Four Ways to Save Money on Car Insurance as Rates Rise

Drivers who have been complaining about high gas prices can now shift gears and gripe about car-insurance rates instead.

While the average cost of a gallon dropped about 26% since June, car-insurance premiums have risen 8.3% on average compared with a year ago, according to S&P Global Market Intelligence. Inflation is only partly to blame.

More Americans are driving more miles again compared with during the height of the pandemic, leading to a higher rate of serious crashes, fender benders and road rage, said Dale Porfilio, chief insurance officer at the Insurance Information Institute, an industry trade group, also known as Triple-I. Car-related crime is also up, including the theft of valuable parts such as catalytic converters. According to the National Insurance Crime Bureau, a nonprofit focused on fighting insurance fraud and crime, 932,329 vehicles were reported stolen in 2021, a 17% increase since 2019.

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These factors, coupled with rising prices for new and used cars, have sent the average annual cost of car insurance to $1,771, according to Bankrate. And premiums are expected to rise another 5% to 10% in 2023, Triple-I estimates.

Driving those premium increases are higher costs for replacement parts, labor and the evolving technological sophistication, which makes repairs of new vehicles more expensive, Mr. Porfilio said.

Auto insurers use several factors, many beyond a driver’s control, to set rates. Because of higher rates of vandalism, theft and accidents, city drivers typically pay higher rates than those in small towns or rural areas, he said.

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The most expensive states for car insurance are Louisiana, where drivers pay $2,986 a year on average, Florida ($2,775) and Nevada ($2,489), according to a recent analysis by NerdWallet Inc. The cheapest states are Idaho ($1,027), Ohio ($1,066) and Vermont ($1,074).

You can lower your insurance rate whether you are shopping to insure a new vehicle or seeking a cheaper option when your policy is up for renewal. Here are four moves to consider:

Reduce Your Coverage

Before the pandemic, owners of older vehicles typically dropped collision and comprehensive coverage after about six years. But since the pandemic, used vehicles have surged in price, so owners need to be more cautious about when to forgo these options, Mr. Porfilio said.

A good rule of thumb is to multiply your older car’s insurance premium by 10. If that number is more than the value of the car itself, collision or comprehensive coverage might not be worth it, according to Triple-I. For example, a 2013 Honda Pilot has a trade-in value of $7,691, according to Kelley Blue Book. If you were quoted an annual premium of $1,000, you might want to pass on comprehensive coverage.

Chris Diodato says he recently waived collision and comprehensive coverage on his 15-year-old 2008 Hyundai Sonata, saving about $600 a year. The financial planner in Palm Beach Gardens, Fla., said his car’s estimated trade-in value is less than $2,000, so he thought it made financial sense to waive the extra coverage.

Raise Your Deductible

If you have a lower deductible, say $250, a solid emergency fund, call your insurer to find out how much raising your deductible would reduce your rate, said Lauren Lindsay, a financial planner in Houston. A deductible is the amount you pay for repairs before your insurance kicks in.

A client of Ms. Lindsay saved $480 a year on premiums by increasing the deductible from $500 to $2,500. The client opted for this since her two sons are grown, with their own car insurance. The client also has about six months of expenses saved in an emergency fund.

Ms. Lindsay suggests saving at least three months of expenses in an emergency fund before pursuing this option.

Shop Around, Demand Discounts

Get at least three quotes from insurers before signing onto a policy, according to AAA.

Steve Sivak, a financial planner in Pittsburgh, tells his clients to spend two hours every year shopping around, which he said typically lands them a cheaper option.

Jim Ciprich, a father of two from Florham Park, N.J., shaved about 5% off his insurance after taking advantage of his carrier’s “good student” discount by sending his agent a copy of his elder daughter’s grades twice a year. Most carriers that offer the good student discount require a B or better average.

When his same daughter started college this fall, he qualified for an “away at school” discount, since she didn’t have a car on campus, saving him about $157 a year.

Some insurers will give you a discount if you purchase two or more types of insurance from them—such as homeowners and auto—or have more than one vehicle insured, said Mr. Porfilio.

Share Driving Data

Putting a device in your car or using a smartphone app that tracks behavior on the road can also reduce premiums.

Most big insurers including Progressive Corp., Allstate Corp., Nationwide, Farmers Insurance Group and USAA now offer programs that log behaviors such as hard braking, fast acceleration and idle time. Participation in usage-based insurance programs, which rely on technology to monitor driving habits and assign risk, has doubled since 2016, with 16% of auto-insurance customers enrolling in such initiatives, according to a recent survey by J.D. Power.

The safer you drive, the more you are likely to save, said Cate Deventer, insurance analyst at Bankrate.

A driver with an at-fault accident pays $832 more a year, on average, for full coverage than a driver with no traffic violations, according to recent NerdWallet analysis of nationwide car-insurance rates.

Some companies might impose surcharges if your driving data indicates a riskier-than-average behavior, so make sure you check the company’s rules, Ms. Deventer said.