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18% of people have used their tax deduction to pay for car insurance. Should you?

Plus: Other financially smart ways to use your refund

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By Susan Meyer Info icon
Updated February 27, 2025
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Susan Meyer

Senior Editorial Manager

Susan is a licensed insurance agent and has worked as a writer and editor for over 10 years across a number of industries. She has worked at The Zebr…

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  • Licensed Insurance Agent — Property and Casualty
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Beth Swanson

SEO Content Strategist

Beth joined The Zebra in 2022 as an Associate Content Strategist. She is a licensed insurance agent whose goal is to make insurance content easy to r…

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  • Licensed Insurance Agent — Property and Casualty
  • Associate in Insurance
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  1. Do people use their refund to buy car insurance?
  2. Should you use your tax return for insurance?
  3. Other smart moves to use your refund

The link between tax season and car insurance shopping

People shop for car insurance all year round. And yet, as sellers of car insurance, we notice an uptick in people shopping for and comparing insurance options between February to April. 

One reason is potentially because of tax season. People are using their tax refund to either 1) buy a new vehicle for which they now need insurance or 2) buy car insurance for an existing vehicle for which they were previously uninsured or underinsured. 

Car insurance is getting more unaffordable for many, so using a sudden influx of money, such as a tax refund, may be an option for staying on top of required expenses like auto insurance. 

Do people use their refund to buy car insurance?

The Zebra recently conducted a survey and found that, surprisingly, 18% of people have used their tax returns to buy car insurance. 

When asked what they planned to do with their refunds this year, around 8% said they planned to put it toward a big purchase (like a car) and 1% said they planned to buy or increase their current insurance coverage.

The top two answers were to pay down debts or add to savings. 

Should you use your tax return for insurance?

Using a tax refund can be a good way to cover auto insurance costs, especially for people struggling to keep up with monthly expenses. 

If you're expecting a refund, using it to pay off essential expenses like car insurance can be a smart financial move—especially if it helps you avoid debt or take advantage of discounts. However, consider your overall financial situation and whether the refund could be better used elsewhere, such as building an emergency fund, paying off high-interest debt or investing.

Benefits of Using Your Tax Return for Insurance

Lump-Sum Payments Save Money

Many insurers offer discounts if you pay for six months or a year in full rather than in monthly installments. Using a tax refund to cover an upfront payment can reduce overall costs.

Avoiding Lapsed Coverage

Car insurance is a legal requirement in most states. A lapse in coverage can lead to higher premiums, fines or even license suspension. Using a tax refund ensures continuous coverage.

Managing Debt and Expenses

Since tax refunds often provide a financial boost, people use them to pay off car-related expenses, including insurance, loans and repairs.

Peace of Mind

Paying for car insurance with a refund removes the burden of monthly payments and helps people focus on other financial priorities.

What are some other smart financial uses for your refund

If you're all set on your car insurance and don't mind the monthly payments, what are some other smart uses for your refund? Some of these may even improve your tax situation for next year. 

  1. Boost your emergency fund: If you don’t have at least three to six months’ worth of expenses saved, consider depositing your refund into a high-yield savings account. A strong emergency fund helps prevent reliance on credit cards or loans when unexpected expenses arise.

  2. Pay down high-interest debt: Credit card debt and personal loans can drain your finances with high interest rates. Using your tax refund to pay down debt can save you money in the long run and improve your credit score.

  3. Invest in your retirement: Consider contributing to a traditional or Roth IRA. Retirement contributions can grow tax-free or tax-deferred, helping you build long-term wealth.

  4. Make home improvements that save on taxes: Some home upgrades can reduce your tax liability next year while increasing your home’s efficiency and value. Check out the sidebar for some ideas. If you remodel your home, it's also a great time to reevaluate your home insurance.

  5. Invest in yourself: Use your refund for professional development, certifications, or courses that can increase your earning potential. Some education expenses may also be tax-deductible.

  6. Fund a health savings account (HSA): If you have a high-deductible health plan, contributing to an HSA allows your money to grow tax-free while covering qualified medical expenses.

  7. Adjust your withholdings: While not technically a way to spend your refund, it's worth noting that when you get a large deduction, it’s not money the government is giving you, but your money being returned after you loaned it to them for free. By having less withheld throughout the year, you won’t get as large a windfall at tax time, but you’ll have more money in your paycheck for savings, insurance, or other expenses.

Home renovations that can get you a rebate

  • Energy-efficient windows & doors – Qualifies for a federal tax credit under the Energy Efficient Home Improvement Credit.
  • Solar panels – The Residential Clean Energy Credit offers a 30% credit for solar energy system installations.
  • HVAC upgrades – Installing an energy-efficient heat pump, furnace, or air conditioner can qualify for a tax credit.
  • Insulation & roofing – Certain insulation and roofing materials that improve energy efficiency may also be eligible for credits.
  • Home office upgrades – If you work from home, improvements to your designated office space may be deductible.

 

By using your tax refund wisely, you can improve your financial security and even lower your tax bill next year. A little strategic spending today can lead to greater savings down the road.

Wrapping up

While most people won’t be able to deduct car insurance from their taxes, tax season is still an excellent time to assess and budget for car-related expenses. Whether you use your refund to pay for insurance upfront or spread it across monthly payments, planning ahead can help keep your finances in check.