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Economists say the risk of a 2025 U.S. recession is rising in the wake of President Trump's new tariff policies. Torsten Sløk, chief economist at asset manager Apollo Global Management, estimates a 90% chance of recession. Adam Posen, president of the Peterson Institute for International Economics, forecasts a 65% recession chance.
(Disclosure: Yahoo Finance is owned by Apollo Global Management.)
The numbers are your cue to recession-proof your finances before the economy slows. An easy starting point is your car insurance, and you can use the five strategies outlined below.
How a recession may affect you
There is a nonprofit research group responsible for declaring recessions in the U.S. called National Bureau of Economic Research (NBER). NBER defines a recession as "a significant decline in economic activity that is spread across the economy and lasts more than a few months." While the definition doesn’t specify a timeline, economists and analysts assume a recession is underway after two quarters of negative GDP growth.
Learn more: Trump's tariffs: What they mean for the economy and your wallet
Two normal outcomes of recession are rising unemployment and falling interest rates. However, a 2025 recession may deviate from the norm. There is a good chance the new tariffs will lead to higher prices, which could prompt the Fed to raise interest rates to control inflation.
In that scenario, U.S. households may have to cope with higher debt costs and a shrinking job market simultaneously. That can be challenging for those who haven’t been managing their finances closely.
How to recession-proof your car insurance
In 2022, U.S. drivers spent an average of $1,592 a year on car insurance, as reported by Statista. According to the Insurance Information Institute, auto insurance costs accounted for an average 1.67% of U.S. household budgets in 2018, the latest year data is available. While these numbers may seem small relative to other budget categories, every penny counts when a recession sets in.
Use the five strategies below to manage your car insurance bill before and during an economic slowdown.
1. Don't reduce coverage to save money
Your first instinct may be to save a few bucks by lessening your coverage. Don’t do it. This strategy can backfire too easily. Losing your job and then wrecking your car without appropriate insurance can be a devastating one-two punch to your finances.
2. Evaluate and adjust coverage
Instead of slashing coverage, take the time to evaluate how much insurance you need. If you work through a broker or agent, ask for help. An expert can walk through key considerations, such as:
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Your cash savings. You should have enough cash on hand to pay your car insurance deductibles, plus any other financial emergency that arises. In a recession, you may want lower deductibles. Lowering your deductible costs more, but the difference may be small, and the change could help you conserve cash if you get laid off.
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Your assets. The more assets you have, the higher policy limits you need. If there is a judgment against you that exceeds your insurance coverage, the court can seize your bank accounts and, in some states, place a lien on your home.
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Your driving habits. If you drive often, you have a higher risk of an accident and could benefit from richer coverage.
Optimizing your coverage to protect your wealth is a wise investment, even if it raises your premiums slightly. It's easier to pay a little extra monthly for better coverage than to face a lawsuit and judgment you cannot afford.
Learn more: Homeowners insurance: What it covers and how much you'll pay
3. Bundle your policies
Consolidating your insurance coverage with one company can lower your total premiums by 20% or more.
Many households bundle homeowners and car insurance. Depending on the insurance company, you may also be able to combine car insurance with renters insurance, RV insurance, or motorcycle insurance.
4. Shop around (or stay loyal)
Insurance companies use proprietary formulas to set your rates. This means different insurers can have higher or lower premiums for the same coverage. Gathering at least three quotes from other insurers will either validate your current premiums or reveal an opportunity to switch and save.
Learn more: How to shop for car insurance
If your current premiums prove to be competitively low, you may be earning a loyalty discount. Some insurance companies give long-time customers a break on rates, particularly when they have good driving and claim histories.
Learn more: Car insurance discounts: 17 ways to save
5. Drive carefully
Driving carefully could be the most effective way to recession-proof your auto insurance. Following traffic laws, turning off your smartphone, and staying alert behind the wheel can prevent unnecessary accidents and tickets. This helps keep your rates from rising and could spare you from paying a deductible to get your car fixed.
Prepare for the worst and hope for the best
Solid financial management requires worst-case scenario planning. To prepare for a recession, assume you may lose your job. Then think through how you would manage temporarily with limited income. In that situation, adequate car insurance helps you by reducing out-of-pocket costs after an accident.
Tim Manni edited this article.
