You just received a letter from the insurance company letting you know that your annual car insurance renewal has been processed, and you’re stunned to see that your policy’s new premium is much higher than you thought it would be.
You probably thought that rate would stay the same. Your driving habits haven’t changed. You haven’t caused or been involved in any major crashes lately — not even a minor fender bender. Nothing’s changed during the past year, so what happened? What drove the premium up so much?
Does car insurance automatically renew every year at a higher rate, or did your insurer boost the premium on your new policy?
The answer to that last question is it’s a little of both. But first, we need to cover the basics.
What Is A Renewal Fee For Car Insurance And How Does It Work?
When you purchase insurance for your vehicle, you are paying for a service with an established and valid time period. Most tend to be either for six months or a year. This means you will continue to be protected as long as you pay your monthly fees and are within your auto policy term.
When the end of said term is approaching, your insurance provider will contact you and give you the option to continue with your coverage, upgrade or to decline the service. A very popular option for drivers is to opt for automatic renewal of their current policy, since it takes out the hassle of paperwork and such tedious tasks.
You can keep making your payments and the policy will renew automatically. However, as you’ll see in this article, continuing your service without informing yourself properly can lead to nasty and expensive surprises.
How Insurance Companies Benefit From Automatic Car Insurance Renewal
You may not realize it, but automatically renewing your auto insurance policy every year with no questions asked may be costing you money. Sure, it’s so much easier to let your auto insurance company take control and just opt for the policy renewal when it’s due. After all, your insurer has your best interests at heart, right?
Well, not entirely.
Many insurance companies count on their customers’ automatic acceptance of what’s on the printed page to charge them anything they want. How do they get away with this?
They get away with it because these companies know that the average adult doesn’t want to spend their time scouring the internet for a lower price — not even after receiving a 30-day renewal notice from the insurer by mail. They know it’s much easier for the average driver to stick with the same insurer rather than devote time and energy to sift through all the different insurance carriers on the market.
Those assumptions are true for most drivers, especially those who have been with an insurer for a long time and are happy with the coverage they have. It’s estimated that roughly 39% of U.S. drivers have been with the same auto insurance company for at least three years, while around 5% have been with their provider for ten years or longer. Great customer service, a no-hassle claims process, and an easy-to-use platform are all things that lead to customer satisfaction and loyalty.
These drivers have likely built a rapport with the agents that handle their policy and just assume the agents are taking great care of them — they are, though not entirely in the drivers’ favor.
Loyalty, Discounts, and Deals: The Costly Assumptions Drivers Make About Insurance Companies
Most drivers don’t bother checking their renewal rates before the auto policy restarts. It’s estimated that around nine million people — or roughly 27% of drivers — typically keep their auto insurance policies as-is every year, relying on the automatic car insurance renewal process. That means that at the end of the policy period, the original policy simply restarts, and the new policy usually has a slightly higher premium rate and a car insurance renewal fee tacked on.
Many policyholders don’t see these charges till they get their first car insurance bill in the mail. The unexpected, higher rate often comes as a shock, but the truth is they inadvertently let it happen. How?
Well, it’s a mixture of the following reasons:
- Drivers believe that their current insurer is providing them with a good deal and would continue to do so, so they never feel the need to contact their insurance agent, especially when car insurance renewal time rolls around.
- Drivers assume they’re getting the best coverage options with their current insurer, so they don’t research other coverage plans with competing insurance companies.
- Drivers believe their insurer rewards customer loyalty by offering discounts and deals on existing policies, so they don’t question price changes.
- Drivers don’t want to go through the ordeal of finding a new provider or checking up on their current one because they find it isn’t a simple process and don’t consider themselves knowledgeable enough to make an effective cost-saving switch.
- Drivers simply forget to call their insurance company before their policy is set to renew.
It’s easy to understand why most people neglect following up on their insurance coverage. The only way to avoid unnecessary charges and higher rates, though, is by being proactive about your policy.
Factors That Affect Your Annual Premium
A car insurance policy typically covers you for a year. Here’s a brief look at the factors that typically affect your insurance rate during a 12-month period, which may affect the rate you pay when your car insurance renewal period rolls around.
Your Age and Driving Experience
When you’re a driver, the older you are, the more experience you’ve got behind the wheel — that’s what insurance companies typically presume. It’s the reason why older drivers usually pay less for car insurance than younger ones.
What if two drivers are the same age? Will they both have to pay the same rate? Not necessarily. In this case, driving experience determines the rate each driver will pay. For example, between two 30-year-old drivers with comparable, clean driving records, the one who’s had their driver’s license longer will likely pay a lower car insurance premium.
Your Driving History and Credit Score
The cleaner your driving record, the lower your car insurance premium will be. A squeaky-clean record means you haven’t had any traffic tickets, at-fault crashes, or convictions during the past three to five years, which is how far back insurance companies typically look when they’re calculating your premium. Be aware, though, that serious violations, like DUIs and license suspensions, may stay on your record longer, sometimes permanently showing up in background checks.
If you’ve received a penalty in the past for driving without proof of insurance, this can also have a negative effect on how economical your car insurance is.
You can always work to improve your record by taking a driver safety course and changing your driving habits, and being more cautious when you’re behind the wheel.
Regarding your credit score, some insurance companies offer discounts if your rating’s good — the higher the score, the better. Paying your bills, credit cards, and car loans on time is a surefire way to boost your credit score and, ultimately, lower your annual car insurance premium. Depending on the state you live in, your credit score might not be a determining factor — some states don’t allow insurance agents to use it as a factor.
The Make and Model of Your Vehicle, How Often You Drive It, and What Roads You Take
How much you pay for coverage depends on the risks involved in driving your motor vehicle. A small sports car or convertible that maneuvers quickly through traffic or an expensive luxury car will make your premium skyrocket because the risk for crashes and theft is much higher for these vehicles. By contrast, a sedan or SUV that has received high marks for safety will cost less to insure.
How often you drive and where also play a role in determining your rate. If you have a long commute to work that requires you to drive in dense morning and afternoon rush-hour traffic daily on busy highways and roadways or you like to take long road trips often, you’ll likely pay a higher premium than someone who limits their drive time to running errands near their home.
Where You Park Your Vehicle
If you park your car, truck, or SUV in a garage while you’re at home, you’ll likely pay a lower annual premium than someone who parks their vehicle along the curb outside their house. Why? Because a garage not only shields your vehicle from rain, hail, tree branches, and other natural elements, but it also lowers the risk of your car, truck, or SUV being sideswiped by a passing driver.
Where You Live
Your home address is another piece of personal information that affects your payment. If you live in an area with a lot of crime or a neighborhood with a high volume of traffic and crashes, you’ll probably have to pay a higher premium. This can also work the other way around. For example, if you move from a high risk area to one with less incidents, you can positively affect your premium.
Whether You Have an Auto Club or Association Membership
Many car insurance companies offer discounts to policyholders who are members of auto clubs and associations, like AAA or the AARP. Veterans or military members who are in active duty are also eligible for car insurance discounts. It’s worth contacting your insurer or broker to ask if you qualify for a discount on your current car insurance policy.
While this is harder or totally out of your control, unfortunately it also reflects on your payment. An instance would be like the one mentioned above: if your zip code now corresponds to an area that increased its crime rate, you’ll see a higher premium. Also, if the insurance industry needs to recover from market losses, car insurance rates could very well be affected.
What You Can Do Before Your Annual Car Insurance Renewal Resets
As we’ve already discussed, waiting till the last minute to contact your insurer isn’t a good move. Your best bet is staying ahead of the insurance company, knowing what coverage options you have, which ones you need, and when your policy renewal date is.
Here are a few things to keep in mind before you contact your insurer. These tips are aimed at helping you keep your annual premium low with the right amount of coverage.
- Contact your insurance company any time you have questions or concerns about your policy. Don’t think doing so will hurt your loyalty status. It won’t. Besides, you’re the one paying for coverage. Asking thorough questions about your policy is your right.
- Never lie to your insurance company about where you live or where you keep your car — that’s considered fraud. If the insurance company finds out that you knowingly gave it false information, it will likely drop your coverage. It may even refuse to process your claim if you’re involved in a car crash.
- If you don’t want to speak with an agent and have an online account with your insurance company, log into your insurer’s website and see if there’s a “renew car insurance online” option. If so, you might be able to review your coverage on your own without an agent persuading you to consider additional options you might not need.
It may seem like a burden, but reviewing your car insurance policy every once in a while and calling your agent to ask what can be done to lower your rate will give you a better idea of how far your insurer will go to keep you as a customer.
Contacting Your Insurance Company Regularly Helps
It’s estimated that roughly 24% of drivers care enough about what they’re paying to bother checking any changes in coverage or the policy itself for discrepancies that could cost them money.
As we mentioned earlier, some of the most common reasons for not switching providers or checking up on policy changes before the car insurance renewal period rolls around appear to be attributed to:
- An unwillingness to make an effort,
- A lack of knowledge, or
- Both of these reasons.
Most policyholders don’t realize that this can end up costing them a decent amount of money on their premiums. The coverage they have may also be outdated, providing inadequate protection in the event of a serious accident.
When you don’t review your policy options often or contact your insurance agent regularly, you may forget what coverage options you do have. For example, your car might break down along the side of a highway, rendering you in need of roadside assistance. You might assume your policy covers hiring a towing company to transport your car to a mechanic, only to find out it doesn’t, leaving you high and dry with the bill.
Other coverage options, like rental car reimbursement coverage and various money-saving discounts, may be missing from your policy, too. For example, your vehicle might be insured for only its actual cash value instead of its actual replacement value, which is preferable.
I Have All The Information And I Want To Decline
Don’t be afraid to decline the automatic car insurance renewal after the insurer sends you a 30-day notice alerting you that it’s going to reset. You have the right to shop around for coverage with competing insurance companies.
It’s important to give notice to your insurance provider before your policy expires. Not only that, but it should be sure to do it before your automatic payment is done, otherwise it could be renewed automatically and can incur on cancellation fees. Take note of the cancellation methods your insurance company allows, like phone or mail.
What Happens If I Don’t Renew My Insurance On Time?
In case you didn’t automatically renew but the expiration date of your policy passed, you’ll probably have to pay a cancellation fee. Depending on your provider and the elapsed time, it might be easier to hire a completely new one. Remember, if your car insurance has expired, you are unprotected. Don’t drive without it!
Don’t Wait for Your Car Insurance Renewal Period to Roll Around
At some point, you’ve likely wondered, “Why am I paying so much for car insurance?” Odds are, you ask yourself this question whenever your automatic car insurance renewal period rolls around.
The biggest takeaway here is that you should never take anything for granted, especially when it comes to the annual premium you pay to insure your vehicle.
Getting ahead of your insurance company and contacting an agent to review your policy before it’s renewed automatically can save you a good chunk of money. It can also help you ensure that you’re getting the best rate on your auto insurance.
Remember: the choice is yours and it has never been easier to shop around and save on your car insurance. Luckily, at Freeway we are experts at finding and providing the best coverage for your needs and budget. So, while you’re here, why not get a free auto insurance quote today? Give us at a call at (800) 777-5620 or discover an office near you.