Will a Bankruptcy Impact Your Auto Insurance Rates?

Bankruptcy doesn’t directly influence auto insurance rates. However, many auto insurers use credit history to help set premiums. Bankruptcy-related damage to your credit scores could bring higher auto insurance rates. In some cases, a bankruptcy filing could even prompt your car insurance carrier to cancel your policy.

How Bankruptcy Affects Car Insurance Rates

Insurance scores are not the same as the traditional FICO® Scores and VantageScores® lenders use to evaluate loan and credit applications. But insurance scores are based on the same underlying data: the history of debt and repayment recorded in your credit reports with the national credit bureaus (Experian, TransUnion, and Equifax).

Standard credit scores are designed to predict your likelihood of defaulting on a debt within 24 months. Credit-based insurance scores are designed to predict the likelihood that you’ll file a claim that causes the insurance company to lose money. Insurers view a low credit-based insurance score as a sign that you could be a risky customer. As a result, they might charge you higher rates or refuse to renew your policy.

What to Do if Your Auto Insurance Is Canceled After a Bankruptcy

If a bankruptcy leads your car insurance provider to substantially raise your premiums or cancel your coverage, shop around for alternatives. Each insurance company sets its own standards for deciding whether to work with applicants, so other companies may be willing to offer you coverage—at a potentially steep price.

If you can’t find an auto insurance provider to cover you, your only option for securing a policy may be your state’s high-risk auto insurance pool. Premiums will be hefty, but if you can get through a year or two without filing any claims or racking up accidents or tickets, you may qualify for coverage from a standard insurance company.

How to Save on Car Insurance

If bankruptcy has saddled you with steep car insurance premiums, taking steps to rebuild your credit as soon as the bankruptcy is final can eventually bring relief, but it likely won’t be a quick fix. The following tactics may help you trim costs to make your auto policy more affordable in the near term:

Increase Your Deductible

You can get a lower premium by choosing a higher deductible. Because that will increase the amount you pay out of pocket in the event of a claim, make sure you have enough money in savings or your emergency fund to cover your deductible if it becomes necessary.

Seek Pay-Per-Mile Insurance

Some insurance providers offer policies that allow you to pay a comparatively low flat daily or monthly fee, plus an additional charge for each mile you drive. If you are retired, work from home, or have a short commute, pay-per-mile coverage could save you money compared with traditional auto policies.

Drop Optional Coverage

States typically require a minimum level of auto liability coverage—insurance to cover costs of any accident you may cause, such as repairs on other drivers’ vehicles and medical treatment for occupants of those vehicles. You may also opt for collision coverage, which helps pay for repairs to your own vehicle if you cause an accident. If you own your car outright, you may be able to lower your auto insurance premiums by reducing or even eliminating collision coverage. However, this will mean you’ll be on the hook for paying to fix your car if you’re in an accident.

Consider a Driving Monitor

Some insurance companies reduce your premiums if you use a smartphone app or a plug-in device to track and report your driving habits. If the monitor attests to safe driving habits, you can reduce your rates even further—but if it exposes you as careless or reckless, your premiums also could go up.

Take a Defensive Driving Course

Some insurance carriers reduce your auto premiums if you take a qualifying defensive driving course. These classes, available in many states through private companies and organizations such as AAA and AARP, typically cost less than $100 and could save you $1,000 or more in annual insurance costs.

The Bottom Line

Bankruptcy-induced damage to credit scores affects your access to credit and can also drive up your car insurance rates—or even jeopardize your carrier’s willingness to provide auto coverage. Time, patience, and discipline can help you rebuild your credit after bankruptcy, and may eventually help bring your auto insurance rates back into line.

A great way to track your credit recovery is to regularly check your credit score for free from Experian. As your recovery continues, you may come to think of your bankruptcy and its attendant insurance rate hike as a minor detour on a long journey.

Contact O1ne Mortgage for Your Mortgage Needs

At O1ne Mortgage, we understand the challenges that come with financial setbacks like bankruptcy. Our team is dedicated to helping you navigate through these tough times and find the best mortgage solutions tailored to your needs. Call us today at 213-732-3074 for any mortgage service needs. Let us help you get back on track and achieve your financial goals.