Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001 and has an undergraduate degree from Manhattan College in ...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Jul 19, 2021

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Insurance companies make more money when they retain customers over the long term because the acquisition cost (to advertise and issue policies) is one of the largest expenses they incur.

Once you become a customer, if you don’t file any insurance claims, you’re a cash cow to the insurer. Every time your policy renews, they make more money…without having to do much additional work.

But does loyalty pay? Maybe, maybe not. For the past several years, insurers have been consistently lowering insurance premiums to attract new clients.

Just like cable television and mobile phone plans, typically only the new customers get the deal.

You may have noticed that your insurer actually runs several different companies. “Insurance Mutual, Insurance Company of TX, Insurance Fire Company,” just to name a few. Insurers often start “new companies” to offer new insurance products in a particular state.

They aren’t allowed to offer two different pricing models for the same product in the same state, so they get us on the hook, and then simply start a new company to sell a cheaper product.

After seeing commercials about how low their rates are, you may check back with your insurer to see why your rate hasn’t dropped.

If you’re lucky, you may be able to get a new policy from the “new,” cheaper company.

But while you’re at it, you may also want to compare insurance quotes from several other insurers to ensure you snag the best rate possible.

What “Market” Cycle Did You Start In?

As alluded to above, insurers have been in a battle to lower rates to attract new customers for the past several years because the insurance market has been “soft.”

Just like other financial market cycles of boom and bust, insurance has a “hard” and “soft” market cycle.

If you purchased your policy at the beginning of a “soft” market, your insurer has likely decreased their rates (for new customers) for several years now.

Of course, they don’t necessarily offer you the cheaper insurance the new guy gets.

In contrast, a “hard” market refers to a period of time where insurers generally increase their premiums to build their balance sheets after years of “giving it away.”

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How Long Since You Last Shopped?

Insurance companies make adjustments to their car insurance rates regularly – based on their financial results from previous years. Some insurers make several changes each year.

Keep in mind there are hundreds of companies fighting for your insurance premium dollars.

Couple that with their rates changing regularly and you will realize the need to shop your insurance regularly, even if you’re happy as a clam with your current insurer.

If you work with an independent agent, you can simply ask him/her to shop your premium with other insurers they represent. You might find that there is a better deal available to you with the same agent.

On the other hand, if you use a captive agent, you will need to contact different companies on your own.

A captive agent only represents one insurer. Call them and ask to lower your premium and their only option will likely be to reduce your coverage, increase your deductibles, or perform their discount double check.

Either way, you will want to contact other insurers to be certain you aren’t sacrificing anything to get a lower premium.

Older Car? Drop Physical Damage Coverage

Assuming your car is not a collector’s item, which may increase in value over time, you may want to lower your deductibles or even drop your physical damage coverage altogether.

Why? The actual cash value of your older vehicle may be so low that you are simply throwing away money by insuring it against physical damage coverage.

For example, you may pay $300 per year for physical damage coverage to insure a car that is only valued at $2,000. So, you are paying 15% of the vehicles total value to insure it (every year). That might not make sense financially.

On the flip side, you may only pay $500 per year for physical damage coverage when your newer vehicle is worth $20,000.

This means you are paying 2.5% of your vehicle’s value to insure it against physical damage.

Unfortunately, there is no “magic” percentage where you are recommended to drop this coverage.

Everyone’s budget is different, so you may be willing to take your chances to recoup some money in the event you suffer a total loss.

Be sure to address this matter every couple of years with your insurer to ensure you are not wasting money on insurance coverage that won’t really benefit you in the long run.

Remember, car insurance is not a “set it and forget it” program. Those who do the research and remain “active” with regard to their insurance needs often save more money in the long run.