Why You Should Shop for Car Insurance When Buying a New (or Used) Car
While no one enjoys paying monthly car insurance premiums, the safety and security that come with quality insurance coverage for your vehicle and its passengers are well worth the investment. From accidents to inclement weather, you can’t anticipate everything that might happen when you are out on the road. That’s why a good car insurance package is a must for every new car owner.
But don’t be too hasty when choosing your car insurance provider and package. Even though many drivers just want to make a quick choice to get on the road quickly, taking the time to shop for different insurance packages and compare rates can save you tons of money in the long run. And with car insurance comparison sites like Compare.com, it only takes a few minutes!
But how do you choose the right car insurance company for your new vehicle? What questions should you ask as you consider different companies and the packages they offer? Let’s run through some of the most important things to know about comparing car insurance rates, and give you the tools to choose the best package for your budget, your safety, and your peace-of-mind.
Why is shopping for car insurance after buying a car (or before) a good idea?
The simplest reason for shopping for car insurance before you buy a car is to make sure you have protection and coverage as soon as you drive your new car off the lot. Because the value of your car will never be greater than it is on the day you buy it, if something unfortunate should happen, insurance is more important than any time later in the car’s life to make sure you receive a payout that covers the true value of your car in the case of an accident.
Similarly, while temporary insurance is offered by many car dealerships to allow you to take your vehicle home that day, dealers often work with favored insurance agents – agents who may be offering much higher rates than you could expect from comparing providers and choosing the right coverage for you.
Another reason to shop for car insurance even before you purchase a car is that the specific car you buy can have an effect on the rates you can expect. For example, sports cars or similar models that are often associated with high-speed driving (or riskier driving, even if you don’t drive that way) often command higher premiums from insurance companies.
While you may have your eye set on a specific model, you don’t want to be surprised by costly monthly payments that might be required just to keep the car safely on the road. That’s why it’s always smart to do some comparison shopping to get an idea of what you’ll end up paying for your new (or new-to-you) vehicle before you decide to purchase.
What key factors affect your car insurance rate?
The first thing to remember when shopping for car insurance is that rates are determined by a number of factors. Your rates can change based on driving records, a newly purchased vehicle and its condition, and even economic and cultural changes (for example, rates dropped significantly during the COVID-19 pandemic as many people stayed home and the roads were much emptier than usual).
- Driving record/history – Since insurance coverage is largely priced according to risk, drivers with a history of accidents or traffic tickets can expect significantly higher rates than drivers with a spotless record.
- Credit history – You may be surprised to learn that your credit history plays a significant role in raising or lowering your monthly rate. Lower credit scores can add hundreds of dollars to your yearly insurance premium.
- Occupation and location – Insurance companies often factor in the area you drive (for example, urban centers tend to command higher rates due to the increased risks on congested roads), as well as your occupation.
- Previously paid claims – Insurance companies want to avoid paying claims if possible, which keeps monthly premiums in their pocket. If you have previous insurance payouts, these also will factor into a quote you are getting from a new provider.
- Age and gender – Statistics have shown that young men are at significantly higher risk for accidents (and thus, claim payouts) than other demographics. Depending on your age and gender, you may be in a higher-risk group and thus receive a higher rate.
- Vehicle conditions – This one is pretty simple. Older cars are less likely to have modern safety features and more likely to have mechanical troubles due to increased usage. Newer cars tend to receive better rates than used vehicles, especially ones with a previous history of issues.
While you can’t control for all of these factors, knowing where you stand in each category can better prepare you for what to expect when you shop for coverage. Remember also that state laws affect what statistics insurance companies can use to measure your risk as a potential client – rates in certain states can be more affected than others in different categories.
What Else Should You Know When You Are Comparing Car Insurance Quotes?
There are a number of other factors that also go into the rise and fall of car insurance rates. These have less to do with you and your vehicle, and more to do with research-backed trends and incentives for car insurance providers.
Insurance Providers Offer Better Deals to “New” Clients
While you may have had car insurance previously, if you haven’t used a particular insurance provider before, you are treated as a “new customer” in their eyes. Companies often pitch better rates and deals to new customers, since capturing your long-term business is ideal for them. This not only means the option for six-month packages (as opposed to the standard year-long term) but also is a reason you should compare rates every six months. You may be able to snag a better rate at a different company where you’d still be “new”.
Your Vehicle Loses Value Over Time, With More Use
It’s pretty well known that even new cars lose value almost immediately after they are driven out of the dealership. Quite simply, the older your vehicle is and the more miles it’s been driven, the less it’s worth. This relationship between wear and tear and decreased value is known as depreciation, but it’s important to remember that as your vehicle loses value, you should be able to get a better deal on monthly rates!
So, the less your car is worth, the less it costs a company to cover it (and the lower the claim payout in the event of an accident). Why is this important? Because if you are paying the same rate you did when you purchased a new vehicle two years later, you are being charged a higher rate than you should be, and this might be the perfect time to hunt for a newer, lower rate that matches your vehicle’s true worth.
The Longer Your Coverage History, The Better
While first-time car owners and drivers simply don’t have a proven history for insurance providers to consider, if you have maintained coverage for more than six months, companies consider you a lower risk bet. This naturally leads to lower rates, since companies can see you’ve made on-time payments or don’t have a history of frequent insurance claims. Often, companies will offer loyalty and long-term discounts and deals to reward trusted clients. As you compare insurance providers, it’s worth looking into what kind of long-term perks you can expect.
State Requirements Change Every Year, And Rates Change With Them
If you just moved to a new state, it’s worth taking some time to do some homework and learn the differences in state law around insurance requirements. To give an example of how different states treat auto insurance, New Hampshire has no auto insurance mandate, while a state like California requires drivers to have a minimum insurance coverage that includes $15,000 bodily injury liability per person, $30,000 bodily injury liability per accident, and $5,000 property damage liability per accident.
Aside from the changes in rates that happen depending on where you are, shifts in state law can also change rates even if you haven’t moved. It’s worth keeping up to date on any new insurance laws that are upcoming where you live – it may be worth waiting a month or two if a law that decreases minimum liability is coming up, since insurance companies will adjust rates after that type of law passes.
Life Events Can Significantly Change Your Rates From The Last Time You Shopped For Coverage
A variety of life events, from marriage to adding a teenage driver to your policy, can all affect insurance rates that were seemingly stable at the beginning of your last six or twelve-month term.
Insurance companies often calculate risks and rates based on a variety of patterns and trends. For example, different ZIP codes that may be right next to each other could have significantly different rates of vehicle incidents that might have you paying more or less than someone just a few miles away.
Similarly, insurance companies often cite that married people tend to have fewer vehicle-related incidents, which leads to cheaper rates. New educational achievements (like graduating from college), a new job that requires less commuting, and changes in driving patterns in your area all can shift rates quickly. What does this mean for you? If you expect a significant life event in the near future, it may be worth choosing a short-term plan to avoid committing yourself to a higher rate that you could avoid after the life event happens.
While There Are Big Names In Insurance, New Insurance Providers Pop Up Frequently
If you haven’t shopped for car insurance in over six months, new insurance companies may have cropped up. Because new insurance companies are at a disadvantage compared to big established brands like GEICO or Allstate, these companies often offer competitive rates and benefits to try and bring in new customers.
If you only have a month or two before your current auto insurance policy expires, or you are getting ready to buy a new car soon, looking for new insurance companies now is a good way to find out if there are some companies offering better rates to compete with the big boys.
While most drivers flock to the big name insurance companies, many times, one of the smaller, lesser-known names is a better option, especially if you don’t have a perfect driving record.
The Best Way To Save Money On Car Insurance Is To Keep Shopping And Comparing, Even After You Settle On A Provider
Because of all of these factors listed above, you should never think of yourself as “finished” with choosing an auto insurance provider. Savvy drivers learn quickly that comparing auto insurance rates a month or two before the end of an existing term can save you hundreds and even thousands of dollars over the course of your time as a driver.
Remember, even a discount of $20 per month is a few hundred bucks back in your pocket at the end of the year. So the best reason why you should shop for car insurance after buying a car is quite simple – the more you shop and compare, the more you save.