Save Money by Using Your Tax Refund the Right Way
For a lot of Americans, February is the sweetest month. Not because of the chocolate-filled hearts, but because they get a fat income tax refund. The average tax refund in 2017 was close to $2,800.
Our data suggests that many people choose to purchase their car insurance in February, when they have a little extra cash. An outsize chunk — 9.8 percent — of Compare.com insurance customers in 2018 had a policy that expired in February.
But is buying insurance the smartest way to use your refund? And how can you make your money go further?
What if your tax refund hasn’t arrived?
According to our data, individuals with a lapse in coverage in 2018 payed 74% more annually for car insurance than those who had no lapse. If you’re waiting for your tax refund in order to renew your auto insurance, DO NOT LET YOUR POLICY LAPSE. If you can’t afford to renew your policy, compare cheap car insurance rates to find a policy that will look for you.
Why It’s a Good Idea to Buy Car Insurance With Your Refund
1. You can save a ton of money by paying in full for your insurance
Most insurance companies give big discounts when you pay up front for a six- or 12-month policy, which is a lot easier when you have a tax refund in hand. On average in 2018, customers pay 13% more when electing to pay monthly rather than in full.
Here’s an example. We compared car insurance quotes for a 27-year-old woman living in Tampa who has a good driving record and a seven-year-old Mazda. When she opted to pay month-to-month, the lowest rate she could find was $186 per month for a Basic-level, 12-month policy. When she chose to pay in full, her best quote was $948 for a six-month policy, which works out to $158 per month. That’s a savings of $28 each month.
2. You can protect yourself from an insurance lapse
When money’s tight, you have to choose which bills you’re going to pay. Car insurance seems like an easy one to drop, at least for a month or two. But a gap in coverage — even a brief one — can raise your rates substantially for years to come. That’s not even counting the fines or penalties your state might make you pay for letting your insurance lapse. Pay your car insurance bill when your tax refund comes in, and you don’t have to worry about a lapse.
3. It’ll ease your financial burden for the next few months
Many people throw their tax refund at their credit-card debt or other high-interest debt. It’s a smart decision — until they find themselves short the next month and have to pull out the credit card again. Paying your car insurance policy in full, on the other hand, can free up money (potentially $150 or more per month, if you’re like our hypothetical Tampa driver) that you can then use as needed or put toward an emergency fund.
Also, did you know that your car insurance premiums can be tax-deductible? If you use your car for your main job or secondary job (not just for commuting, though), you may be able to deduct your unreimbursed car insurance premiums.
How to Stretch Your Tax Refund When Buying Insurance
The revamped tax laws mean that your 2018 tax refund check might not match the amount you received in past years. Married filers with children could see a nice bump in their refunds, while single filers may get smaller amounts.
To find out how much you get back, you can try an online income tax refund calculator, like this one from H&R Block. Just be aware that these refund calculators ask for a lot of information, so you might be better off just filing your taxes.
No one’s going to complain about getting a bigger refund — but what if yours isn’t enough to cover your car insurance? We can help.
First, have you checked your car insurance quotes recently? Rates change all the time, and if you’ve been with the same insurance company for years, they’ve probably nudged up your premiums without you noticing. It’s always worth taking five minutes to comparison-shop online, just to see what different companies will offer you. The easiest way to do it is by visiting Compare.com. Enter some basic info and right away you’ll get free, personalized quotes from multiple insurers. Get your quotes.
Consider going with a car insurance company that’s not one of the big brands. Like every other industry, car insurance is seeing startups challenge the status quo by offering smarter, cheaper options. These disruptor brands include Clearcover, which allows you to do everything via mobile app; Metromile, which offers pay-per-mile car insurance; and Say Insurance, which lets you see your secret insurance score for free. Small, local insurers often offer very good deals as well.
Another effective way to lower your car insurance bill is to raise the collision/comprehensive deductible — the amount you contribute out of pocket when you make a claim. If you put part of your tax refund into your savings account or emergency fund, could you afford to increase your deductible? When you’re getting free quotes with our comparison tool, hit “Customize coverage” to see how much you’d pay with a $500 or $1,000 deductible.
Read more: How to Get Cheap Car Insurance Online
You got this! And if you’re wondering, “Where is my tax refund?” the IRS can help. Go to this IRS site or use the IRS2Go app. If you know your social security number, your filing status and your exact refund amount, you can find out the status of your 2018 tax refund anytime.