In an ideal world, insurance companies would allow you to start a policy without making a payment. After all, car insurance is mandatory in many states. What is a driver to do if they can’t afford the down payment required by a company? Unfortunately, not much. While some companies may offer cheaper down payment options, there aren’t any that offer zero down payment options. One of the reasons for this is that an insurance policy is a contract between two parties. And to be legally binding, there needs to be a consideration, meaning an exchange of value exists. A customer pays for the insurance company’s promise to pay future claims. The down payment is the customer’s consideration to this contract.

Down payments can range between 10-20% of the total policy’s premium, which can be a significant amount of money. However, if you need car insurance and don’t have much money to spend upfront, you have some options. Here are some tips on finding cheap full, coverage auto insurance with little money for a down payment.

Key Takeaways

• Very few, if any, insurance companies offer zero down payment options.
• Most down payments range between 10-20% of the total insurance premium.
• The more inexpensive your policy, the less the deposit will be, so there are some things you can do to make your policy cheaper, so your down payment is less.
• Assess whether you actually need full coverage on your car.
• Get multiple quotes from companies and utilize independent insurance agents as well.
• Look into Insurtechs that offer telematics or low mileage programs.
• If you currently have car insurance, apply any refund from the cancellation of your existing policy to the down payment for the new one.

What is Full Coverage?

When talking about car insurance, you often hear the term “full coverage” being thrown around. However, “full coverage” is a misnomer as there is no coverage that can be purchased to protect you fully against anything that can possibly happen to your car. Realistically, insurance companies wouldn’t be able to make a profit if that were the case. When you hear the phrase “full coverage,” it is referring to the physical damage portion of your car insurance—specifically, the comprehensive and collision coverages.

As the name suggests, collision is the coverage that pays for your car to be repaired in the event of a crash. Anytime your car comes into contact with something, collision is what would cover the damage. The one exception to that is when you hit an animal. In this case, comprehensive coverage is what would pay for the damage. Comprehensive also covers your car for things other than collisions, such as fire, theft, and vandalism.

Both of these coverages require you to select a deductible, which is your out-of-pocket expense. The deductible is what you would be responsible for paying before the insurance kicks in. For example, suppose you have a $500 deductible for collision coverage. If you crash your car into a building and it will cost $5,000 to repair the damage to your car, you would pay the initial $500, and your insurance company would pay the remaining $4,500 to fix your car.

It’s also important to note that insurance companies will typically only pay the actual cash value of your car in a loss. This means that if your car is not worth much money, it might not be worth spending the extra money every month to purchase the comprehensive and collision coverage, on top of any deductible you may have.

Assess The Coverage Needed

Now that you know what full coverage means, you should assess the coverage that you actually need. If you are making payments on the car, such as if you are leasing or financing, the bank will require you to carry physical damage coverage. There is no way around that, as the financial institution has an insurable interest in the car and will want to ensure it is repaired if damaged. However, you can save some money by increasing your deductibles. The higher your deductible is, the lower your price will be. So, if you choose a higher deductible, it can save you some money, which also lowers the amount you will have to pay upfront to start the policy. Remember that the deductible is what you will have to pay in a loss, so be sure you’re choosing an amount you can comfortably afford if there is an accident.

If you aren’t making payments and you own your car outright, you may want to consider not carrying physical damage coverage. And checking the value of your car is a great place to start.  Companies like NADA or Kelley Blue Book can help you determine your car’s current value by asking a series of questions about its specifics. Knowing what your car is worth will allow you to decide whether it makes financial sense to carry comprehensive and collision coverages. For example, if your car is only worth $1,000, it may not be worth paying the extra money for this coverage. Instead, you can use the money you saved towards a newer car.

Get Multiple Quotes

The best way to ensure you get a competitive price from any insurance company is to shop around. The most efficient is through an independent agent. Independent agents are not affiliated with any one company in particular and often represent multiple carriers. As such, they can quote you with a few different companies to get you the best rate. In many cases, they can advise you on which company is best for your financial situation. For example, which companies offer payment plans for any future bills or have more convenient payment options. 

But if you prefer to do your own research, many insurance companies offer online quoting. There are also insurance comparison sites that will quote you with a few different companies at one time. Just be sure you are quoting the same coverage with each company to get the most accurate comparison.

Don’t Exclude Insurtechs

In recent years, the insurance industry has seen a fair share of insurtechs explode on the scene. Insurtechs are new insurance companies that usually involve technology to improve the consumer experience. This includes telematics offerings and low mileage policies. The benefit to these types of companies is that they can more accurately price your policy with technology. While most insurance companies rely on older statistical data (ex: your credit score or education) to base your price, many insurtechs are now utilizing your driving data to determine what you should pay. If you consider yourself a good driver or you don’t drive often, you can potentially save money with these companies.

Other Helpful Tips

It may also be helpful to know that most insurance companies cancel on a pro-rata basis. This means that you are not penalized if you cancel your policy before the expiration date. So if you are currently insured and decide to switch to another company, you can take whatever potential refund you receive and apply it to your new company’s down payment. Just be sure you are not leaving any gaps between insurance policies. Lapses in coverage can cause your price to increase with future insurance companies as you are viewed as a higher risk to insure.

You also don’t need to switch companies or get a new policy when purchasing a new car. If you stay with your current company, there is usually no down payment required to replace cars on your policy. You typically are only required to pay the difference in price between the cars.

But if you do not have insurance or want a completely new company, there are some, such as State Farm, that doesn’t necessarily charge you a separate down payment. They simply charge you for the first month of insurance coverage. In this case, you don’t have to come up with any additional money to start your policy, and you generally have a whole month before your next payment is due. Do some research on other companies and if their deposit and first month’s premium are one and the same.

Lastly, take steps now to ensure your future policy premiums don’t get out of control. Almost all insurance companies base your price on your credit score, so that’s an excellent place to start. Work on improving your credit and see your price decrease as a result. You can also attempt to decrease the number of insurance claims you file. If you can avoid filing a claim and pay for the damage yourself, especially if the damage to your car is minimal, this will help insurance companies see you as a more responsible insured and a lower risk to insure overall.