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Understanding Car Insurance Rate Changes

Your car insurance bill can be a significant monthly budget item. If you get in an accident or receive a moving violation, you may worry that your insurance rate will instantly increase. Fortunately, your car insurance rate typically won’t change during your policy term—unless, of course, you change your coverage.

What Can Trigger a Rate Change?

Car insurance rates normally take effect when you renew your policy and not during the policy term. For instance, your rate won’t go up during the policy term after filing a claim, getting into an accident, or racking up a traffic violation. However, your rate will likely change if you adjust your policy.

Adjusting Your Coverage

If you’re in the middle of your term and decide to add optional towing and rental reimbursement coverage, that change will likely come at a price. By increasing your coverage, you might see a rise in your car insurance rate take effect right away.

Changing Your Deductible

When looking for ways to reduce your monthly expenses, you may realize you might save money by increasing your insurance deductible. Typically, raising your car insurance deductible should drop your rate. But if you reduce the deductible, your rate likely will go up.

Adding or Removing Drivers

Adding a driver to your policy or removing a driver during the current term can affect your rate right away. For instance, if you add your 16-year-old daughter to your policy, your rate likely will climb. Conversely, if you remove a driver, your rate likely will decrease.

Adding or Removing Cars

Just as your car insurance rate changes when you add or remove drivers, it also changes when you add or remove vehicles. Removing a vehicle from your policy almost certainly will trigger a rate decrease, while adding a vehicle will likely increase your rate.

Moving to a New Place

Relocating from one ZIP code to another can affect your car insurance rate. Moving to a higher-crime area or a place with more traffic can increase your rate, while moving to a lower-crime area can decrease it.

Getting a New Car

Trading in your lower-value vehicle for a higher-value one can cause your car insurance rate to go up immediately. Conversely, downgrading to a less valuable vehicle can lower your rate.

When Are Policyholders Notified of a Rate Change?

State laws regulate how car insurance companies inform policyholders about rate changes. For example, in Texas, if an insurance premium is going up by more than $10 or 10% of the previous month’s amount, the insurer must send a 30-day notice before the increase takes effect. In California, if a policy has been in effect for more than 60 days, the insurer must send a written notice to a policyholder at least 30 days before a rate hike kicks in.

What to Do About Rising Insurance Rates

If you’ve been told your car insurance rate is going up, you may be able to help soften the financial blow by:

• Shopping for a better rate: Seek car insurance quotes from at least three companies.
• Dropping coverage: Consider getting rid of comprehensive and collision coverage if you’re driving an older car that’s paid off.
• Increasing your deductible: Raising your deductible can lower your premium.
• Switching to pay-per-mile coverage: This may be cheaper if you don’t drive often.
• Contacting your insurer: Find out what they suggest to help ease the effect of a rate hike.
• Exploring discounts: Ensure you’re receiving all the car insurance discounts you qualify for.

The Bottom Line

A change in your car insurance rate, whether it comes during the policy term or at renewal time, can be good news or bad news. If the news is bad, consider shopping around for new coverage or adjusting your existing coverage to lower your premium.

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