How Low Down Payment Auto Insurance Works
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UPDATED: May 28, 2019
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Many car insurance companies will issue low or no down payment auto insurance. Some states even forbid companies from charging a down payment. Find out if your state is one of these by visiting your state’s department of insurance website.
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Even if a company doesn’t charge a down payment, you’ll still usually be required to pay the first month’s installment before your policy becomes active. This isn’t a down payment but is just the first of the monthly payments on the insurance.
Monthly Payments on Auto Insurance
Most companies will allow you to pay for your car insurance on a monthly basis. For example, most policies are issued every six months or once a year.
If your premium is $600 for six months, then you’ll be charged $100 per month. This allows you to spread out the payments, making insurance more affordable.
However, many insurance companies charge an “installment fee” to do this.
The fee can be $10 per month or more, depending on the company, the state in which you live, and how you pay the bill.
So, that $100 bill just became $110. This means the exact same insurance policy will cost you $120 a year more for the privilege of paying it in monthly installments.
To avoid this extra charge, you can pay the entire premium up front. Then, for the next six months, set aside one-sixth of the premium monthly, maybe in a savings account. In our example, that would be $100. Then the next time your premium is due, you’ll have the full $600 waiting.
Some companies will charge much less or nothing at all when you pay each month with automatic electronic billing. This means that the insurance company will withdraw the appropriate amount from your bank account on the same day each month via electronic transfer.
Since this is much cheaper than cashing checks, you can avoid the fees this way and save yourself some time as well.
State Programs for Low Income Car Insurance
Across the country, many state governments are reaching out to low income families who need their cars in order to get to work, but have a hard time affording car insurance. They have set up programs that provide basic car insurance for a low fee to eligible drivers.
However, even these programs sometimes have down payments. As an example, the California Low Cost Auto Insurance program offers liability insurance to families who meet the income requirements for less than $400 a year, depending on the county in which they live.
The program has five payment plans available. The first option is paying the entire balance up front. The other four options all require a deposit of $100, $125, or 15%, depending on which option is chosen. So, even low-cost plans can require a down payment.
Minimum Car Insurance Needs
Many people looking for no down payment auto insurance are just looking for a policy that fulfills their state’s legal requirement for insurance. Others just don’t want to pay too much up front.
For those wanting to pay just enough to “stay legal,” you need to be aware of your state laws. While some states just require liability, others also require uninsured motorist and PIP coverage.
If you’re unsure what the law specifies in your state, check your state’s department of insurance website.
Just be aware that most state liability limits are fairly low. For example, in Arizona, drivers are only required to buy 15/30/10 insurance. This pays just $15,000 per person for bodily injury, with a maximum of $30,000 per accident. It also will only pay $10,000 towards replacement or repair of the vehicle.
Since many cars would cost well in excess of $10,000 to replace, carrying so little insurance is a big risk. Since you, as the driver, are still responsible for paying for the damage to that vehicle, if the insurance won’t pay, the other driver can sue for the remainder.
This could put your savings and maybe even your house in jeopardy. Most experts advise their clients to carry at least 100/300/50 insurance.
Remember that just carrying liability won’t pay for your car damages or your medical expenses if you are at-fault in a traffic accident.
If you can’t afford to fix your vehicle or pay for high medical bills, you’ll want to consider adding comprehensive and collision and personal injury protection to your policy.
While these do add to your premium, they can pay for things you couldn’t otherwise afford if you’re in a bad accident.
Some insurance companies are in business to cater to people who only want to pay for the minimum amount of car insurance. While most are perfectly legitimate, it’s up to you as the buyer to do your homework.
If you get a quote from a company you’ve never heard of, be sure to research them before purchasing any policy. Look them up at websites like Standard & Poor’s.
Standard & Poor’s rates insurance companies based on things like the number of complaints made against them and how strong they are financially.
Do a search for the insurance company online and make sure they don’t have a bad reputation. Contact the Better Business Bureau or your state department of insurance and inquire about complaints made against them.
Also, make sure they are licensed by your state to sell insurance there.
If the company has a high number of complaints about service, especially about not wanting to pay a claim after an accident, it isn’t worth the savings they could offer to you.
Remember that if it seems too good to be true, it usually is.
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It Pays to Shop around
One of the best things you can do to save money and to find a no down payment policy, is to shop around. In today’s market, car insurance is a highly competitive business. Just like most people don’t buy the first house or car they look at, don’t sign up for the first insurance policy you find.
Consider auto insurance a major purchase, which deserves some consideration and time. Just one afternoon of calling around or looking around on the Internet could save you a lot of money.
Not only are companies in competition with each other, but they also have different ways of calculating a premium.
While one company puts more stock in the number of tickets or accidents on your record, another might consider a good credit score more of an indication of how risky you would be as a customer.
These differences can result in drastically different premiums for the same person with the same car and driving experience.
In addition, some companies cater to certain groups or occupations. If you are active duty or retired military, there are insurance companies who will quote you a lower premium because they are trying to attract as many military customers as possible.
Other companies might have an agreement with your employer to provide a discount, so ask your Human Resources department if they have this available to their employees.
Saving Money on Premiums
There are multitudes of ways you can save on car insurance, besides not having to pay a down payment. One thing that experts suggest is reviewing your policy to make sure you’re not paying for coverage you don’t need.
For example, if you’re paying for medical payment coverage and you have good health insurance, you’re basically double paying.
If your state does not require you to carry med pay, consider dropping it. Just make sure your health insurance will pay for car-accident-related injuries first, as some health insurance policies exclude this.
If your car is older, you might not need comprehensive and collision coverage anymore. If the car is paid off, look up its current value on the Kelley Blue Book website. If it is worth less than ten times the amount you’re paying for just the comp and collision part of your policy, then you’re probably safe dropping that coverage.
Just realize that this puts the cost of repairing a damaged vehicle or buying a new car completely on you if you are at-fault in an accident. So, if you absolutely could not afford to do this, then keep comp and collision.
Raising your deductible on the comp and collision can drastically cut your premium, though the exact amount varies by company. If you’re on the fence about whether to drop comp and collision, you might try raising the deductible to $1,000.
This can lower the premium while protecting you from having to pay the full price of replacing the vehicle if it’s totaled.
Ask each company you get a quote from for as many discounts as you can. You might be surprised at how many are available. If you have a good driving record, ask if they could reduce your premium accordingly.
If there is a student on the policy who makes good grades (usually “A”s and “B”s), tell them and see if you can get a good student discount.
Also see if they can provide renter’s or homeowner’s insurance. Combining these into one policy with your auto insurance can usually save you money on both items.
If you’ve taken a defensive driving course in the last year, even if it was to have a traffic ticket dismissed, tell them. This will usually provide an additional discount.
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