Do you know why your car insurance policy is for six months at a time? Why not three months? Or a year? It seems like a random length of time, but no one really questions things that they take as a “given.” However, when you stop to think about the rhyme and reason behind certain things, sometimes you find that it isn’t the best fit for you.
The easiest answer is because it gives car insurance companies the flexibility to change pricing if something were to change, or if they need to be competitive to keep your business.
On the one hand, they don’t want to be stuck with the bill, so to speak. The shorter half-year terms allow car insurance companies to re-examine the cost of your coverage and raise it accordingly if you had a vehicle related injury or accident. Basically, they don’t want to take the risk and cost of covering for an injury or accident with the possibility of being shortchanged.
However, on the flip side, the six-month terms can also work to benefit you. If you were a high-risk driver with multiple driving violations, tickets, or accidents in your distant past, by only evaluating on a short-term basis, you will be “forgiven” and possibly able to lower your rates if enough time has passed. Also, insurance companies will then be able to use that same flexibility to reduce the cost of your premium so that you won’t switch to another insurance company – they know that you can shop around and find another company that doesn’t count that past offense against you.
Car insurance companies use statistics tied to the information of your personal profile – driving history, relationship status, gender, education level, credit history, etc., to gauge risk and cover the cost of that risk. Of course, drivers who are low risk and have perfect driving records will qualify for the cheapest car insurance, however, car insurance companies know that things can happen and that driver’s profiles can change.
Most people aren’t even aware that there are other options, besides the standard six months for car insurance, however, depending on the insurance company you will find that they offer shorter or longer terms as well. And if you’re going to be visiting somewhere and only driving for a short amount of time, you wouldn’t want to pay for those extra months, so you should ask about month-to-month or even a three-month policy.
However, if you have shopped around and discovered that you have the cheapest car insurance for your profile and want to lock it in for more than six months, I’d suggest asking if they’ll offer a one-year policy. You may even save more since you’re committing to a longer term and they’re assured of your business. And if you want to make sure you’re saving the most, even on small fees, and getting the cheapest car insurance, then make sure to pay your premium in full. The insurance companies charge a “convenience” or installment fee when you break out the payments into monthly payments (the more spread out the payments the more you’ll pay in fees). Or if you can’t pay all at once, find out if enrolling in auto-pay will waive the fees.
It never hurts to ask your current insurance company what options they have for policy lengths, and if it might save you some money! You can also ask them about renewal discounts or any perks for being a loyal customer for the cheapest car insurance. If not, there are other car insurance companies out there, who may possibly be more flexible, and waiting for your business.
What do you think about six month plans? Feel free to share your thoughts in the comment section below.