Factoring Car Insurance Rates into Your Budget

By Matt Keegan
Last Updated 07/22/2015

You are prepared to buy another vehicle, perhaps with a plan to trade in your aged car for a new or slightly used model such as a certified pre-owned vehicle. Between your trade-in and some money down, you believe that your purchase is attainable. But there is one matter that could disrupt your budget: car insurance, specifically what you will pay to insure your new ride. Factoring car insurance rates into your budget before you buy your car will enable you to afford the vehicle you want. Or it may have you reconsidering your purchase.

Identify the specific vehicle you want, and make your choice based on your personal criteria. When you find that model, contact your insurer and provide the make, model, model year, vehicle identification number (VIN) and any other information that your insurer requires. If your vehicle has certain safety features, such as a collision avoidance system, tell your insurer since it may help lower your premium.

Obtain your quote. Based on the information you supplied to your insurer, you will receive a quote for the coverage you need. Understand that your lender will require certain types of coverage, such as collision. Review that rate, and then divide it into monthly increments. For example, if your rate for the first six months is $1,200, then you will pay $200 per month for car insurance alone. Add that figure to your monthly payment. If your state charges property tax, add that amount too. You will also have other ownership costs to consider, such as fuel and maintenance. If you can afford the insurance, you are done. If not, then move on to the next step.

Ask for discounts. The proposed insurance rate may be too expensive for you. Even if you can afford the payments, you may be entitled to various discounts. Here's what to ask your insurance agent. First, what discounts am I entitled to receive? Most insurers will trim your rate if you have been a loyal customer for a few years. You may also receive a good driver discount, additional savings for insuring more than one vehicle, and other breaks, including reductions based on your military service or the number of miles driven per year. Second, what is my insurance score? Your insurance score is a three-digit number that is similar to your credit score and is used by the insurance company to assess their risk. Ask your insurance agent for that score and whether it affects your insurance rate or not. If you have bad credit, it will affect your insurance score.

Bundle your insurance. If you own a home and you insure your house through another company, you can save money by bundling your insurance. Insurance bundling means that you have two or more insurance policies with the same company. Insurance companies routinely provide a discount of up to 10 percent based on bundling. Get a quote based on a bundled rate.

Raise your deductibles. Your insurer may have quoted you a rate based on a $500 deductible for collision and comprehensive coverage each. Your state may also require you to carry bodily injury liability, property damage liability and uninsured motorist coverage. In any case, you can make a request for a new quote based on a higher $1,000 deductible in a bid to lower your insurance rate. But keep this in mind: if you have a claim, it won't cover the first $1,000. Decide whether the higher deductibles represent a worthwhile risk for you.

Shop around. Your insurer's rates may be higher than other companies. Before signing that purchase agreement for your new or late-model used car, contact three other companies to obtain rate quotes. You may find that one company has a significantly lower rate than the other. Just make sure that the proposed policies offer equal coverage, otherwise you may be comparing two different insurance plans.

Find out if you are eligible for group insurance. Another way to save money is to get your insurance through a group such as your employer or through a business, professional or alumni group or association. You may already belong to one or more groups offering a benefit that you are not taking advantage of.

Car Insurance Rates

After all is said and done, if your car insurance rates are still too high, you may want to reconsider your purchase. There are some models that are simply more costly to insure for one or more reasons: they are a favorite for thieves, have a poor safety record or would cost more to repair or replace. Ask your insurance agent if any of these other factors contributed to your high insurance rate quote.