A 12-month auto insurance policy provides coverage for one full year before you have the option to renew or change your policy. With insurance rates seeing a steady increase — the average policy cost was up 9% in 2022 — a 12-month policy may be a good choice if you’re looking to lock in premium rates and reduce the impact of market fluctuations.
Read on to learn more about how 12-month insurance policies work, reasons you may consider car insurance for 12 months, when an annual plan may not be right for you, and what other options are available.
Table of Contents
How Does 12-Month Car Insurance Work?
A 12-month auto insurance policy brings a different approach to car insurance, requiring drivers to only renew once each year. This is unlike standard car insurance plans that last for 6 months, requiring drivers to renew twice each year. However, all 12-month car insurance policies still meet state minimum coverage requirements.
To accommodate the longer coverage term and reduced rate update frequency, 12-month car insurance may feature stricter eligibility criteria.
Eligibility
Insurance companies offering 12-month policies may have stricter eligibility criteria for drivers. For example:
- Age requirements, such as being at least 55 years old
- Service history, such as being an active military member or veteran
- Driving history, such as having a clean driving record for a certain number of years
- Claims history, such as having fewer than 3 claims within the last 5 years
Specific eligibility criteria vary by insurer, as these plans do not have to be universally available to all drivers.
How Does the Coverage Work?
True to its name, 12-month car insurance provides coverage for your vehicle for 12 consecutive months. The amount you pay in premiums each month is set at the beginning of the 12-month term. Your deductible and any additional coverages for your vehicle, such as accident forgiveness or glass breakage, is also set when you begin your coverage.
Coverage otherwise works just like it would for standard 6-month car insurance. You would still have your state’s mandated coverages for bodily injury liability, property damage liability, and medical payment or personal injury protection (PIP). If your insurer offers it, you could also purchase optional coverages like collision and comprehensive coverage.
How Common is 12-Month Coverage?
While some auto insurance companies offer a 12-month auto insurance policy, many do not. Since it is not industry standard, you may have trouble finding 12-month coverage from the bulk of major insurance providers. Currently, 1-year car insurance is offered by approximately 10 to 12 insurance companies, and those that do offer a 12-month option may not offer it in every state.
Benefits of 12-Month Coverage
- Your premiums are set for a year. Premiums are set at the beginning of the term and remain the same until the policy ends unless you make changes to your coverage. Even if you are involved in an at-fault accident, your premiums remain the same until the term is up. However, if you are convicted of insurance fraud, lose your license, or stop making payments, your policy may be canceled.
- You may get a discount for committing to the longer term. Committing to a longer term means more financial consistency for your insurance company, which may prompt them to offer a discount.
- You may be eligible for further discounts if you pay upfront. If you agree to pay the entire 12 months of premiums upfront in one payment, your insurer may offer a slight discount because they do not need to worry about non-payment later on. However, if you decide to cancel your coverage before the term is up, you may have to pay a penalty or lose some (or all) of your upfront premium payment.
Downsides of 12-Month Coverage
- These plans can be harder to find. It may be more challenging to find 12-month policies than 6-month or month-to-month options. In part, this is due to changing market conditions — if car repair costs or accident volumes suddenly increase, insurers want the ability to adjust rates accordingly.
- Your premium rate will not decrease even if some traffic infractions age out of your record. In the same way that companies aren’t able to raise your rates — except in specific circumstances — your rates might not go down, even if you have traffic infractions that age out of your record.
- You may be eligible for other discounts within the year, but be unable to use them. You may also be eligible for other discounts during the year that you could miss out on if you lock into a 12-month policy. For example, if you plan to purchase a new home in the next few months, you may be able to access a discount if you bundle your home and auto insurance policies. This discount isn’t possible if you already have 12-month auto insurance in place.
The Other Option: 6-month Car Insurance
If 12-month insurance isn’t the right fit, 6-month car insurance is another popular option.
One key benefit of a 6-month policy is flexibility. Since your policy is up for renewal every 6 months, changes in market rates or your driving behavior are reflected more often. This means that if you’re a safe driver, you could see your rates slowly decrease every 6 months rather than each year.
A potential downside of 6-month policies is cost. Since these shorter-term policies come with a greater risk to the insurance company that you may choose to change insurance providers, your premiums may be more than that of a 12-month policy.
Putting It All Together
When choosing between a 6-month and 12-month auto insurance policy, consider your financial goals, individual circumstances, and driving history.
A 12-month auto insurance policy offers the benefit of stable rates and potential discounts, making it appealing to those seeking longer-term consistency in their auto insurance costs. However, this type of insurance can be difficult to find, and less frequent rate adjustments could end up being a drawback. The more common 6-month insurance policy offers more frequent opportunities for rate adjustments, which may be beneficial for drivers whose records are improving.
The ability to choose between a 6-month and 12-month policy term adds flexibility, allowing you to align your auto insurance with your specific needs and lifestyle changes. If you’re unsure which option is right for you, consider consulting with a financial or insurance professional who can help you make an informed decision.