Finding the right car insurance company can sound complicated. For example, J.D. Power, a marketing information services company, ranks the best insurance companies every year based on factors such as price, policy offerings, billing, claims, and customer interaction.
Trying to compare insurance companies based on so many factors can make your head spin, especially if the information isn’t readily available. But according to Kyle Nakatsuji, CEO of Chicago-based insurance company Clearcover, the only feature that really matters is the price.
Why price is king with the best insurance companies
Despite auto insurers’ attempts to differentiate themselves through clever advertising, Nakatsuji admits that car insurance is fundamentally the same with the top 15 to 20 carriers.
“It’s never a bad idea to look into those [other] things,” he said. “But I think there are very few companies where there are sufficient differences in the way that they handle these things that warrant paying much more.”
For example, you could go years without making a claim on your car insurance policy, so it might not make sense to spend more for an experience that rarely happens.
“Ultimately, customers want to have the right coverage that’s there when it actually matters to them and [know] that they’re paying the lowest cost for it,” said Nakatsuji.
If you look at a wider range of carriers, however, Nakatsuji admits that experience starts to matter more.
How insurers determine your rates
Even if you’re looking at monthly rates, there’s no clear winner. Insurers look at several factors when they determine your rate, and no two companies weigh those factors the same way.
Here are some of the factors car insurance companies consider when they give you a quote:
- Where you live: Rates are typically higher for urban areas because you’re more likely to get in an accident.
- How much coverage you need: The more insurance you need, the more you’ll pay for it.
- Your credit score: Data shows that people with bad credit tend to file more claims than people with good credit, so a bad credit score could mean higher rates. That said, California, Hawaii, and Massachusetts don’t allow insurers to factor credit information into their rates.
- Age: Young people tend to file more claims, so you can expect to see higher rates until you turn 25.
- Marital status: Data shows that married people tend to file fewer claims than single people, so getting married could help your rates.
- Type of vehicle: Some vehicle models tend to have more claims than others.
- Vehicle use: The more miles you drive, the higher your rate will be. That’s because your chances of getting in an accident go up as you spend more time on the road. You’ll also need to disclose any commercial use.
- Driving record: If you’ve exhibited risky behavior in the past, it could result in higher premiums.
- Claims history: If you rarely file insurance claims, you’re more likely to get a low rate. If you’ve made a claim, it could take a few years for your rates to return to a pre-claim level.
- Prior insurance history: Insurance companies like to see that you’ve been consistently covered in the past. Lapses of coverage can hurt you because they could mean you were driving without insurance, which is illegal.
- Listed drivers: The insurance company will look at these factors not only for you but also for others you list as drivers on the policy.
3 ways to get the best car insurance rates
Since price is the most important consideration — Nakatsuji considers it the only consideration — here are a couple of things you can do to get the cheapest insurance coverage for your needs.
1. Shop around
If you stick with the insurance company your parents use out of convenience, you might not get the best deal. “Just because an insurance company was good for your parents doesn’t mean it’s good for you,” said Nakatsuji.
Also avoid basing your decision on recommendations from friends and family members. Remember that insurers consider several factors when they set rates, so another insurer might offer more affordable rates for your profile.
Compare at least three to five insurance companies in your area to see what kinds of rates they’ll offer you. One thing to keep in mind, though, is the fact that the initial quote you receive when you check online isn’t necessarily the final quote.
Even the best insurance companies often use teaser quotes to hook you, and they base them on incomplete information. If you agree to proceed, they’ll check your driving record and credit history to give you a binding quote, which might be lower or higher than what they initially offered.
It’s important to go through the whole process with each insurer to make sure you know what you’d really pay. Make your comparison based on those numbers.
2. Ask for discounts
The best insurance companies offer discounts to appeal to new customers, including car insurance discounts for college students. You usually can get enough information about these discounts when you apply online, but don’t be afraid to call to see if you’re missing anything.
One of the best discounts you can get is a multipolicy discount, which you typically get if you insure more than one car with the same insurer or bundle your car insurance policy with other insurance products, such as motorcycle, renters, or homeowners insurance.
Here are some other discounts you might see:
- Accident-free discount: You haven’t been in an accident in the past few years. In other words, it might be worth not making a claim in some situations.
- Good driving discount: You haven’t had any moving violations or at-fault accidents in the past few years.
- Defensive driving discount: Depending on where you live, you might get a lower rate for taking a defensive driving course.
- Good student discount: You can get a lower rate by getting good grades in college.
- Anti-theft discount: Your vehicle has an eligible anti-theft system.
- Vehicle safety discount: Your vehicle meets certain safety standards or was manufactured recently.
- New customer discount: You’re new to this insurance company.
Keep in mind, though, that some of these discounts might be temporary, so your rate could go up in six months to a year. Prepare yourself for that change.
3. Don’t get complacent
Unfortunately, loyalty might not get you better rates over time. In fact, insurance companies might indirectly increase your rates because they know you’ll stick around.
“They might not purposely increase rates, but [insurance companies] choose not to be quite as competitive in pricing for some people because they know those people won’t care enough to switch,” said Nakatsuji.
As a result, he recommends double-checking every six to 12 months to make sure you’re still getting the best deal on your auto insurance. You might not save a lot by switching, but that extra cash can add up over time.
Getting low car insurance rates can increase your cash flow
When you’re buying car insurance, the price is the most important factor to consider, and the best insurance companies in your area will offer the lowest rates for your profile.
If you can manage to shave even $10 or $20 off your monthly insurance premium, that’s cash you can use for other important financial goals, such as paying down debt or saving for a rainy day. And over time, those small monthly savings can make a big difference in your overall financial plan.
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