Is cheap car insurance really smart?
Cheap, cheaper, even the cheapest car insurance, not just affordable is what the customer of today might ask for. And they are right. But please make sure you save without compromising your coverage and safety befor you join them.
So You Think Saving $20 a Month On Auto Insurance Is a Good Idea?
Blame (or praise!) Geico. That’s where it pretty much started. In
1999, the direct-only, low cost insurance company broke into television marketing with an animated gecko thanks to the actor’s strike, which precluded real people.
The accidental success of the gecko commercials turned the insurance advertising business into a multi-billion dollar business. Enter Flo (Progressive), mayhem (Allstate),
and whomever that dude is with the big blue phone (Nationwide). Now, even ultra-serious State Farm is trying to be funny on television (epic fail?).
Changing Focus from Security to Price
What used to be a business built on security and protection from the possibility of catastrophic loss has become a price war and popularity vote. This could be a boon for some customers who have found better pricing on their property and casualty insurance needs, especially with a seismic economic landscape.
But, is it really better to save $10 or $20 a month on car insurance if the price came from reducing protection? Who really benefits?
Cheap Insurance Isn’t Always Smart Insurance
Flo might get an A+ in cheeky and perky, but as an insurance advisor, she gets an F. Name your own price? How is that possible when insurance companies must receive approval from the state insurance commissioner for any rate changes (and is usually preceded by months of red tape)?
Easy: The agent works up a mock quote then adds or slashes protection, deductibles, limits, or benefits until it matches as closely as possible to the requested price.
If a quote that matches a customers policy of $250 Deductibles on Collision and Comprehensive and $300,000 worth of injury protection for the other party costs $100 each month, but the customer requested $80 a month, guess what changes? Deductibles double and protection is cut, giving the customer a $20 per month savings for $200,000 less in protection and an out-of-pocket expense that’s double what he or she would have paid on the previous policy.
That’s Just Not a Smart Move
The first amount out of a lawyer’s mouth for an injury lawsuit is a million dollars. They may or may not get it out of a
policyholder, but wouldn’t a policyholder feel slightly more at ease sitting in the courtroom knowing they have $300,000 on their insurance policy than they would at $25,000?
Let’s Do the Math
It doesn’t take a math-magician to figure out the cost savings that a better policy would provide, but for the sake of argument, lets lay it all out on the table.
Here is an example of a cheap policy: $1000 deductibles on Collision and Comprehensive, liability limits of $25,000 each person and $50,000 total each accident for Bodily Injury, $10,000 Property Damage Liability, no medical coverage for insured or passengers, and no other benefits like roadside assistance or rental replacement car during claim repairs.
According to the Property Casualty Insurers Association of America, the average person will have three to four accidents in their lifetime. Feeling prideful that you haven’t yet? That just means you are overdue.
Let’s say you have a fender-bender in a parking lot. These are pretty common with low injuries; typically require a bumper replacement or quarter panel replacement. Your company pays to fix the other car and allows a few thousand in chiropractor bills and pain and suffering. You’ve got enough in your policy to cover it all, thankfully.
Feeling Confident? Well, What About Your Car?
You have a leased vehicle or a car loan, which requires you to maintain your vehicle and fix any damage so that the lending company can re-sell your car if you default on a loan. So now you have to come up with $1000 to pay the collision center that’s replacing your bumper, tires, and paint chips.
The collision repair shop is going to have your car for about a week and you have no other means of transportation to get to work, grocery store, pick up your kids from school…so you have to rent a car. Let’s assume that it will cost $400. That’s probably on the low end.
You fork over the $1000 for your deductible only to discover later that your insurance company is only providing $20 towards the ONE tire that was damaged because of depreciation and wear and tear. They aren’t covering any other tires even if they no longer match.
You can’t have an odd tire with different wear and tread so now you have to pay out of pocket for the entire set of tires (minus the $20). A set of tires can range from a few hundred to a few thousand.
You saved $20 a month on your “name your own price” insurance policy and paid about $2000 towards your own repairs and had nothing to cover your few chiropractor visits to work the kinks out of your neck. The chiropractor pocketed $400 for those few visits.
You are now up to about $2400 in costs for a little parking lot fender bender. Do you want to add up costs of a major accident involving a pileup? I didn’t think so.
Oh, wait…we’re not done! Since you excluded accident forgiveness benefits, you could pay rates up to 200% higher than what you were paying before the accident for as many as five years.
Cheaper, But Smarter Car Insurance
You don’t have to pay enormous amounts of money for a good auto insurance policy. Take the policy information you have on your current policy and do a comparison analysis with all the top companies. This can be completed fairly quickly by using an insurance comparison website that gives you estimates for all the top companies.
Secondly, when you work up the comparison quotes, start with the most coverage possible and the lowest possible deductibles. Include all the extra goodies that you can: Rental, roadside, forgiveness, etc. When you find the best one, customize it to get it closer to what you prefer to pay; your last resort should be to lower the liability Bodily Injury and Property Damage.
