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Why are most auto insurance policies only 6 months long?


6 month policies are the norms for insurance companies and the shortest most companies will offer— not including canceling your policy mid-term. Most companies use them because it’s an easy way to recalculate rates to ensure you’re being rated fairly as well as being a simple duration of time. However, if a 12 month policy is available to you, you should consider if you would personally benefit from having your rate locked in for a longer period of time. This consideration depends on whether or not you’re being rated for a driving infraction, and if your area is known for insurance rate volatility.


In this article, we will discuss:

  1. Why are policies 6 months long?
  2. Why should I buy a 6 month policy?
  3. Or should I buy a 12 month policy?
  4. Summary





Why are policies 6 months long?


Basically, it’s easier.

Typically, the risk you pose to your insurance company (how likely you are to have a claim which is derived from your driving profile) is calculated over a 6 month period of time— what your insurance company calls your policy period. During this 6 month time frame, any infraction like an accident or ticket will not affect your premium until the following policy cycle. Because of this, insurance companies like to use 6 month policy periods as a way to recalculate your rate to readjust for accidents or citations you have had more often.

Simplistically, a shorter policy cycle allows for insurance companies to better calculate your rate. Moreover, drivers who were previously without insurance coverage are seen as less risky after being insured for just 6 months. This allows insurance companies to offer more competitive rates because of the decrease in risk associated with new customers that were previously insured.





Why should you buy a 6 month policy?


Your rate can be recalculated

First and foremost, you can benefit from a faster recalculation of your rate. While it varies by state and citation, most insurance companies will continue to charge you for up to 3 years for driving infractions (citations, accidents, etc.). If you have an accident or citation on your record that is set to expire halfway through your 6 month policy, most insurance companies won’t readjust your rate until the policy period has passed unless you specifically ask. In this regard, a shorter 6 month policy will allow any infractions to your insurance record to be removed faster.


You have flexibility with your insurance company

A shorter 6 month policy also allows you some flexibility with insurance companies. If you’re unhappy with your company but don’t want to cancel mid-policy, you have the bonus of non-renewing at the end of your term and looking elsewhere. And, if you were previously uninsured, most insurance companies offer significant discounts for drivers who maintain a policy for just 6 months. Once the first 6 months is over, shopping around for a new policy should qualify drivers for much lower rates.

While 12 month policies are less common than 6 month policies, it is dependent on your company and your state if you can get one. If a 12 month policy is available, there are some things you should consider before agreeing to a policy period that long.





Benefits of a 12 month policy


With a 12 month policy, your rates are locked in for a year

If you’re not being rated for an accident or citation, a longer policy is an effective way to ensure that for at least 12 months, your rate won’t change due to a rate revision. In this sense, a rate revision refers to when your insurance company raises (or lowers) your rates due to the number and severity of claims in your area. In many cases, a rate revision can affect drivers regardless if they have filed a claim. Overall, car insurance rates rose by 10.8% nationally between 2011 and 2016. So, having a rate locked in for 12 months might be financially beneficial to you.

While the cost of car insurance usually increases year-over-year, there are instances of it decreasing. For example, in Massachusetts, rates in 2016 were 20% lower than they were in 2011. If you’re locked into a yearlong premium, it might take you a long time to see these savings.





Your Takeaway


By and large, if you have an insurance policy, it's going to last 6 months. Some states and companies offer a 12 month policy, but the average for insurance companies is 6 months in duration. That’s simply because it’s easier for insurance companies to recalculate your rate, easier for both of you and your insurance company to compartmentalize, and allows you flexibility to explore different companies.




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