Premiums have increased around 12% on average only in the last year so people are naturally looking for cheaper auto insurance and nobody can blame them. Also, it is normal that companies will line up from the most expensive to cheapest when you get a few quotes. It would be a flawed way of thinking to assume the most expensive policy is the best and cheapest one is the worst. It is perfectly plausible that it will be the other way around and the cheapest quote will be the best choice.
Nevertheless, there are some vehicle insurance policies that are cheap for a good reason. Often it is clear why and how a particular company managed to offer you a better price as they are not trying to pull wool over your eyes. Still, you need to look to see the differences in coverage, deductibles and conditions. Then, you should consider if they will cause you a problem when you have a claim because they can if you overtighten your policy to get the lowest price.
Here are some of the hidden costs of cheap auto insurance policies;
- You may not have the coverage when you have a claim
The cheapest policy you can buy is for state required minimum liability car insurance coverage. If all you care about is to be able to drive legally and you can barely pay even for it, the way to look at it may be that it is better than nothing. However, state minimum liability limits are fairly low and often may not be enough to pay for the damages and injuries you may cause to others in an accident you are at-fault.
Also, you won’t have any coverage for your own vehicle so you will need to pay for your repairs out of pocket and you will have to buy another car if it is totaled. When you give up coverage to save money, you also give up the right to claim on that coverage.
- You may have to pay more out of pocket
Another way of considerably reducing your premium is to increase deductibles. But overdoing it can cause financial difficulties when you don’t have enough savings. This would be even more so if you have more than one claim in a term. On the other hand, you probably had to give up Collision and Comprehensive coverage entirely if you couldn’t lower the premium by increasing deductibles.
- You may be without a car longer
You may want to save money and not buy Rental Car Reimbursement. This may be acceptable for people who live in big cities with good public transport or have other cars in the family they can use or get a lift. But it may be a problem for people who are highly dependent on the vehicle.
And if you knew the auto insurer wasn’t good at paying claims and bought the policy from them anyway because they were the cheapest, you may suffer when they are slow in responding to your claim and getting your vehicle repaired. It would cost you more money for alternative transports and frustrate you.
- You may get poor customer service
When you have a claim or want to make changes to your policy, you don’t want to dread calling your insurer because it is going to be a hard task to get through. Also, agents can be not knowledgeable, helpful or even rude when you get through. Not getting the advice you need can cost you time and money. And some auto insurers can actually afford to charge less because they don’t have enough agents on the phone or on high streets as they expect customers to manage their policies and submit claims online. If the Internet isn’t your cup of tea, you may want to stay away from such providers even if they are cheap.
- Your claims may be denied
Good faith is the bedrock of vehicle insurance. Every policy comes with a large booklet, which is the contract between you and the insurer. A company with good faith can try to help you even if your claim isn’t by the book. However, a company that is strapped for cash may be forced to play hardballs with every claim.
Paying expensive premiums doesn’t guarantee that your claims will go smoothly and cheaper companies aren’t necessarily bad. However, Auto insurance companies spend around 60 – 70% of the premiums they collected for paying the claims. If they haven’t collected enough premiums because they didn’t charge enough money for each policyholder, you can see how they can face problems paying claims.
- You may not have coverage for some drivers
Some cheaper car insurance policies may come with age restrictions or reduce coverage for occasional drivers. So, you may have to be mindful of these conditions to avoid lending your car to someone who isn’t covered under your policy.
- Punitive damages may not be paid
At times, motorists may be sued for punitive damages or the third parties may be awarded exemplary damages. A cheaper policy may not go as far as paying for punitive damages as they may have excluded them. So, there may be more out of pocket payments to make.
Clearly, every auto insurance company is different but being different doesn’t make any company bad. For example, there are carriers operating mainly online and they don’t have agents on the high street and a limited number of them answering calls. On the other hand, they allow motorists to manage their policies online by signing onto their portals and even submit a claim. And many people don’t want to talk to anyone face to face or by telephone if they can do the things online themselves.
Finally, there are many policyholders who hardly ever make a claim. Granted that their premiums would and should be lower but they rightfully be looking for even cheaper automobile insurance and it may be understandable that they can take a few calculated chances to lower their premiums. For example, they could care less if the company doesn’t have a local agent as long as they have agents on the phone if they haven’t made a claim in the last 10 years and they recon they can go another 10 years without one.
On the other hand, if you have a family with a couple of young drivers already and more on the way to get their driver’s licenses, it is a fair assumption that you will file a few claims in the next 10 years. So, you may want to make sure you have a local agent to guide you through and you would want to make sure the company is good at paying claims.
In short, there are horses for courses. It may be perfectly acceptable to buy “cheap” auto insurance as long as you know what you can be up against if you have a claim, the savings are enough to make it worth it and you are a very low-risk driver anyway.