Why Are Most Car Insurance Policies Only Six Months Long?

We’ve all been there. The moment of hesitation when you hear your car insurance rate for the first time. You have a number you’re hoping to hear. You wait and wait -- and then the voice on the other end of line say it’s... $440.58. You pause. You were expecting to hear something like seventy dollars a month, or a thousand dollars per year. But $440.58? Then you remember (or are reminded) that this is the quote for a six-month policy. And then everything makes sense, belatedly.

So why are most car insurance policies only six months?

While at first it may seem easier to part with $440 than it is $1000, the shortening of the policy length is of course not only for the benefit of the consumer. Car insurance carriers want shorter term lengths in order to re-examine the cost of your policy. Car insurance is the transference of risk. By paying your $440.58 in premiums costs over six months you are transferring the risk of paying for damages caused by a car accident to the insurance carrier.

Based on your personal profile, the car insurance carrier has calculated the rate at which they will be willing to accept this risk. But profiles -- people -- change. Maybe during the first few months of your policy you’ve had a string of accidents; the carrier wants the flexibility to raise your rates without waiting out the full year. Hence the six-month policy.

But it can also work the other way, in your favor. For example, let’s say you’ve recently had a child and have started driving much more safely than you did when you were younger, when your driving record wasn’t pristine. You might look at your high premium and start wondering if you could get a better deal somewhere else. Your insurance carrier also wants the flexibility to lower your rates in order to keep your business. Again, enter the six-month policy.

So next time you get a car insurance quote, remember that that number almost certainly represent the cost of a six-month policy. Also remember that the six-month policy exists for the convenience of the carriers to re-examine your rates frequently. The silver lining is that with a good driving record you can sometimes reduce your rates more quickly.