Instead of Cancelling Your Car Insurance to Save Money, Do These Things
Millions of Americans rely on a car to get to work or school and run errands every day. But the coronavirus pandemic has curtailed our daily commutes and trips to the doctor’s office and soccer field.
If you’re struggling to pay the bills, finding ways to trim your budget is vital, and you might have considered that while your car sits idle in the driveway, you could save money by cancelling your car insurance.
Don’t do that just yet.
Cancelling your car insurance could cost you more in the long run.
Why Cancelling Your Car Insurance May Not Be the Best Move
When you cancel your car insurance, you will immediately stop paying your monthly premium for coverage. For many drivers, that could mean $100 or more a month to put toward more urgent needs, like rent or the mortgage, groceries and utilities.
However, cancelling your car insurance means you cannot drive your car at all. Not to the grocery store, your doctor’s office or, eventually, even a job interview. Cancelling insurance and continuing to drive would open you up to a lot of risk: In the event of an accident that is your fault, you would be entirely responsible for the cost of repairs to your property and any other property involved, as well as medical bills of those involved. You can also face legal ramifications as car insurance is required in most states.
Even if you avoid accidents or don’t drive at all, cancelling your policy may cost you more in the long run. For example, if you cancel your car insurance but end up finding work just a month later and need to reinstate the policy, you may encounter higher insurance rates because of your coverage lapse. These higher rates may quickly outweigh the savings from one month of cancelled coverage.
In addition, if any damage happens to your uninsured vehicle while it is parked (fire, vandalism, animal damage, etc.), you are on the hook for all repairs.
What You Can Do to Save Instead
Cancelling your car insurance outright is not the only solution to reducing your monthly insurance premium during COVID-19. Consider one of these other options instead:
1. Contact your agent
Car insurance companies are aware Americans are driving less during this pandemic. In fact, more than 82% of insurers are issuing partial refunds and credits to drivers because of reduced driving during stay-at-home orders.
Still need help beyond a refund? The best strategy is to call your agent to let them know you have been affected by the economic fallout from the coronavirus and discuss options.
“Before making [the decision to cancel coverage], reach out to your insurance carrier and ask to discuss options for making payments during this period,” explains Ariana Gibson, head of driver insights at Clearcover. “Many carriers are offering to enter into payment plans with insureds during this period, such as waiving late fees, extending payment periods without cancelling an insured’s policy or extending credits on premium payments to insureds.”
2. Reduce coverage or increase your deductible
If your agent is unable to offer assistance — or if that assistance doesn’t go far enough — consider reducing coverage. You can save money each month by dropping luxuries like rental car reimbursement and roadside assistance.
You can also lower your bill by lowering your coverage limits; just don’t drop those limits too low, or you might find yourself unable to pay for repairs and medical bills that insurance doesn’t cover.
Increasing your deductible (for example, from $500 to $1,000) is another way to reduce your monthly bill — by upward of 40%, according to P.J. Miller of Wallace & Turner Insurance. Exercise caution, however: If you drive a used car with little resale value, do not increase your deductible to more than you’d be willing to spend to keep that car running. In fact, if your car is nearing the end of its life, downgrade to the minimum coverage your state requires.
Establishing yourself as a part-time driver, rather than a full-time driver, with your agent may also net you some savings.
3. Temporarily suspend coverage
An alternative to cancelling your insurance outright is to suspend it temporarily. Your insurance agent can speak to you about the max duration they typically allow insurance to be suspended, but during COVID-19, companies may be willing to extend this.
During the suspension of your coverage, you cannot drive and thus will not pay your monthly premium. Suspending coverage, rather than cancelling, prevents the risk of an increase in your premium due to coverage lapse.
Just like with a cancellation, you will need to consider the effects pausing your coverage will have on your everyday life. Make sure you have plans for essential trips, like to the grocery store and job interviews.
Note: Drivers who are still paying off car loans are typically ineligible for insurance suspension.
4. Switch providers
If you owned a TV during the 21st century, you’ve likely seen a gecko telling you that you can save 15% or more by switching to Geico. The truth is, you can probably save money by switching from any insurer to any other.
When you shop for a new provider, you will discuss your current situation (how much you drive, how many people live under your roof, etc.). If that information has recently changed but you failed to tell your current provider, your rate with that provider is likely out of date. Most people forget to update their information and don’t encounter the savings until shopping for a new insurer.
Shopping for new insurance, even outside of a pandemic, is a good practice every few years. Think about it: Your car insurance premiums typically go up every year, even though you drive the same car that is losing value each year. Why pay more to insure a car that is worth less? Research other insurers, which are likely to quote you at lower, competitive rates to win your business.
When switching providers, consider a pay-per-mile car insurance plan, at least temporarily. Rick Chen of Metromile explains, “Americans drive only 37 miles a day on average, which is considered low-mileage in the industry. With COVID-19, most people now drive significantly less and will continue to reduce their driving as commutes shorten and remote work increases.”
Timothy Moore leads a team of editors and graphic designers at a market research company as his full-time gig. As a freelance writer, he covers personal finance, careers, education, pet care, travel and the automotive industry. His work has been featured on Debt.com, The Ladders, Glassdoor and The News Wheel.