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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.
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.
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.
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.
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.