November 30th, 2015
If you're new to the world of auto insurance, you're probably learning just how nuanced it can be. There are many aspects to auto insurance that surprise new customers. For instance, some may wonder why the policy only lasts six months; why not a year?
The answer, according to Freeway Insurance, is because car insurance companies like the ability to change prices more frequently. This could be to raise the cost, if the policyholder has an infraction of some kind. The price of your car insurance policy depends on a variety of factors, including how old you are, what kind of car you have and how clean your driving record is. It doesn't take long to change some of these determinants. A car accident can happen pretty quickly, and if something happens that causes the insurance company to view you as a higher risk than when you bought your policy, they will more than likely want to increase your premium.
"Car insurance companies like the ability to change prices more frequently."
At the end of that six months, the company may want to lower the cost to entice policyholders to continue working with the company. If you're in good standing with the company and don't have any infractions on your record, the company knows that you may be able to find a better price elsewhere. To keep your business, they may offer you a lower rate.
How you benefit
Though six-month policies benefit the insurance provider, they can also be beneficial to the policyholder. Finding a new car insurance company during that six months could help you save money on your policy, according to Answer Financial. Different car insurance companies place more emphasis on different things. For instance, many car insurance companies may not like it when car owners live in bigger cities and therefore charge them more, explained the Insurance Information Institute. If your living situation changes during the six months, they may then increase your rates when you renew. However, you may be able to find another car insurance company that doesn't mind policyholders who live in an urban area and give you a lower rate.
Although, if you decide to switch providers after six months, you will need to ensure there aren't any lapses in your coverage, explained DMV.org. If you don't have a new policy lined up before your current one ends, you will still have to pay your insurance bill when it arrives. Any late payments could cause a gap in coverage, which will make it more difficult to get a new provider. Switching mid-term could result in early termination fees, though most insurance providers will send you a refund check for the months in which you will not use their services, according to DMV.org.
The 12-month option
If you shop around for car insurance and determine that you are already working with the best, you don't have to settle for a six-month policy. If you know you will love your insurance company just as much six months from now, you can opt to sign on to a year-long policy, according to Freeway Insurance.
There are advantages to this option as well. For instance, if you sign on to a year-long policy and something happens that will increase your rate, the effect won't be felt until after your policy ends, according to Answer Financial. Plus, there will only be one payment to worry about for the whole year.
On the other hand, that payment will be larger than if you have a six-month policy. If the price of a 12-month insurance plan is out of your budget, choosing the six-month plan could be a better option.
When shopping for car insurance, there are many things to take into consideration. If you're new to the process or to the company you're buying insurance from, the six-month policy could work in your favor. Make sure you're getting the best rates possible by comparing costs on Coverhound's website.