Q:

Why do insurance companies only offer car insurance for six months at a time?

A:

Quick Answer

Insurance companies only offer auto insurance policies that last half a year because they want to be able to re-evaluate the cost of the policy after six months based on the policyholder's driving record during that time. The sale of an insurance policy is essentially a transfer of risk from the policyholder to the insurance company, points out Cover Hound.

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Why do insurance companies only offer car insurance for six months at a time?
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Full Answer

The insurance company bases the price of a policy upon this risk, the basis of which is the driving record of the policyholder. For example, if a driver has a series of accidents within the first few months of an insurance policy, the insurance carrier wants to have the ability to raise the price of insuring this driver at the end of a six-month period, says Cover Hound. The insurance carrier does not want to be locked into a long-term policy with an accident-prone driver.

Having an auto insurance policy that only lasts for six months can also be beneficial for the policyholder, as it gives him a chance to improve his driving record. The silver lining in having a six-month policy is that it allows the policyholder to reduce his rates more quickly as his driving record improves, according to Cover Hound.

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