Insurance Costs and the Age of Coronavirus

Due to the COVID-19 pandemic, and aside from the obvious concerns around health, many people are feeling the stress of their personal finances as they look for ways to reduce their bills and save money during this period of uncertainty. One such area of savings could come from the reduction of auto insurance premiums. 

Insurance costs in the age of coronavirus

Since most American households have at least one vehicle, this is a cost that virtually everyone has to include in their monthly budget. But with the unemployment rate currently at over 10 percent and millions of people working from home due to office closures and stay-at-home orders, the time spent driving on the road has fallen off drastically. According to Arity, a mobility data analytics company, and reported by NPR, some states saw mileage drops of more than 60 percent when the pandemic first began. 

Although miles driven are steadily increasing around the country, they are still well below normal levels. With less vehicles driving less miles on the road, there are far fewer accidents these days, which means insurance companies are paying fewer claims. When claims drop, so do premiums. Some insurance companies are passing this savings down to customers in the form of lower premiums and rebates. But even after COVID-related premium reductions, many drivers may still be overpaying for auto insurance. 

Although the insurance rates themselves are not negotiable as they are based on each company’s actuarial formulas factoring criteria such as age, geography, driving history, and credit score, there are several proactive steps car owners can take to lower their monthly car insurance costs.

Shop and Compare

The most simple and basic way to save on car insurance is to compare premiums between insurance companies to find the cheapest rates. A simple apples-to-apples comparison of similar coverage will tell you if it is time to change to a new provider. But before you cancel your current policy, make sure there are no penalties or excess fees for early termination. Also, keep in mind, you are entitled to any unused premium during your policy term.

Mileage Tiers

The less you drive, the less your insurance premiums will be. But how much savings depends on your individual insurance company and the state you live in. 

Each insurer has different price breaks at different mileage tiers. Many will give a discount if you are driving below 7,500 miles annually. The next major break is often found at 5,000 miles. And some insurance companies will offer further discounts if driving falls off to less than 2,500 miles per year. 

But again, these are basic guidelines. The exact mileage tiers and price breaks vary with each company. Call your insurer to see what they can offer you, especially if you are now working from home due to COVID-19 and your commute has been eliminated.

Increase Your Deductibles

One of the fastest and most effective way to decrease insurance premiums is to opt for a higher deductible. The deductible is the out-of-pocket cost you pay in the event of an accident and it generally ranges from zero to $2,500. The higher the deductible amount, the less money an insurance company must pay out when damage occurs to a vehicle. And the less money an insurance company must pay, the lower the premium for the car owner. It is that simple. The key here is to select the highest deductible amount you are comfortable with paying should a situation arise.

Over-Coverage

If you have a leased vehicle or a vehicle loan that you are paying on, having full coverage is necessary to protect you against loss. And, in many cases, it is required by law. But if you own your vehicle outright and it has a value of $3,000 or less, you may want to consider removing comprehensive and collision coverage. Carrying only liability and uninsured motorist protection could save you hundreds of dollars annually, if not more.

Bundle Up

In many cases, your car insurance company also provides other kinds of policies: home, life, renters, boat, RV, etc. If you have these other kinds of coverages, check to see if your insurer offers discounts for bundling various policies under one account. Many auto insurance companies also bundle vehicles with multi-car discounts. Find out if you qualify for bundle discounts and if you have different policies with different insurers, it may be financially beneficial to bring them all together under one provider.

Other Discounts

Besides bundle discounts, most insurance companies will offer lower premiums for good drivers who have no accidents or tickets in a given period. Taking a defensive driving course might also make you eligible for a good driver discount.

Other commonly offered discounts are for good students, anti-theft devices, green vehicles, affiliation to a professional association, and direct recurring bill pay. Different insurance companies and states offer different discounts, but the only way to know is to contact your insurance provider and ask.

Handling Hardships

When you are undergoing COVID-related hardships such as loss of job, your insurance company will likely have options for financial assistance. 

It is a good idea to call and let your auto insurance provider know your situation and the difficulties you are facing. They may be able to offer relief through a payment plan that suits your newly constrained household budget. The insurance company may also offer longer grace periods that allow you several weeks to make your payment without having your policy cancelled. 

Another request you can make is for your insurance company to forgive any penalties due to recently missed payments. These fees can add up fast and are sometimes very difficult to catch up on.

Suspension or Cancellation

Suspending or cancelling your auto insurance should only be done as a last resort to save money. 

Insurance companies might allow you to suspend a policy for a period of time by paying a Planned Non-Operation (PNO) vehicle fee if you are currently not driving at all. This could potentially make sense for a family with multiple cars that is now only driving one of their vehicles because they are all at home. But when you suspend a policy, it means the liability insurance is no longer in force, so you cannot legally drive the vehicle for any reason. Also, keep in mind that damage can occur even when a vehicle is parked. If your car gets stolen or is struck in a hit and run accident while suspended, you will be fully responsible for the repairs or replacement.

If you cancel your auto insurance altogether, all of the same parameters of policy suspension apply with one additional disadvantage: the car owner will have a gap in insurance coverage, which is looked at as negative by insurance providers. When reinstating the policy or purchasing a new one from another company, the car owner may be subject to higher rates.

Generally speaking, suspending or cancelling an auto policy is not a recommended practice due to the risks and the potential for higher premiums in the future.