How much should I budget for car insurance every month?
Budgeting for car insurance can be difficult however there are some helpful rules of thumb to use when trying to calculate how much a new car insurance policy may cost.
Two cars are cheaper than one
If you are going to add another car to your existing policy, you will probably pay less per car than you would if you insured the cars separately.
New cars are more expensive to insure than old ones
You can expect a significant increase in your car insurance costs if you buy a new car, especially if your old one was worth very little. You may have even reached a plateau with your old car insurance, or a point where the price was not going to go up or down any more. Many people suffer “sticker shock” when they purchase a new vehicle, then a second shock when they receive their new insurance bill. One way to prevent this is to price your new car’s insurance cost before you buy; a call to your current agent will result in a quote you can use as a “ballpark” figure for insurance costs for the new vehicle. Of course, you can always shop for a better insurance rate after the sale, as well.
Car insurance for young drivers is not cheap
For a few years, teenagers are the most expensive people on the planet to insure. Once they reach their twenties, the cost begins to reach equilibrium, but plan on two to four times your “normal” rate for a 16-year-old boy if you are buying him a new vehicle.
A speeding ticket or claim can increase your insurance costs
If you have had a speeding ticket or filed a claim against your insurance, you can expect to see an increase at your next renewal. Some companies have a “forgiveness” policy for a first accident if it does not exceed a certain amount in damages, and one speeding ticket will sometimes not increase your rates if you have been a good customer and a careful driver in the past. However, for most people, a ticket or a wreck simply means higher car insurance payments. You can bargain with the judge to have “points” removed from your license, or you can pay for damage in an accident out of pocket; either of these strategies may save you from an insurance increase.
Inflation can also increase your insurance premiums
Many car insurance companies are engaging in “the creep” – a method by which they account for inflation and rising costs of doing business. This method includes gradually increasing your premiums by just a bit over each renewal period until you are paying substantially more than your original premium. You can counteract this by keeping track of your six-month renewal premiums and questioning any increases.
Budget your previous car insurance premium plus ten percent
A good rule of thumb is to take your last six month premium, divide it by six, and add ten percent. If you do not change vehicles or have any additional drivers added to your policy, this is probably a very workable number. In fact, you will most likely have money left over once you pay your next renewal premium. Of course, if you have had an accident or ticket, you may need to add some to this sum.
For the next renewal, simply repeat the process with the new, higher number. If your monthly insurance premium is not manageable, contact your agent to see if you are taking advantage of all available discounts, or if you may be able to save on your premiums by adjusting your coverage limits or deductibles.
It is a good idea to compare rate quotes about every two years, even if you are satisfied with your current company. Many people do not realize exactly how much they can save by switching insurance companies, and are surprised at the difference in premium prices between companies when they run a quote comparison. You can compare insurance premiums easily using our interactive tool; simply enter your ZIP code above to get started.