When your car insurance is up for renewal, the easy approach is to just pay the premium and stay with the same insurer you’ve been with for years.
But that can be a costly mistake. You might get a much better deal by switching car insurance companies.
“If you shop around, it literally could save you anywhere from 5 to 50 percent a year,” says Melvin “Butch” Hollowell, a Detroit attorney and former state insurance consumer advocate for Michigan.
You could put your premiums on a cash-back credit card, effectively offering you even more savings.
Many experts suggest shopping for a new policy every two or three years.
However, if you do find a better rate and decide to change carriers, beware that a sloppy transition can leave a gap in your coverage. Follow these steps to a successful switch.
1. Shop around
Most auto policies are issued for six months or a year. Ideal times for checking out other carriers and their prices include:
- When you move
- When you buy a new car
- A month or two before your policy comes up for renewal
You want to gather at least three rate quotes. In addition, make certain you understand what’s covered and how much protection you’d have from a new policy.
It’s important to ask about details such as the amount of liability protection, bodily injury protection and the kind of coverage provided if you’re hit by an uninsured or underinsured motorist, notes Deeia Beck, the state insurance consumer advocate in Texas.
If you’d rather have someone do the research for you, independent insurance agents are an option.
2. Contact your current carrier
Your insurance company may be willing to fight hard to keep your business. It’s amazing how quickly some insurers offer competitive discounts if you hint strongly at leaving, Beck says. Many companies will try to match or beat a rival’s quote.
Also, see if you’re missing out on discounts with your current carrier. For example, you might qualify for savings if you have another policy with the company, such as your home insurance.
If you ultimately decide to move on, Beck says consider taking all of your business with you, so you’ll get your new insurer’s multi-policy discount. “Some of those discounts can be significant — up to 30 percent,” she says.
3. Check for potential penalties
If you decide that changing your carrier is the right option, you want to find out if there are any penalties for switching before the end of the coverage period.
Auto insurance companies generally give you the right to cancel your policy at any time, as long as you give proper notice. Typically, your entire unused premium will be refunded, though some insurance companies will charge a fee if you cancel in the middle of the policy term. For example, Esurance warns that it may charge $50 if a policy is canceled.
So, if you’re canceling in the middle of the term, be sure to check with your insurer to see if there will be any kind of penalty. Then, do the math and see if it’s worth it to switch now or wait.
4. Investigate the new company
Check out an insurer thoroughly before signing on. Most state insurance offices monitor carriers’ customer complaint ratios (such as the number of complaints for every $1 million in premiums collected).
“Typically people file complaints because of claims payments,” says Beck. “You want to be sure other people are happy with the way they resolve complaints. You want to know if your claim is going to be paid. Is it going to be paid timely? Is this a carrier that’s likely to say it’s your fault if you’re in an accident?”
So, don’t sign on with an insurer just because it offers the lowest rates. Some companies offer great rates, but their claims service may not be so good.
5. Mind the gap
You want to make sure that there will be no gap in coverage as you change insurers. Don’t cancel your insurance before you have the new policy in place. Make sure you have something in writing from your new company before communicating your intentions to the old one.
A lapse in insurance coverage could lead to serious legal and financial challenges for you, especially if you have an accident. It also could lead insurance companies to charge you higher premiums in the future.
6. Make sure your old policy is canceled
When switching car insurance, it’s important that you simply don’t stop paying premiums for your old policy. Be sure to call or write to notify the company that you’re ending your policy and are going with someone else. You also want to follow up to make sure you get written confirmation that you’ve canceled.
Taking these steps protects you in two ways. First, it ensures that the company doesn’t continue to bill you. Second, it protects you — and your credit — so you’re not reported to the credit bureaus for non-payment. (Did you know you can check your credit score for free?)
7. Make a good first impression
When a new policy is less than 90 days old, a car insurance company can drop you easily and quickly if you file a claim, are involved in an accident or receive a speeding ticket. So, you want to be on your best behavior.