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Economy Reflected in Declining Car Insurance Coverage


Last April, the National Association of Insurance Commissioners performed an in-depth survey of consumers in the United States. The survey was conducted by phone, and included more than 1,000 US residents over the age 18. The Association was looking into consumer behavior over the past year to see if there has been a substantial shift due to the country's economic downturn. The results show that a large number of people have made lifestyle or insurance changes directly related to their need to cut expenses.

Some people made changes with the goal of saving money, but cutting insurance costs was not the biggest deciding factor. For example, a sizeable percentage of drivers have begun to find alternative transportation for their daily commute so that they can save money on rising fuel costs. Lower insurance rates turned out to be a side benefit as they began driving fewer miles. Some lifestyle changes could actually increase car insurance rates or make it more difficult to procure insurance in the future. For instance, a tendency to drop coverage temporarily in order to save money in the short term is unfavorable.

People are Driving Less

Almost 40% of the people who participated in the survey said that they have found ways to cut down on their driving over the last 12 months. People are riding bicycles, walking, and using public transportation rather than driving their own vehicles. This statistic reflects several social and economic changes consumers have had to deal with over the past year. Fuel prices have nearly doubled in many states, which prompted many people to change their transportation habits. Driving less can also cut down on expenses because it means the vehicle will require less frequent maintenance.

Driving fewer miles can have a dramatic impact on the amount that people pay for their insurance. Most insurance companies offer special discounts for drivers who manage to maintain a specific minimum mileage each year. Leaving the car in the garage or driveway puts consumers at a lower risk of being involved in an accident, so they are less likely to file a claim. Drivers who don't notify their insurance company of their changing driving habits may not realize that they could qualify for the additional savings on their insurance costs, though. Some drivers might be saving money on fuel costs, but missing the savings on insurance costs.

Owning Fewer Cars

About 20% of the respondents said that they have gotten rid of extra family cars. Families are cutting back to one or two cars so that they can eliminate the car payments, additional maintenance costs, and additional insurance costs of owning an extra vehicle. People are better organized about how and when they drive so that they can make each trip more efficient. As more people experiment with alternative transportation for commuting, the need for an extra family car is reduced as well.

Dropping a car from the family payroll is a direct way to cut insurance costs. It can also make scheduling transportation more difficult, especially if there are several people in the family. Drivers might not be aware that they could cut at least some of their insurance costs by taking advantage of a multi-policy discount through their provider. The discount would not be as deep a cut into the family's spending, but it might provide enough relief that the family could afford to keep that extra car and not sacrifice the convenience of the additional mobility. It is possible that getting rid of one family car could make insurance coverage for the remaining car more expensive because it will be driven more often and there will probably be more drivers on the policy.

Downgrading Existing Cars

Many drivers have traded in their newer cars for older models. Driving a used car instead of a new car can cut monthly car payments dramatically. The older cars might require a little extra maintenance to keep them running well, but they are generally less expensive to drive. However, the problem with saving money by downgrading your car is that older cars are less likely to be as fuel-efficient. You might wind up paying more for gasoline while you save on car payments.

Trading in a new car for a used one is a good way to reduce your insurance payments. Cars that are just a few years old usually cost less to insure, because they are less expensive to repair or replace. The value of the cars has depreciated over the years, so the overall insurance coverage does not need to be as high. As long as the car owner maintains it well and the car has safety gear like anti-lock brakes and airbags, downgrading to an older vehicle can be a smart way to save money on insurance.

Canceling Insurance Coverage Temporarily

One of the most damaging things a person can do to their insurance costs is to cut their car insurance to try to save money right away. The study showed that nearly 20% of the respondents have either canceled their car insurance policies or dramatically reduced the amount of coverage they carry. A break in coverage can make it difficult to qualify for a new policy once you are financially stable once more. If you do find coverage after the break, the coverage will cost much more than it would have before.

Dropping or reducing coverage puts you at a higher risk for financial disaster if you are involved in an accident. If you don't have enough coverage, you could pay thousands of dollars out of your own pocket toward repairs or medical bills. Saving a little bit of money right now by getting rid of your insurance could mean spending a lot more than you could ever afford in the end. Since insurance coverage is required by each state, you will also face fines or have your vehicle impounded if you are caught driving without insurance.