Should You Switch Car Insurance Companies?

When your car insurance is up for renewal, the easy approach is to just pay the premium and stay with the same insurer you’ve been with for years. But that can be a costly mistake.

“Rates can vary dramatically from company to company, so you may be able to save several hundreds of dollars over what you are currently paying by switching insurers,” explains Michelle Demora, sales development manager of Mercury Insurance in Brea, California.

Review your plan annually to determine whether you still have the best coverage for your situation or could save money by switching. If you decide that changing carriers makes sense, beware that a sloppy transition can leave a gap in your coverage.

Here are eight steps to help you ensure a successful switch.

1. Consider your coverage options

Too little insurance can leave you financially exposed, but too much insurance may mean you’re paying more than you need to.

“Ask yourself: do I drive an older vehicle? If you do, you may not need collision and comprehensive insurance, or you may decide to choose a higher deductible to save money,” says Demora.

Demora also suggests considering how much you have to protect. A 22-year-old just out of college who rents an apartment may not need as much liability coverage, for instance, as someone who owns a home, has multiple vehicles and has been built up a sizable savings account.

2. Shop around

Most auto policies are issued for six months or a year. The ideal times for checking out other carriers and their premiums include when you move, buy a new car or add another driver to your policy. It’s also a good idea to shop around after a life-changing event, such as getting married, having a child or purchasing a home. Insurance experts like Demora recommend that you do your research a month or two before your policy is up for renewal.

Be sure to gather at least three rate quotes. When you do, you may find that you’re eligible for discountsthat your current insurer is not offering for:

  • Having a good driving record.

  • Driving a low number of miles per year.

  • Getting good grades if you’re a student.

  • Taking a driver’s education course.

  • Bundling your auto insurance with your home insurance.

In addition to inquiring about discounts, make certain you understand what’s covered and how much protection you’ll receive under the new policy. While you can speak to your current insurance agent about your options, it’s also a good idea to ask friends, family members, co-workers and other people you trust for their recommendations on a car insurance company.

“Family members and friends are valuable resources when it comes to shopping around for new products and services,” says Demora. “A lot of times, they’ve already done the legwork to provide helpful advice and narrow down your search — and finding the right auto insurance provider is no exception.”

3. Contact your current carrier

Since your insurance company values you as a customer, they may be willing to fight hard to keep your business. By making it known that you’re in the market for a better deal, you may convince your existing insurer to match or beat a rival’s quote.

You can also find out whether you’re missing out on any discounts with your current insurer. “Living a low-risk lifestyle can pay off — literally,” says Demora. “Maintaining a good driving record, attending refresher driving courses and young drivers who get good grades are just some of the discounts your insurer can offer to help keep your premium low.”

If you contact your current insurer and the first person that helps you cannot offer you a better deal, it may be worth your time to contact them again as you may reach a different agent who is willing to reduce your premiums.

4. Check for potential penalties

If you decide that changing your carrier is the right option, make sure to find out if there are any penalties for switching before the end of the coverage period. Fortunately, auto insurance companies generally give you the right to cancel your policy at any time, as long as you give proper notice.

While most insurance companies will likely refund your entire unused premium, some may hit you with a fee if you choose to cancel in the middle of your policy term. Esurance, for example, warns its customers that they may charge $50 if they cancel.

If you check with your current insurer and find that you will be charged a penalty for cancelling in the middle of your term, do the math and determine whether you’d be better off switching now or waiting until your policy expires.

5. Research the new company

Check out an insurer thoroughly before signing on. Most state insurance offices monitor carriers’ customer complaint ratios (such as the number of complaints for every $1 million in premiums collected).

Before committing to a new insurer, read online reviews and look at their ratings from the Better Business Bureau (BBB). You can also call them up to get a feel for what their customer service is like. If you find that they’re impossible to get a hold of or are not helpful, continue your search.

Refrain from signing up with an insurer just because they offer the lowest rates. Keep in mind that although some companies offer great rates, they may be difficult to deal with during the claims process.

6. Mind the gap

“When changing insurance, it’s best to plan on doing so just before your current policy expires,  says Demora. “Switching early prevents you from having a gap in your coverage,”

A lapse in insurance coverage, of course, could lead to serious legal and financial challenges, especially if you become involved in an accident. It also could cause insurance companies to charge you higher premiums down the road because they may perceive you as a “high-risk” driver.

7. Make sure your old policy is canceled

When switching car insurance, it’s important that you simply don’t stop paying premiums for your old policy. Be sure to notify the company via phone or email and let them know you’re ending your policy and are going with someone else. You also want to follow up to make sure you get written confirmation that you’re coverage has been canceled.

By taking these steps, you’ll protect yourself in two ways. First, you’ll ensure that the old company doesn’t continue to bill you. Secondly, you won’t have to worry about getting reported to the credit reporting bureaus for non-payment.

8. Print out your new car insurance ID cards

Once you’ve officially canceled your old policy and switched to a new one, be certain to switch out your old insurance ID card for an updated one in your vehicle. You will need the new ID in the event you get stopped by the police or become involved in an accident.

“Most insurers allow you to access your ID card online through your smartphone, but it’s best to have a hard copy in case you’re stopped in an area without cell service,” explains Demora.

It makes financial sense to get into the habit of reviewing your car insurance policy on a regular basis. After all, the driving situation in your household is likely to change from time to time and may affect the price of your premiums. Taking the time to perform some research may help you land the best possible car insurance price and reduce the overall cost of car ownership.

Kelly Johannessen