The true cost of auto insurance in 2021 [SECTION 3]
Where you can reinvest your auto insurance savings
Various factors go into determining your auto insurance rates, providing several areas of opportunity for you to save. Once you have found auto insurance savings, you can repurpose them to benefit other areas of your life. Bankrate’s True Cost Rank provides a way to break down the sum of your annual auto expenses and determine where adjustments might be needed to acquire additional savings. The returns may seem small at first but could have a significant impact on your long-term financial goals.
Pay off your credit card debt
If you have credit card debt, using your newfound auto insurance savings to pay it down could be a wise choice. As credit scores also impact annual premiums, putting auto insurance savings towards paying off credit card debt could save you money on both immediately, with a reduced monthly debt repayment amount, and in the long-run with savings on your car insurance premium due to an increased credit score.
Fund your 401(k)
Putting savings into your 401(k) may not immediately feel beneficial, but letting your money grow over time can have a huge impact on your retirement fund. For example, even in New York where the true cost of auto insurance makes up 3.23% of your annual income, finding any savings on your auto insurance to offset these high premiums could help you contribute more towards a retirement fund. If you save at least 10% of a $60,000 annual salary (with half employer match up to 5%), you could earn over a million dollars in retirement savings after 35 years.
Start a child’s college savings fund
Tuition for even one child at a higher education institution is expensive, so it is never too early to start saving. A four-year college, for example, has the potential to be nearly 10 times more expensive than the highest average state car insurance premium, which is $2,724 annually in Louisiana. If you maintain a good driving record or move to a different ZIP code that offers a more favorable rate, you may be able to put the savings into a college fund to prepare for these high costs. If your child maintains good grades and qualifies for various auto insurance discounts, you could also put these savings toward your child’s educational future and decrease potential long-term loan debt.
Invest in high-yield savings accounts
All savings accounts can be beneficial, but it may be even more impactful to open one that is designed to earn interest at a higher-than-average rate. High-yield savings accounts typically earn annual percentage yields at rates higher than regular savings accounts. Even by contributing just $100 a month from your premium savings into a high-yield account (with at least $10,000 at .50% APY) you could earn over $100 in interest after two years from just your auto insurance savings. Putting these earnings into an emergency savings fund could be a smart financial decision. An emergency fund can help to eliminate the need to use a credit card to cover emergency expenses, which may negatively impact your credit score and result in an increase in insurance premiums.
Pay off your car loan
Interest on car loans can add up quickly and may even outweigh your initial loan amount if left to accumulate. By allocating car insurance savings to paying off loan debt, you could pay down your car sooner. The more aggressive approach to addressing your loan debt will not only add to your overall savings because of reduced interest payments but also eliminate your monthly car payment. For example, if you take that extra $400 a month in savings by improving your credit score and apply it to your car loan, you could pay an extra $4,800 a year towards your loan.
No matter where you choose to reinvest your savings, understanding the true cost of car insurance can help you manage your overall financial well-being. By knowing how much you spend on auto insurance premiums each year, understanding how different life events can impact these expenses and being able to pinpoint savings opportunities, you can better prepare your financial future.