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Financial advisors often tell seniors living primarily on their retirement income to pare down their expenses. It's generally wise to cut unnecessary spending to stretch every dollar further for a more secure financial future.
Unfortunately, auto insurance usually isn't an expense you can do without. Auto insurance can be a major expense, and it's important to reassess it when your financial situation changes in retirement. Here's how to make sure your policy fits with your insurance needs and retirement finances.
1. Reassess Your Coverage Needs
Retirement often comes with a change in your driving habits and maybe even the car you drive. For example, you may be driving less, downsizing to a smaller car or paying off your current one. It might be time to review your insurance needs to determine if your current policy is adequate. You may discover you're paying for more insurance than you need.
Talk to your insurer to identify ways your coverage could adjust to your new driving circumstances. Here are some factors of your auto insurance policy you might review:
Coverage Level
You may not need to carry high levels of coverage if you're driving less. With a reduced likelihood of a serious accident, you might consider lowering your bodily injury coverage amounts. On the other hand, you could opt for higher liability limits if you're concerned about protecting your assets if you're involved in an accident and the other driver sues you.
Type of Insurance Carried
Review the types of coverage you carry to determine if they're still needed. If you're no longer making payments to a lender or leasing company, you might consider dropping comprehensive and collision coverage from your policy.
However, since comprehensive insurance is fairly affordable—costing $134 on average per year, according to the Insurance Information Institute—it may be a small price to pay for protection against theft, weather-related events and other damage your car sustains when you're not driving it.
Annual Mileage
If you're driving less, you may qualify for lower premiums. Reduced driving decreases the likelihood of getting into an accident and filing a claim for vehicle damage.
Type of Vehicle
The type of car you drive can impact how much you pay for auto insurance. On one hand, downsizing to a smaller economy car could lower your premiums, especially if your current car is a more expensive luxury vehicle. On the other hand, newer vehicles tend to carry higher premiums since the costs for repair and replacement are typically higher than for older vehicles.
Alternative Coverage
Many auto insurers offer alternatives to traditional insurance to help you stay on budget, such as pay-per-mile insurance rates and usage-based coverage. If your driving mileage is low, these policies may work in your favor.
With pay-per-mile insurance, you'll typically pay a set rate for every mile you drive on top of a base premium. By contrast, usage-based insurance policies are broader in scope and may reward you for safe driving habits. Using a telematics device in your car, your insurer can track how many miles you drive, your speed, braking patterns and other driving behaviors.
2. Consider Your Changing Financial Situation
Dialing in your coverage needs is an essential step to make sure you're only paying for the insurance you need. It's also critical that coverage fits into your retirement budget.
According to Progressive data analysis of customer policies, car insurance rates drop in your 50s and 60s before increasing at about age 75. For example, premiums for policyholders ages 55 through 64 dropped 10% but increased 4% for those over 75.
Generally, retirees living on a fixed income must reduce their costs to live comfortably within their budget. One primary expense to consider reducing is auto insurance. Here are some ways to make sure you're not overpaying for extra insurance coverage you no longer need in retirement:
- Review your deductibles. Increasing your deductible is one of the best ways to lower your car insurance premiums. If you have sufficient savings to cover a higher deductible if you file a claim, talk to your auto insurance agent about how much raising your premium might save you.
- Ask about discounts. Ask your agents what discounts you may qualify for that may significantly lower your premiums. For example, GEICO offers discounts of up to 22% on most coverage if you're not involved in an accident for five consecutive years.
You may also qualify for other discounts, such as:
- Military and federal employee discounts
- Multi-policy discount
- Defensive driving discount
- New vehicle discount
- Air bag, anti-lock and anti-theft system discounts.
- Contact other insurers. Reviewing your auto insurance options regularly, ideally once every year, and getting quotes from several insurers can help make sure you have the most cost-effective policy.
- Factor your location. You may be eligible to get a lower rate if you've moved to a new area since auto insurance rates vary widely from state to state.
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3. Shop Around and Negotiate
Follow these steps to save on auto insurance so you can spend more of your money enjoying your retirement:
- Get quotes from multiple insurers. Requesting quotes from at least three auto insurance carriers can help you find the best rate. Most insurers offer quotes on their websites, over the phone or in person at an office location. Independent agents aren't tied to one insurer and can check rates and coverage options with several companies at once.
- Review your quotes. The best way to get an accurate quote comparison is to make sure they're for the same coverages—apples to apples. Keep in mind, your state likely requires you to carry liability insurance. Similarly, if you're financing your vehicle, the lender or leasing company typically requires you to carry full coverage, including collision and comprehensive. Make sure your lender's car insurance requirements are accounted for in your quotes.
- Check for discounts. Another way to lower your car insurance costs is by taking advantage of policy discounts. Many discounts are designed specifically for seniors, including mature drivers, low-mileage and defensive driving discounts. You might also qualify for discounts through organizations you belong to, such as business, military or membership groups.
View Several Car Insurance Quotes Side by Side
Many states allow auto insurance companies to use credit-based insurance scores when calculating your rate. While this score differs from traditional credit scores, it includes many of the same scoring factors. You may want to review your credit report and credit score for free to address any issues you discover before shopping for car insurance rates.
When you're ready to get policy quotes, consider streamlining the process with Experian to receive multiple free quotes in minutes.