Ads like these are all over social media:
Savings like that would be hard to pass up! The thing is, these savings aren’t magic.
Most auto insurance companies have to file their rates with your state. While there are some differences, rates from company to company don’t vary too much. So how can the company illustrated above (and others like it) save you so much money? The answer may actually be detrimental to your wallet.
The quickest and easiest way to save money on your car insurance is to lower your limits. If you currently have $100,000 in coverage, lowering the limit to $50,000 can cut your monthly premium as much as 50%. Lowering to state minimums can save you even more money.
This method of saving on your premiums is not recommended. Lower limits mean lower coverage in the event of an accident. Since auto liability insurance limits determine the amount that the other party in an accident gets paid, you could be on the hook for more than you realize.
For example, your new “budget” insurance company lowers your limit to state minimums. For this example, if you are in California, the state minimums are $15,000 per person/$30,000 per accident of bodily injury and just $5,000 in property damage. (For all state minimums, check out this link.)
Say you’re driving to work when you rear-end a woman in a 2015 Honda Accord who is driving her two children to school. There are multiple injuries in the other vehicle (not to mention your own) and the two cars are totaled. Medical costs being what they are these days, you’ll exceed the $30,000 bodily injury per accident limit for just the mother and one child. Her car is worth about $11,000 but it is no longer driveable. You’ve now exceeded the state minimum property damage limit by $6,000.
Where does the extra $6,000 in property damage and the $15,000+ in medical bills for her other child come from? Your pocket. Add in legal fees associated with a possible lawsuit and you could be looking at a sizeable amount of money that you need to pay. Tack on buying yourself a new vehicle (because you don’t have full coverage) and your own medical bills, and this could easily be a 6-figure accident. Now, don’t you wish you’d kept your $100,000 in coverage, instead of going for the lower monthly payment?
Dropping Full Coverage
Whether you’re purchasing online or by phone, there may be a push to drop full coverage, especially if you have an older vehicle. There is some validity to removing full coverage from an older vehicle, especially if the vehicle’s value is less than the deductible.
However, full coverage may include things such as pet injury/damage, interior damage to a vehicle (other than collision), rental car coverage, and even windshield repair. These are things to consider before dropping that coverage.
Adding or Increasing Deductibles
Another way to lower car insurance costs is to add or increase deductibles. A deductible may be added to your liability insurance, or deductibles may be increased on your comprehensive and/or collision coverage.
Higher deductibles may reduce premiums, but in the event of an accident, they can also increase your out-of-pocket expenses. What should your deductible be? A rule of thumb is to determine how much you could comfortably pay for the damage in the event of an accident. If you have a $1,000 deductible, but could not afford to pay $1,000 if you were in an accident, then you should choose a lower deductible.
Many cut-rate auto insurance companies employ one or many of the tactics above to lower your monthly premiums. In addition, they may be utilizing a carrier with a low financial rating.
The insurance industry utilizes A.M. Best to rate insurance companies based on financial stability. Typically you want an insurance company with an A- or better rating because they are the most financially stable. Companies rated B or lower are not as financially stable and could possibly fail to live up to their financial obligations in the case of an accident.
How To Proceed
If you’re thinking about purchasing insurance through one of these online “agencies” – do your homework. Ask who the issuing insurance company is and look that company up to find out (1) how financially stable they are and (2) if they are authorized to do business in your state.
Then compare apples to apples – don’t just take their monthly premium quote. Find out what the price is for coverage with their company based on your current insurance coverage limits and deductibles. You may find you’re not saving as much as you think.
For the best coverage options and deductibles, contact your Hayes Broker. Hayes has access to many different insurance companies and can find the best coverage available for you at the best price.