Most companies mainly sell 6 month car insurance so that they can reassess and reprice ever-changing risks. With six month coverage auto insurers are not stuck with a high-risk policyholder for another six month like the case with 12 month policies. Vehicle insurance companies cannot easily cancel a policy even if you have an accident or traffic tickets and your risk indicators are through the roof. There are rules in every state restricting insurers to cancel policies mid-term only in serious circumstances like material misrepresentation, breaking the law or non-payment. They have to wait for the renewal to either serve you non-renewal notice or increase your premium to reflect your new risk profile. That is why most car insurers would mainly sell six month policies.
You would think that they would want to tie you down for a longer contract to make sure they keep the business. They are on the hook to pay for injuries and damages you cause to third parties as well as collision, storm, flood, vandalism and theft losses occurred to the vehicle (with full coverage). That is why underwriters aren’t keen on tying themselves down for a longer than six month period.
There are tens of factors considered in premium calculations and a slight change in any of them can increase or decrease costs. You can get a traffic ticket, have an accident, make a claim, move home, add or remove drivers from your policy, your credit score goes down or up, replace your vehicle, drive more or less and all these details have an impact on your premium.
Most auto insurers only sell 6 month policies because a lot changes even in such a short period and therefore they don’t want to be tied down any longer. This can be beneficial for policyholders too. Maybe you haven’t had time to shop around and bought coverage in a hurry last time. And you are not the type of a person to break a contract. So, in six months time you can shop for the best deals and reduce costs.
On the other hand, policyholders can switch whenever they want and most companies don’t even charge cancellation fees these days. Yet, six month automobile insurance has the feel that you aren’t stuck with your current provider. It is easier to pay the premium at once when it is charged semi-annually and get a pay-in-full discount offered by most companies, as well as making sure that it is done and the policy cannot be cancelled for non-payment. Also, they can change their providers if they are not happy.
Semi-annual renewals force policyholders to consider their changing circumstances, determine their new needs and get an automobile insurance policy that meets them better.
6 month vehicle insurance is beneficial for good drivers in many ways because they allow you to get to better rates and higher discounts sooner. If you are a good driver, you don’t have accidents, tickets and you don’t make claims. And most people’s lives improve for the better as time passes. Their credit score improves, they buy their own home, buy safer cars, move to nicer neighborhoods with low rates and generally add onto their long insurance history and driving experience. And six month car insurance starts taking all those improvements into account earlier and therefore beneficial for good drivers.
Of course, they take negative factors like inflation into account earlier as well but inflation is only a problem at certain periods and usually stable around 2% a year, which makes it only a minor factor affecting premiums.
Auto insurance companies are trying hard to make sure that everybody pays their fair share to join the insurance pool. That is why they constantly improve their premium calculation methods, find new ways to assess and reduce risks and 6 month car insurance help them a lot to achieve this goal.
When insurers can collect the right amount from everyone, they are not pressured to increase premiums across the board to replenish their depleting funds due to claims. And good drivers don’t have to compensate for the losses caused by careless, negligent and simply bad drivers.
That is why it is important for insurance companies that they don’t have to wait for 12 months to serve a non-renewal notice to a high-risk policyholder or increase premiums to a level appropriate for their risk profile.
On the other hand, bad drivers would love to lock in low rates whenever they can so that their rates don’t go up if they have accidents or traffic convictions. Then, they may seek out 12 month policies but they may end up paying more for it because larger companies don’t usually offer them. Since the six month term is more widely available, drivers have a better chance of finding cheaper policies in the market when they don’t insist on an annual policy.
In short, six month auto insurance keeps everyone honest. Companies can check the driving history and credit score of their policyholders more often and adjust their premiums accordingly, which rewards careful motorists and penalizes risky behaviours. And policyholders can shop around for better prices more often that keeps insurers honest.