Introduction

The auto insurance with the cheapest up-front rate isn’t always the best deal for the long-term. You’ll shell out a lot more than your premium costs if you end up at-fault in an accident without enough coverage, even if you follow your state's minimum insurance guidelines.

A lot of factors determine how much auto insurance costs, and it always pays to shop around to find the best deal for your vehicle and your budget. This guide will help you figure out how to get the best rate on auto insurance by following these five steps:

  1. Understand how car insurance is priced

  2. Understand how car insurance is marketed to consumers

  3. Know what impacts your rate

  4. Understand the extra steps you need to take as a high-risk driver

  5. Know when it’s time to go insurance shopping

Methodology

I started my research by reading about the National Association of Insurance Commissioners (NAIC) and the Insurance Information Institute. To find out what impacts insurance rates generally, I spoke with several field experts who offered their expertise on how insurance is priced to help you figure out the best ways to navigate the world of auto insurance.

Dr. Theresa Vaughan is the former CEO of the National Association of Insurance Commissioners (NAIC), co-author of the textbook Fundamentals of Risk and Insurance (Wiley 2007) and Dean of the College of Business and Public Administration at Drake University.

Dr. Robert Klein is an Associate Professor of Risk Management and Insurance and the Director of the Center for RMI Research at Georgia State University. He has served as Director of Research for the National Association of Insurance Commissioners and has written several articles about insurance and risk for academic publications.

Dr. Robert Hoyt is a Professor of Risk Management as well as the department head and Dudley L. Moore Jr. Chair of Insurance at the University of Georgia. He is the author of dozens of academic publications related to risk and insurance in addition to co-authoring the 11th and 12th editions of Risk Management and Insurance (Cengage Learning 2001, 2005).

To get input from the sales side of insurance, I spoke with Michael Carroll, who is the author of The Naked Insurance Auto and HomeOwner (CreateSpace 2013) and President of Carroll Insurance Group.

Who’s it for?

This guide will help anyone who wants to save money on auto insurance. I wrote this guide with the following groups of people in mind:

How auto insurance is priced

According to Carroll, auto insurance has turned into a commodity based on price, thanks to the wealth of competition available from companies such as Progressive and GEICO who slashed prices when they introduced auto insurance through their direct channel model. This is good news for consumers, since competition has driven prices down generally. However, there are a lot of factors at play when it comes to figuring out how much you’ll pay for auto insurance, and the rate of your premium will vary from one company to another based on how they figure out their base price and what discounts you qualify for.

How the NAIC works for consumers

While the NAIC does not set prices for insurance companies, it does ensure that insurance companies meet a certain standard of practice and works to keep the insurance market competitive. The NAIC determines insurance regulations for each state. Members are elected or appointed state government officials who work with their departments and staff to regulate insurance companies’ conduct and act on behalf of the citizens who live within their states. The NAIC meets three times a year to discuss insurance regulations problems and policies, develop national policies when necessary and take care of insurance problems around the country.

How insurance is marketed

There’s a reason your parents’ insurance company isn’t the same one as yours. “Insurers have target marketing,” explains Klein. Every insurance company has a specific group of consumers they target, which is reflected in their advertising, their discounts and their quotes. Some insurance companies cater to high risk drivers while others are more interested in selling to stable adults who are also homeowners.

Certain insurance companies, such as State Farm and Liberty Mutual, charge more money because they offer premium customer service, which is important for many drivers. Drivers who are extremely price conscious, will want to look at insurance companies with direct selling such as GEICO, USAA and Progressive. These companies, and others like them, can charge a lower base price for premiums because they have lower overhead costs.

Recognizing whether or not a particular insurance company is targeting your demographic is critical for keeping premiums low. But with so many insurance companies out there, and with so little public data on who each company is targeting, it is up to consumers to be diligent by shopping around for the lowest price and being up front about asking for discounts.

What impacts your rate

You might be surprised to find out how many factors impact your auto insurance premium, and you might be somewhat disheartened to find out there are some things that are completely out of your control. Knowing what you can and can’t control, along with the implications of the things that are within your power to change, can help you find the best auto insurance rate now and in the future.

Things you can’t control

Age

The ages of 25-65 represent a sweet spot in your life when you’re not too young and not too old to pose a risk for auto insurance companies. Generally, people under 25 and over 65 will pay higher insurance premiums because they are more likely to get into accidents. But don’t feel secure just because you’re right in the middle of this age range. Insurance companies can take into consideration the ages of all the insured people in your household, including non-blood relatives like a roommate. If you’re the parent of a teen driver and/or college student, there are discounts available, which I’ll discuss later.

Gender

There’s nothing you can do about this one. Men, generally, are worse drivers than women (blame it on statistics), which means men will pay a higher premium than women for the same coverage. By “worse,” I mean they are statistically more likely to exhibit risky driving behavior than women, including speeding, driving under the influence, neglecting to wear a seatbelt and getting into accidents.

You might personally be a safe male driver, but unfortunately, you can’t outrank statistics. The only thing you can do is continue driving safely and encourage your fellow male drivers to do the same to eventually even out the statistics. In the meantime, know you are going to pay more for your insurance premium than a cloned female version of yourself, but this will only have a minimal impact on your overall rate.

Things you can control

Driving record

It’s probably not a shock that people with clean driving records can score a lower insurance premium than people who have accidents and speeding tickets on their record. But insurance companies are starting to take more of an interest in drivers’ general driving habits instead of just counting their accidents: “The time is going to come when rates are going to be affected by how we drive,” says Vaughan.

Vaughan recommends that drivers start getting into better driving habits now, like braking gently instead of abruptly, avoiding sharp turns and accelerating more slowly, to avoid paying higher premiums in the future. A lot of insurance companies offer discounts to drivers who demonstrate good driving behavior with monitoring systems, so re-establishing good habits now can save you money now.

Type of car

When it comes to the type of car you drive, your insurance rate comes down to risk. A larger vehicle is less likely to result in major injuries that will cost a lot of money, which is why it is generally less expensive to insure a minivan than a sports car. Trucks and large SUVs, however, are more likely than small cars to cause damage in an accident, so owners of these types of vehicles will likely pay more for liability coverage.

Safety features are another major factor in how your car affects your premium, so vehicles with a high-safety rating are less expensive to insure compared with vehicles with low safety ratings.

Credit score

Your credit score affects more than your monthly car payments. It also will affect your insurance policy. The lower your credit score, the more of a potential risk you are and so the higher your premiums will be. It seems unrelated, but studies have shown a correlation between a low credit score and a higher driving risk. This is just one more reason to pay your bills on time every month. Make sure to shop around for car insurance rates when you do wind up raising your credit score.

Marital status

I’m not recommending that you run out and get married to save a few bucks on your insurance premium, but it certainly doesn’t hurt if you’re thinking about marriage anyway. Many states recognize domestic partnerships the same way as marriages when it comes to auto insurance rates. Statistically, partnered drivers are safer drivers, and are more likely to have kids than single people, making them an overall lower risk for insurance companies.

Where you live

Ok, so maybe this isn’t fully within your control, but it’s good to know that living in a rural area will lower your premium compared with living in an urban environment. Fewer people on the road means there’s less risk of you getting into a serious accident. Even moving from an urban center to a suburb can lower your premium.

Profession

You don’t want to base your profession on how much you’re likely to pay on auto insurance each year, but it’s good to know how your career impacts your auto policy. Professions that tend to include a lot of on-the-job driving, such as a delivery service, caterer or journalist, will be quoted at a higher rate than an office worker who has a short commute. Certain professions such as police officers, paramedics and nuns allow for lower insurance premiums since these professionals are thought to be less risky drivers.

SR-22/FR-44 for high-risk drivers

SR-22 and FR-44 forms are the same thing, but their name varies by state. SR-22 and FR-44 forms are Certificate of Financial Responsibility forms. They are not insurance policies but rather are submitted along with your insurance. They are required in circumstances when drivers have previously exhibited poor driving, including DUI convictions, reckless driving or causing an accident while uninsured. You will be notified by a court or your state’s Motor Vehicle Department if you need to have one along with your insurance.

Insurance companies can file these forms for you, and they will charge you a fee to do so. States assign a filing fee for SR-22/FR-44 insurance. It’s generally $25, but it can be higher in some states. Insurance companies have no control over this filing fee when they charge it. Your forms should remain active as long as your insurance is in good standing. Not all insurance companies file these forms, so you need to make sure you choose one that does.

When to go insurance shopping

There’s conflicting advice about when to go insurance shopping. Some websites tell consumers they should shop around for a lower price every year to save money. But not all experts agree. It’s important for consumers to understand “this is a trust business,” according to Hoyt: “Company loyalty will serve you well” in the event you need to file a claim. Instead of shopping around every year, Hoyt suggests that consumers take a look to see what they can adjust in their policy every year. You could save money by dropping collision coverage on an aging vehicle or adjusting your deductible if either option makes sense.

This advice doesn’t mean you should have laser focus on one auto insurance company once you’ve signed on to it. It’s important to look for cheaper auto insurance “particularly when you have a transition in your family,” according to Hoyt. Adding a new driver, buying a house or getting a new vehicle are all reasons to adjust your insurance policy, yet many drivers neglect to do this and wind up paying thousands of dollars when they have an accident and only have minimal liability coverage on their policy.

Why this article doesn’t have a comparison study

I completely understand that consumers want to go to a website to see a direct comparison study for how much auto insurance rates vary from company to company. And to be honest, that was one of my intentions when I started writing this article. But after speaking with experts and reviewing information from the NAIC and the Insurance Information Institute, I realized that this type of comparison study would only help people within my personal demographic (or whatever demographic I chose for the purpose of the study) and would be misleading for anyone whose situation doesn’t closely align with my own, including my age, race, marital status, educational status, location, driving history and credit score.

Through speaking with experts and reading everything I can about auto insurance, I have learned that auto insurance is a lot more personal than I had ever realized. I don’t want to risk giving consumers a false sense of which auto insurance company is cheaper based on my personal experience when their own experience is likely going to produce different results.

Why you should do your own comparison study

As I stated earlier, every insurance company has their own set of discounts, and they specifically keep details of their discounts and their target market out of public view. This is why you need to do your own comparison study to find out how you in particular can benefit from going with an insurance company that will give you discounts based on your situation. You should do a comparison study whenever you go through a transitional phase in your life (having a kid, buying a house, adding a driver, changing vehicles). This really is the only way to figure out which company is going to give you the lowest price.

Keep in mind that even doing a personal comparison study doesn’t give you a guaranteed rate. “Online comparison sites are always only a quote,” Klein advises consumers. “They aren’t something you should solely rely on,” although they can give you an indication of which insurance company is going to be cheaper for you according to Klein.

What I can tell you about saving money on auto insurance

I don’t have access to proprietary information for auto insurance companies, but here are some things I can tell you about saving money. These tips are for people who absolutely want the lowest premium rate possible for their auto insurance policy:

Work with a direct insurance company

Companies like Progressive, GEICO, USAA and eSurance are mostly online, though a few brick and mortar stores are popping up in areas with a high concentration of customers. This means they have less overhead and can pass that savings directly on to you, the consumer. This also means, though, that their customer service might not be as high quality as you will get when you deal with an insurance agent. If you’re more concerned with saving money than with being able to walk into a local agency and get help, go with a direct company.

Raise your deductible

“If you can afford to absorb a $1,000 cost in the case of an accident,” you might want to raise your deductible to $1,000 or more, says Klein. You’ll pay less money on your premium and only have to pay the $1,000 if you get into a serious accident. This might be a good option if you have a short commute and/or don’t regularly drive. Once you get to a point where you can afford a higher deductible, though, make the switch. This is generally a better alternative to lowering your liability, which can end up costing you everything you have if you end up seriously injuring someone in an accident.

Best insurance companies

I reviewed all the major auto insurance companies to figure out who they’re targeting and how much people can save by applying their discounts. I have not contacted, or been contacted by, anyone from these companies, so the information relayed below is based on my research alone and is offered solely for informing consumers about the discounts available to them. Your specific rates will vary based on a number of factors, so always shop around to make sure you’re getting the best deal based on your personal information.

My top five picks for the best car insurance companies are:

  1. Allstate

  2. GEICO

  3. Acceptance

  4. Affirmative

  5. Direct General

Best for parents of teen drivers and parents of dependent college students: AllState

AllState’s commitment to helping teenagers learn how to be safe drivers dates back to 1952. Over 60 years later, AllState continues to reward safe teenage drivers with several discounts, including a 10 percent discount for completing the teenSMART program, up to a 25 percent discount for students 25 and under who have good grades and up to a 30 percent discount for installing their monitoring device, called Drivewise, which tracks driving habits.

Parents of dependent college students can also benefit from AllState’s resident student discount, which is up to 35 percent when a student is living 100 or more miles from where their car is house (i.e., your house).

Drivewise keeps track of how frequently your teenage and college driver speeds and brakes heavily. It also monitors the time of day they drive. You’ll get a discount for every vehicle that has Drivewise installed, but it is especially important for teenagers to be mindful of their driving behavior so they can set up good driving habits early.

Looking around their website, AllState seems to be clearly marketing toward families with teenage drivers, which is good news for parents who can take advantage of other discounts they probably qualify for, including:

Safe, new and fuel-efficient vehicle discounts

Owning a safe vehicle can save you a lot of cash. AllState gives discounts of up to 30 percent for vehicles with passive restraint, up to 10 percent for vehicles with anti-lock brakes and up to 10 percent for vehicles with an anti-theft device. You can also get up to a 30 percent discount for a car two years old or newer and up to a 10 percent discount for an economic vehicle.

Responsibly paying

AllState targets responsible payers and rewards them with a lot of discounts. You can get up to five percent for enrolling in automatic withdrawal, up to 10 percent for enrolling in an ePolicy (basically going paperless), up to 10 percent for paying responsibly, up to 10 percent for bundling your auto insurance with a home or life insurance policy, up to 10 percent for signing up at least seven days before your policy begins and up to five percent for being a good payer, meaning you don’t receive a cancellation notice due to a lapse in payment over a twelve month period.

Safe driving

This is where it pays to stay with your insurance company long-term. AllState rewards customers who have gone three years without an accident with a 22 percent discount and drivers who have gone five or more years accident-free with a 35 percent discount. This discount applies to everyone on your policy, giving extra incentive to help your teenager learn safe driving habits so you can all benefit from their good driving behavior.

Best for Military members and their families: GEICO

Discounts: Up to 25 percent for people who are deployed in high-risk zones

Up to 15 percent for all other active and retired members of the military, reserves and National Guard.

You might be surprised to find out that GEICO offers the highest percentage discount for active, deployed and retired members of the military, including the National Reserves. GEICO’s focus on the military goes back to its founding in 1936 when it targeted members of the military as customers. Today, the tradition of giving special attention to military individuals and families continues with GEICO’s Military Team, which is made up entirely of retired military members who can answer any and all questions related to your personal coverage. The team also works on developing discount programs and service options for Military at home and abroad.

GEICO recognizes the financial and personal impact of an emergency deployment and offers an Emergency Deployment Discount when military members are deployed into imminent danger pay areas as designated by the DOD and approved by Congress. The company will also suspend coverage for Military members whose vehicles are stored for long durations due to their military duties.

Best for high-risk drivers: Non-standard auto insurance

Some national companies work with high-risk drivers, but you might be able to find a lower rate working with a non-standard auto insurance company. These companies specialize in working with high-risk drivers and are therefore extremely knowledgeable about how to save you money and turn your driving record around. Non-standard auto insurance companies are generally not nationally recognized, so here are a few examples for you to peruse to find one in your state:

Acceptance auto insurance

Acceptance works with high risk drivers to give them the coverage they need to legally drive in their state. They offer the following types of insurance policies for individuals who might not be able to get insurance through a traditional insurance company:

Currently, Acceptance auto insurance is available in the following states: Alabama, Florida, Georgia, Illinois, Indiana, Mississippi, Missouri, Ohio, Pennsylvania, South Carolina, Tennessee, Texas and Virginia.

Affirmative insurance

Affirmative insurance is a non-standard auto insurance company that offers several discounts to high-risk drivers, including multi-car, pay in full, smart shopper, anti-theft and defensive driver. Affirmative insurance works in the following states: Alabama, California, Florida, Illinois, Indiana, Louisiana, Missouri, New Mexico, South Carolina and Texas.

Direct General

Direct General works with all drivers, including those with bad credit and a poor driving history. They offer several discounts, including:

Direct General is available in the following states: Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, Texas and Virginia.

Best for adults 55 and older: AllState

Even if you don’t consider yourself a senior citizen, most insurance companies start offering senior discounts at the age of 55. Hartford is a popular auto insurance company because they partner with AARP, however, you only get a 5 percent discount for going through AARP and Hartford. In my opinion, AllState seems like the better option for offering several discounts that benefit people 55 and over, including:

Best for people without kids, including couples, singles and recent college grads: GEICO

You have different needs when you’re only worrying about yourself than someone who has a family to consider when they’re buying auto insurance. That’s why I believe GEICO is the best auto insurance company for single people, including recent college graduates who might be able to capitalize on their alumni status and even their fraternal affiliation. Here are some of the discounts you can get with GEICO:

Because it works through a direct channel, GEICO can offer a lower base price for coverage than other insurance companies that have more overhead.

Conclusion

There are a lot of factors playing into the rate of your insurance premium, which is why this article can’t directly tell you which insurance company will be the most affordable for you. Use this as a guide to figure out the best companies to start with, and do your own price comparison. Make sure to get adequate coverage to keep you protected in the event of an accident, whether or not you’re at fault. Read our consumer reviews to see which auto insurance companies have worked best for other consumers.

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