Want to save 50% on your auto insurance?

I occasionally get calls from clients that have been shopping their auto insurance policies with other companies:

Hi Bill, I’ve got another quote from XYZ company and it’s almost half of what I am currently paying. Can this be right?

Now these clients are NOT simpletons. Many are professionals, business owners and educators, but they have all fallen into a clever marketing trap many direct writers are using to attract new customers: six-month auto policies. Now these carriers are not hiding the fact that the coverage period is only six months, they are just focusing on price rather than the term. As I described in last week’s post why you should choose an Independent Agent, because these direct writers are only writing insurance from one company, they are only selling one type of personal auto policy. Because these companies tend to focus on price, if they can’t beat the competition’s pricing, they might try to push a six-month policy and leave the consumer to try and figure out the difference.

Are there benefits of a six-month policy?

In some situations, there ARE benefits to writing a six-month policy, but they are limited:

If you currently have an accident or moving violation on your driving record that is going to come off your record within the next six months, you may want to consider a six-month policy. In this scenario, you may have more options when your policy comes up for renewal and may get better rates when your policy is re-marketed with a clean record. This is specious reasoning at best because it is only applicable if you stay with the same carrier (i.e. the company pushing the six-month policy.) Even if you have a 12-month policy, you can cancel your policy and re-write it with another company the day after the violation comes off your driving record. (Don’t worry, you will get any unearned premium returned to you prorated to the day you canceled your old policy.)

Another potential benefit to a six-month policy is getting a “paid-in-full discount”. Some carriers will offer discounts if you pay the full term of the premium up front. Obviously, paying a six-month policy in full will be about half as much as paying a 12-month policy in full so there might be an advantage to the six-month policy in this case. However, unsurprisingly, the direct writers advertise the “discounts” for paid-in-full policies more than other carriers. These “discounts” are marketing gimmicks intended to add perceived value and options to what is the same policy.

Here is an example: Most companies charge installment fees to cover the costs of processing the payments. Let’s say you have policies from two companies that each have an annual premium of $1,200: one company will say the premium is $1,200 with a monthly installment fee of $5 (making the annual premium $1,260) while another company will say their annual premium is $1,260 but you can save 5% ($60) by paying the policy in full. It is really the same exact premium! The truth is most companies will waive any installment fees waived if you sign up to have the payments automatically withdrawn from your bank account. Don’t fall for these marketing gimmicks.

What are the benefits of a 12-month policy?

There is only one primary benefit to writing a 12-month policy, but it is an important one:  Your insurance rates are “locked-in” for a full year.

Auto insurance rates have been rising significantly for the past few years. There are many reasons for this: more cars on the road, lower gas prices mean people are driving more miles, people are driving distracted by technology more frequently and cars are getting more expensive so the cost of claims are increasing. As a result, many insurance companies are implementing more frequent rate increases. Therefore, if you only have a six-month policy you are more susceptible to being impacted by a rate increase at every six-month renewal. 12-month policies can only be affected by insurance rate increases once a year.

Another factor that effects your insurance rates is your driving record. As mentioned above there might be a benefit to a 6-month policy if you are anticipating an accident or violation being removed from your 3 or 5-year driving record. However, the knife cuts both ways in this situation. If you happen to get into an accident or get a ticket, you may be paying for it sooner with that 6-month policy: Let’s say you have two drivers, one buys a 6-month policy and one buys a 12-month policy. Each driver gets a speeding ticket the day after the effective date of their new policies. Both drivers will have the ticket factored into their premium at their renewal, but the driver with the 12-month policy will have their rate ‘locked-in” for an extra six months.

If it sounds too good to be true, it probably is

Some insurance companies spend millions of dollars on marketing just to entice you to get a quote from them. Their entire business model is based upon: pricing, speed and efficiency so once they get you on to their site those are the only features they try and sell you on. Independent agents like Shove Insurance understand your desire for those features but our focus is on coverage. We are not willing to sacrifice your protection for the sake of a quick sale. Instead, we find you the best coverage at the best price and give you a straight-forward explanation of what you are buying without the sales gimmicks. The best part is, when you compare our proposals with the direct writers, we often offer much better pricing for the same insurance coverage. Don’t be fooled, call us today to replace your six-month auto policy with a 12 month – it will save you in the long run.