t refreshed your information with your insurer in quite some time, they may find factors such as a recent speeding ticket or a change in ZIP code, which warrant raising, not lowering your insurance.

This doesn’t mean that you shouldn’t try to reduce your car insurance.

In fact, it can be a smart way to save money every month. However, you should use research and careful planning to make sure that your decisions will not only reduce your premium but also protect you in the event of an accident.

What are some ways you can save money on insurance?

Read on to learn about four ways to reduce your car insurance and common mistakes to avoid.

#1 – Reduce Costs by Updating Your Information

Updating your information with your current insurer can be one of the quickest and easiest ways to save money on your car insurance policy. This is especially true if you have allowed your current policy to renew year after year without making changes.

Some of the factors that influence the cost of your car insurance policy include:

  • ZIP code where you live
  • Amount of miles that you drive
  • Number of years since your last accident or claim
  • Any speeding tickets or driving infractions on your record

If you haven’t been reviewing your policy with an agent each year, there is a chance that some of this important information isn’t being updated. This can cause your car insurance premium to be higher than it needs to be.

To rectify this, all you need to do is put in a call to your insurance company. Explain the situation and let them know that you are interested in reducing your monthly auto insurance payments.

They will probably ask you some questions to refresh your policy and see if there are any savings available based on your current information.

Of course, this method is not without drawbacks. As mentioned above, your insurance may actually rise, not fall.

You may not want to pursue this method if you have had any of the following:

  • recent accidents or speeding tickets
  • a recent move to a high crime area
  • a teenage driver added to your household
  • any other negative impact on your insurance profile

This method may also not have the scale of impact that drivers are hoping for when they seek to reduce car insurance. It is certainly possible to save some money by updating your information with your current insurer, but it is unlikely it will turn into huge savings.

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#2 – Reduce Costs by Changing Your Policy Type

Changing your auto insurance policy is one of the quickest and easiest ways to see a significant reduction in your car insurance bill. Unfortunately, it can also present the most danger of having insufficient coverage. This change should be carefully researched.

There are a few aspects of your auto insurance plan that you can change. For example, you could eliminate one of the coverage options, such as personal injury protection or comprehensive collision. This would have a major impact on your premium costs.

If you choose to do this, there are a few common mistakes you should avoid. First, make sure that you are still meeting your state’s minimum requirements for insurance coverage.

Coverage such as personal injury protection is optional in some states and mandatory in others. To find out your state’s specific requirements, visit the NAIC’s map and select your state to read about insurance regulations.

If you reduce your coverage options, you will also want to make sure that you don’t eliminate necessary coverage, thus putting your finances in danger.

For example, comprehensive collision is a fairly basic coverage that is often used. If you have an accident after eliminating this coverage, you may end up paying a lot more out-of-pocket than you are saving every month.

#3 – Lower Costs by Changing Coverage Levels

Another method of reducing your car insurance is to change the level of coverage that you carry. By doing so, you will still carry the same policy type but will lower the dollar cap that you are insured for.

For example, if you currently have up to $500,000 in collision coverage, you could lower this to $250,000. This type of change would maintain your coverage but would lower costs because the insurer would be liable for less money in the case of an accident.

This can be an effective way to lower your monthly bills without dropping coverage. However, be sure that you are still sufficiently covered so that if you have an accident, you are unlikely to exceed your coverage limit.

If you do, you could again be held responsible for a lot more money than you saved by lowering your coverage amount. Talk to an insurance expert, such as an independent agent, to help you determine the right coverage level for your unique circumstances.

#4 – Reduce Costs by Finding a New Insurer

Finally, one of the most effective ways to reduce your car insurance is to shop for a new insurance company. This may be a way to maintain or even increase your current coverage level and still pay less for your policy.

You may be able to find an insurer that is a better match for your needs at a lower price by doing some research and shopping around.

There is a lot of competition in the auto insurance market, and many companies are eager to win your business.

It is important, however, that you avoid evaluating an insurer solely on price. If a quote seems too good to be true, it probably is!

Investigate any new potential insurer with the Better Business Bureau in your state to see if there have been consumer complaints lodged against them. This can give you a sense of customer satisfaction with the company.

Compare several quotes from different insurers to guarantee you’ll get the best deal. This is easy to do with a car insurance quotes comparison site. You can get started today and ensure that you will reduce your car insurance costs while still maintaining appropriate coverage!

Type in your ZIP code now in the FREE search box to get car insurance quotes near you.

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