By Emily Wright
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Why the Premium May Not Be Worth the Cheap Price tag
Everything seems to be getting more expensive, so it’s no surprise folks are opting to save on their car insurance by cutting back on their coverage — but are they really saving in the long run?
The short answer: no. The reasons: Cheap car insurance doesn’t always mean great coverage, both in terms of finances and in terms of treatment.
People who opt for cheaper premiums are more likely to leave their insurers for a company that takes better care of their customers than people who are looking for a cheaper rate, according to the J.D. Power 2021 U.S. Insurance Shopping Study.
The study, which came out in April, revealed that 30 percent of car insurance policyholders shopped for a new provider in 2020. Of that 30 percent, “customers who experience a premium increase shop at a rate of 13 percent—less than half the rate of shopping among those who have a poor experience (28%).”
Could saving money on a monthly, semi-annual, or annual bill be worth more than saving yourself from a headache after an accident?
If you’ve answered yes, beware that when you pick a cheaper policy, it could potentially (and probably) be lacking in some respect, one that could eventually cost you more money.
Take, for instance, the deductible which you are required to pay in the event of an accident. The folks at carinsurance .com created a hypothetical situation that tested the deductible vs. policy savings for a 35-year-old man driving three different vehicles.
In the situation, they calculated that the man could save nearly $200 by having a $2,500 rather than a $250 deductible on his collision and comprehensive insurance premiums while driving a 2004 Mazda3. The same man could save nearly $300 while driving a 2008 Honda Accord EX, the same amount he could save if he were to drive a 2012 Ford Explorer, the newest of the three models.
Confident drivers (or folks who have a hefty savings account) may feel comfortable opting for the higher deductible, but what they may not take into account are their fellow drivers on the road who could potentially cause an accident.
According to the National Highway Traffic Safety Administration, “motor vehicle crashes and fatalities increased in 2012 after six consecutive years of declining fatalities on our nation's highways.” That same year, the average auto liability claim for property damage was $3,073.
If the same 35-year-old man were to have a $2,500 deductible and be involved in an accident with the average damage done, his insurance would only cover $573 worth of damage. Conversely, with a $250 deductible, the insurance would cover close to $3,000.
With the average insurance premium increasing 2.76 percent to $1,029 annually in 2013, it may seem like a smart idea to cut corners on coverage, but there are longer-term effects to consider when picking a car insurance policy.
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