Like many things right now, the cost of auto insurance is rising. For 2022, the average national cost to insure a car is expected to jump 5% to $1,707 annually, up from $1,663 in 2021, according to Insurify.
What’s driving this increase? Two main factors:
- – The rise in inflation rates
- – The rise in accidents mostly caused reckless driving behaviors
Although most people are driving less as most of us shifted to working from and traveling has gone down compared to pre-pandemic times, post pandemic accidents were 26% more fatal in 2021 than 2019! According to the National Highway Traffic Safety Administration, this rise in fatal accidents is most driven by over the speed limit driving. High speed accidents are always more catastrophic.
In addition, inflation trends and supply chain constraints continue to pressure rates, so insurance premiums rise. Car parts for damaged vehicles and replacement cars for totaled vehicles are leading to higher claims payouts. Since new vehicles are more expensive now than ever due to the supply chain constraints, it is important to make sure you have GAP coverage.
The payout for a totaled car is its value at the time of the accident. As the value of a vehicle drops tremendously after purchase, if you had an accident, you could find yourself in a situation where you owe more to the bank than the value of the vehicle if you are financing it. Since Gap insurance covers the difference between what you owe on your car loan and the value of your totaled or stolen car, this coverage has never been more important than now.
Let’s dive a little deeper into the forces pushing premiums higher. Inflation is a major player, impacting nearly every aspect of the economy. For the auto insurance industry, this means the cost of everything related to repairing and replacing vehicles has gone up. The price of car parts has increased significantly, and a shortage of new vehicles has driven up their value. When an insurance company has to pay out more for claims, those costs are eventually passed on to consumers in the form of higher premiums.
Strategies to Lower Your Auto Insurance Costs
So, what can you do to combat these rising costs? The good news is that you’re not powerless. Here are some effective strategies to help you save on your auto insurance.
- Shop around for the best rates: This is arguably the most important step you can take. Every insurance company uses its own formula to calculate rates, so the price for the exact same coverage can vary significantly from one carrier to another. Don’t just accept your renewal notice without checking what other companies are offering. A good independent insurance agent can do this for you, shopping multiple carriers at once to find the best deal.
- Raise your deductible: Your deductible is the amount you pay out of pocket before your insurance coverage kicks in. By increasing your deductible, you’ll be taking on more of the financial risk yourself, which can lead to a lower monthly premium. Just make sure you can comfortably afford to pay the higher deductible if you ever need to file a claim.
- Bundle your policies: Many insurance companies offer a discount if you bundle your auto insurance with other policies, such as homeowners or renters insurance. This can be a simple and effective way to save money on both policies.
- Maintain a good driving record: This one is a no-brainer. The better your driving record, the lower your rates will be. Avoiding accidents and traffic violations, like speeding tickets, will help keep your premiums in check over the long term. Many carriers offer safe driving discounts or even a no-accident bonus for policyholders with a clean record.
- Ask about other discounts: There are a variety of discounts you might be eligible for that you aren’t even aware of. Ask your agent about discounts for things like having a good student in the family, taking a defensive driving course, or having a car with certain safety features.
- Review your coverage: Your insurance needs may have changed over time. If your car is older, you might consider dropping collision or comprehensive coverage, especially if the cost of the premiums outweighs the car’s value. However, it’s crucial to consult with a professional before making any changes that could leave you underinsured.
The Importance of Gap Coverage
GAP coverage is more important than ever, especially for anyone who has financed a new or relatively new vehicle. If your car is totaled or stolen, the insurance company will pay out its actual cash value at the time of the loss. With vehicles depreciating quickly, you could owe more on your loan than the car is worth. This is often referred to as being “upside down” on your loan. GAP insurance bridges this gap, paying the difference between the car’s value and the remaining loan balance, saving you from a significant financial burden.
Make sure to contact us to review your insurance coverage and make sure you have GAP coverage if your vehicle qualifies for it. If your rates have gone up lately, make sure to contact us and we’ll be happy to shop our carriers for you.