Cheaper Is Not Always Better

Cheaper Is Not Always Better

Because of the billions spent on insurance advertising, consumers are inundated with messages about how easy it is to save money shopping for insurance. Consumers are encouraged to comparison shop, and the focus of the advertisements is usually on the amount that can be saved by such comparison shopping. However, buyer bewarethere are substantial differences between insurance policies, and that cut rate insurance policy that looks like such a great deal might just leave you in the lurch come loss time.  Cheaper is not always better. Some of the least expensive policies have restrictions in them that you may not notice until loss time. Those restrictions might cost you thousands.

Online Auto Insurance

A few examples of restrictions in some cut rate auto policies:

  • Liability Limits that revert to state minimum limits when a vehicle is driven by an undisclosed/permissive driver:  So, you loan your car to your friend when she is in town or your son comes over and runs an errand for you in your car – watch out – your auto liability limits may now be reduced to the state minimum limits;
  • Incidental Business Use Restrictions: Your boss asks if you will run to the equipment yard with your pickup truck and come back with a small utility trailer. Watch out – coverage on your truck might be void during such usage;
  • Liability Limits that revert to state minimum limits while a vehicle is being used for any business purposes.

Cut rate auto policies also generally do not have some of the coverage enhancements that could make a big difference to you financially come loss time.    A few examples are:

  • New Vehicle Replacement: Some auto policies provide for the purchase of a brand new car should your vehicle be totaled within a certain number of months or miles of being purchased new. The difference between this policy valuation and the more typical “actual cash value” valuation could be thousands of dollars;
  • Additional Travel Expenses:   What if you get into an accident far away from home, perhaps while on vacation?   Some insurance policies will cover the cost of temporary lodging and the cost of traveling back to get your car once it has been fixed.   Without these coverages, you may have to absorb such costs on your own;
  • Towing or Roadside Assistance: Some policies provide generous assistance to you in your time of need, whether it be the towing of your vehicle or just assistance with a flat tire or mechanical problem. Some policies provide no coverage at all for this.
  • Rental Replacement Coverage: Rental coverage provides coverage for the cost to rent a replacement vehicle during the time that your vehicle is being repaired.   It usually has a maximum limit per day and a maximum number of days.   Be careful as there are substantial differences between policies.   $20 per day up to 30 days maximum is very different than $100 per day up to 60 days maximum.   Most people can’t rent a car for $20 per day.

Click Here for a consumer guide on auto insurance from the National Association Of Insurance Commissioners.

In Homeowners insurance, there are similar significant differences between insurers:

  • Differences in sub-limits/coverages on silver, jewelry, fine arts, musical instruments and similar high valued items;
  • Differences in valuation clauses (actual cash value vs. replacement cost) and extended replacement cost provisions;
  • Differences in how and whether sewer back-up coverage is offered: The limits vary tremendously and what types of events are covered also varies. Some policies, for example, do not cover back-up of sewers and drains caused by the storm sewers being overwhelmed by heavy rains (which is the most likely loss scenario for most homeowners);
  • Differences in perils covered – policies vary tremendously. See related article: What does Homeowners Insurance Cover

Click Here for a consumer guide on homeowners insurance from the National Association Of Insurance Commissioners.

As there are major differences between insurance policies, it is essential that you either do your own thorough research, or that you employ the assistance of a knowledgeable insurance agent.   The more assets you have, the more important it is that you purchase the proper protection.   An assumption that cheaper is better could lead to a very expensive mistake.

Other Enhanced Insurance articles related to Insurance Premiums:

Gender Based Insurance Premiums

Usage Based Insurance (e.g. Progressive’s Snapshot)

Car Insurance Estimators

The DWI Conundrum

Are Traffic Cameras Making Safer Streets

Are Insurance Companies Out to Get Me

How Much Does Homeowner’s Insurance Cost

Can My Child Support Affect My Driver’s License

Does the Color of Your Car Affect Your Insurance Rate?

Enhanced Insurance is not written by attorneys. If you’re looking for legal advice, you need to contact a lawyer. Further, insurance practices and forms change constantly and are varied from state to state. For definitive answers in your area, contact a local agent.

While the majority of people want an agent involved in their purchase of insurance, many people want to see if they can save money by buying direct from the insurance company. Others want to try a direct quote to make sure the premium they’re now paying through their local agent is fair. If you want a quote for your coverage, click on the competitive quote button on the right side of this page.

Fifteen reasons why you should work with an insurance agent.

Jim Ketterson is an insurance expert with more than 25 years of experience in the industry. He has served as a President of an insurance company, an insurance underwriter, and has held various roles in insurance company product management. He has his Chartered Property Casualty Underwriter designation and a MBA in Finance. The information he offers in his posts is general in nature and may not be appropriate, accurate, or applicable in all situations. Before making any important insurance decisions, you should seek the advice of a qualified insurance agent and discuss the particulars of your individual situation. Follow Jim on Twitter @MNinsurancePro

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