How to Save Money on Your Car Insurance
3 Ways to Spend Less Every Month on Car Insurance
Thinking you could save more money on your car insurance each month? You’re in the right place.
You see the commercials. You know some of the taglines.
“15 minutes could save you 15% or more”
“Are you in good hands?”
“Liberty, Liberty, Liberty” (extra points if you just sang this in your head)
You probably also get pieces of mail from them all the time.
Car insurance companies really want your business, and they’re spending a fortune every year to get it. GEICO spends about 1.6 billion dollars per year on advertising. That’s Billion…with a B. Progressive is also over 1 billion dollars spent in advertising. These companies are willing to pay a lot of money for your attention, but why?
Car insurance companies want to make money off of you. It’s pretty simple. They want you to sign up for an insurance plan and pay them every single month to feel the sense of security that comes with having the right insurance. They also hope you never get into an accident because then they never have to give you anything in return.
Does that seem fair? You pay them every single month and if you never crash your vehicle they never have to give you anything at all.
Unfortunately, that’s how the system works. You need to have insurance to drive a vehicle. We’re not going to be able to change a system like this overnight just because we think insurance companies are taking our money. So what can we do to save money on car insurance?
Don’t Get a Car
I know, I know. This has less to do with the insurance aspect, but that’s the way I think. If money is getting sucked from your account, why not go to the source?
Some things to consider when looking at the decision to own a car:
Do you live in a city with great public transit?
Some cities, like New York City, cost a fortune just to find parking for your car. And at the end of the day, you’re probably walking or taking the subway to 90% of your daily activities. The other 10% you can take a rideshare like Uber or Lyft and never have to think about parking, gas, upkeep, or insurance.
Is it really worth it?
Let’s say you purchase a car for $25,000. You take a loan and agree to pay it off in 5 years at 3.11% interest. This makes your monthly payment $450 over the next 5 years. You fill your gas tank every two weeks which costs $30 per time on average taking the total to $60 per month for gas. You then get your insurance which is going to cost you another $250 per month.
Now you may need to pay for parking. Let’s say your apartment building charges $100 per month for parking. Your car is now costing you $860 per month while your car is decreasing in value every time you take it for a drive. $860 per month comes out to $10,320 per year.
Now let’s say you decide to walk, take public transit, or ride share services. You would have to spend $28.66 every single day in a 30-day month to spend $860 on transportation. Could you take a bus to work for $2? Could you take a subway for $1.50? Would it be possible for you to take an Uber or Lyft to and from work every day for $8 each way? These are questions you should ask before diving into that decision of owning a car.
The other key piece of this is if you end up having to fix something on your car that doesn’t have to do with an accident, that money is coming out of your pocket. You are in charge of the $60 oil change every 3 months, you are in charge of getting new tires every few years, you are in charge of changing dirty air filters and dead batteries.
Maybe the convenience of having a car is worth it to you. But you may be better off financially staying away from owning a vehicle all-together.
Don’t Get Ripped Off
Just like you might search for a good deal when shopping for clothes online, you can do the same thing when shopping for car insurance. The goal here is to be patient and get the best deal you can.
Car insurance is a fixed expense – meaning you will pay the same amount for your insurance every single month. If you get a great deal on your insurance, you will be saving yourself money every single month without any extra effort. This is the type of saving I believe in. Do more work upfront to set yourself up for success, then relax and enjoy the benefits of your effort as your money adds up over time.
When people tell you to “shop around” for a great deal on car insurance, this is what they mean:
- Go to the top insurance sites and type in all of your information to get an online quote
- I’d recommend GEICO, Progressive, State Farm, Allstate, and Liberty Mutual
- Write down the price and coverage of each quote
- Compare the quotes and make the best decision
Again, this takes a bit of work upfront to get quotes from 5 different companies, but it will be worth it over time as you save hundreds of dollars each month because of your due diligence.
Improve Your Credit
While a credit score simply shows how good you are at paying off debt, the sad truth is that it is necessary when trying to get the best rates on things like insurance. Your credit score will affect your insurance costs. Some financial experts like Dave Ramsey or Anthony O’Neil will tell you that you don’t need a credit score at all. It would be nice if this were true. In our current society, this is yet another example of a time when your credit score will have an impact on what you get approved for – in this case, an insurance policy that costs you less money. Keep your credit score up by:
- Making all loan payments on time
- Keep a small number of credit cards – don’t apply for more if you don’t need them
- Do your best to keep your balances well below your credit limits
I recommend using a credit card and setting up automatic payments so it is fully paid off each and every month. But I dive deeper into that in other blogs/videos.
These are just a few things to consider when looking for car insurance. And once you are saving a lot more money, click here to read about how to start investing it. I hope you found this blog helpful. If you have other tips or tricks to saving money on car insurance, please leave them in the comments below.
—
As always, if you found this helpful be sure to subscribe to the Teaching You Money YouTube channel or sign up for our weekly newsletter.
