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Why a Super Low-Cost Policy may not be the Right Choice After All

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If you’ve searched for a low-cost policy near you, then you’ve probably seen these ads like these:

Get full coverage car insurance for $29”

$19 cheap car insurance for young drivers”

Lower your monthly car insurance payment to $29”

These offers for a $19 a month policy sound out of this world good; too good to be true.

They almost always are.

Example ad offering supra low quotes for drivers.

Note: An example of a company offering rates as low as $19 a month. They are offering $1/day policies too. This type of advert is likely to get you to click on the ad. Then you may not being getting the low quote as advertised.

Getting bargain-priced policies on a new car just isn’t possible.

And getting a bargain basement policy on a car that is a few years old is a bad idea, period.

Don’t get me wrong, paying less for car insurance is a good thing.

But paying a lot less to get minimal coverage is more dangerous than good.

You want a policy that will have you covered no matter the situation.

A $19/month policy simply won’t do that.

Example ad offering $29/month policies.

Note: Another ad offering quotes at $29/month or low income policies. There are state programs offering low income policies for drivers.  Source @ theSimpleDollar.com

Don’t Be Joe

Let me explain.

Two years ago, a good friend of mine… we’ll call him Joe… purchased a lightly used 2016 Honda Civic.

Joe considered himself to be a safe driver and wanted to save money.

After all, he thought he probably wouldn’t need it since he had a pristine driving record.

Joe did all the right things at first.

He searched phrases like “how to find cheap coverage” and “cheap car insurance near me”.

He got bargain basement quotes online and compared policies.

Joe’s Savings

Here’s a snapshot of the savings Joe was dreaming about:

Standard PolicyCheap PolicySavings / monthSavings / year
$120$29$91$1,092

But none of the quotes he got were as cheap as the $29/month ads he kept seeing on Facebook and Google.

Why would he pay $120/month to insure his Civic when he could buy coverage for $29/month elsewhere?

The $29/month insurance that Joe purchased covered the bare minimum.

It had an insanely high deductible and really low bodily injury liability limits.

At first, it was great for Joe.

Here is a snapshot of Joe’s coverage compared to a standard policy:

CoverageJoe's CoverageStandard Coverage
Bodily Injury$25,000 / $50,000$100,000 / $300,000
Property Damage$10,000$50,000
Personal Injury Protection$50,000$50,000
Comprehensive $2,500$500
Collision $2,500$500

He was a safe driver and he was saving nearly $100/month on car insurance.

Joe’s Debt

Four months later, it was a different story.

Joe was running late to work.

He sent his manager a text to let him know he’d be a few minutes late.

As he was driving to the office, he got a text message back from his boss.

He looked down for a split second to check the message.

Unfortunately, in that moment, the two cars in front of him stopped short because a garbage bin had blown onto the road.

Joe rear-ended the car in front of him and was ruled at fault.

The $100/month savings that Joe got from buying the cheapest car insurance was nothing compared to the deductible he paid for his repair bill.

Worse, his bodily injury liability limit wasn’t enough to cover the injuries of the person he rear-ended.

Long story short, Joe learned the hard lesson that the $29/month policy was, in fact, too good to be true.

Here I created a snapshot of the savings Joe had before the accident “if” he was accident free for a year.

And the losses Joe had after the accident:

Cheap PolicyStandard PolicyResult after accident
$1,092$0($2,500) deductible
xx($3,500) repairs to other driver's vehicle
x$0($6,000)
$1,092 in savings per year($4,908) Loss

The $100 he thought this crazy cheap would save him each month ended up costing him thousands of dollars.

In this situation Joe has $4,908 of debt. 

The Harsh Reality of Really Low Policies

It’s hard to ignore the bargain price of $19 or $29/month policies.

Companies offering supra-low policies know that buyers will focus more on the price than what is covered.

Sadly, research and data show that most customers will pay more with this kind of auto insurance policy.

Coverage that is in a standard policy for most states.Note: Illustrated above are standard coverage for most policies. You can raise or lower the amount of coverage you want. However, you must maintain the minimum coverage regulated by your state. Property damage and liability coverage are required in most states. In some states personal injury protection (PIP) is required. The amount you pay for comprehensive and collision is determined by the type of vehicle you drive and the deductible amount. Extras are coverage types such as GAP or roadside assistance.

That’s why is important to compare plans with more standard policies.

Here’s what you should look for when you are trying to find a policy:

Deductibles

Most car insurance policies offer deductibles of $500 or $1,000.

The very cheap auto insurance plans you see in ads on Facebook and Google may have deductibles as high as $2,500.

There is an article here to help you choose the correct deductible

What does a High Deductible mean for You?

To put it simply, if you get into a car accident, you’ll pay more to get your car fixed.

With a $500 deductible, you pay for the first $500 in repair costs and your car insurance company pays the rest.

The higher the deductible, the more you’ll pay for repairs.

Below I created a table to show the cost difference with different deductibles:

DeductibleComprehensive PremiumCollision Premium
$100$128$550
$250$101$458
$500$84$375
$1000$52$280
$2500$43$197

Supra low-cost polices with a sky-high deductible might save you some money each month, but one accident could cost you as much as $2000 more than you’d pay with standard auto insurance provider. Ouch!

Coverage

Supra low-cost policies offer the bare minimum in coverage.

That means you’ll have to foot the bill for repairs for collision damage or vandalism.

Let’s be honest.

Nobody plans to have a car accident, and nobody plans for their car to be vandalized.

It just happens and it could happen anywhere.

I’m sure you’ve heard stories of parked cars being hit in store parking lots.

Maybe a windshield cracked by a small rock that flew out of nowhere.

A standard auto insurance policy helps to cover most of, if not all, the costs in these situations.

In the table below I have the cost difference amount full and liability only coverage.

There is a search feature for you to find your state:

StateFull Coverage State Minimum Difference yearlyDifference monthly
Michigan$3,141$1,855$1,286$107
Louisiana$2,601$771$1,830$153
Nevada$2,402$717$1,685$140
Kentucky$2,368$669$1,699$142
Florida$2,162$828$1,334$111
California$2,125$606$1,519$127
New York$2,062$867$1,195$100
Rhode Island$2,040$738$1,302$109
Connecticut$2,036$891$1,145$95
New Jersey$1,993$846$1,147$96
Montana$1,963$447$1,516$126
Colorado$1,948$553$1,395$116
Delaware$1,921$843$1,078$90
Georgia$1,865$684$1,181$98
Texas$1,823$538$1,285$107
Maryland$1,816$853$963$80
Oklahoma$1,815$418$1,397$116
Missouri$1,798$546$1,252$104
Arizona$1,783$578$1,205$100
Wyoming$1,782$328$1,454$121
Arkansas$1,763$449$1,314$110
Alabama$1,713$498$1,215$101
Pennsylvania$1,700$502$1,198$100
Kansas$1,689$464$1,225$102
Mississippi$1,684$413$1,271$106
West Virginia$1,654$541$1,113$93
South Carolina$1,653$617$1,036$86
South Dakota$1,643$323$1,320$110
Washington$1,620$537$1,083$90
Minnesota$1,619$614$1,005$84
New Mexico$1,604$479$1,125$94
Hawaii$1,589$485$1,104$92
North Dakota$1,577$423$1,154$96
Alaska$1,560$412$1,148$96
Illinois$1,538$493$1,045$87
Nebraska$1,500$393$1,107$92
Oregon$1,496$674$822$69
Tennessee$1,493$462$1,031$86
Utah$1,492$565$927$77
Massachusetts$1,466$520$946$79
North Carolina$1,425$438$987$82
Vermont$1,410$398$1,012$84
Iowa$1,352$326$1,026$86
Wisconsin$1,335$401$934$78
Idaho$1,285$377$908$76
Indiana$1,266$430$836$70
Virginia$1,196$380$816$68
Ohio$1,191$406$785$65
New Hampshire$1,086$424$662$55
Maine$1,080$355$725$60

*Data is for 2019 Honda Accord from all states. Data provided by Insurance.com via Quadrant Information Services.

With a $29/month plan, you’d be on the hook for those costs.

Basically, you’re paying less each month, but you’re getting next to nothing in coverage.

When you need that coverage the most, the company you bought the policy from won’t be there to help you.

Limits

One of the most important things to look for when buying a policy are coverage limits.

These limits typically cover bodily injury and property damage.

Bodily injury limits are usually separated into two categories:

Per person and per accident.

A super low-cost policy is usually a bad idea because the policies offer the lowest liability limits possible.

To put it bluntly, getting the lowest, cheapest bodily image and property damage limits could put you on the path to financial ruin if you get into an accident.

A $25,000 per person limit may seem like it is more than enough.

A $100,000 or $250,000 per person limit offered with average auto insurance policies might even seem like overkill.

Sadly, the cost of an ambulance ride and a stay in the ER offer a sobering reality about how much bodily injury could cost you if you are at fault.

Most good affordable plans will include limits listed as at least 100/300/50, or $100,000 in bodily injury liability per person, $300,000 total bodily injury liability per accident, and $50,000 in property damage liability per accident.

Below is an example comparing liability only with full coverage:

Type CoverageCostMinimum Coverage
Liability$792$792
Collision$5760
Comprehensive$2820
Total$1,650$792

The policy offerings that you see in ads on Facebook and Google from little known companies usually offer far lower liability limits.

These lower limits might save you a few bucks each month, but they will cost you dearly in even a minor accident.

So by now, you hopefully get it.

Stay far away from those misleading low-cost policies advertised all over Google and Facebook.

Car insurance policies that sound too good to be true are too good to be true.

They are a bad idea, plain and simple. But that doesn’t mean you still can’t save money on auto insurance each month.

Here’s how you can save money on your premium each month without sacrificing the coverage you need in case of an accident or damage.

Compare Quotes Online

You should compare quotes at least once per year.

When you shop for an affordable policy, you should get quotes from at least two providers.

By using our quote comparison tool, you can see how much you’ll pay for your car insurance each month.

You’ll also see what kind of coverage each policy offers for your money.

Below is the information you will need to an online quote fast and easy:

InformationDocuments
Personal informationHave the address, date of birth, occupation, driver's license and marital status.
Vehicle informationMileage, date of purchase and Vehicle Identification Number (VIN) for each car.
Driving historyInclude all claims, violations, driving courses, and tickets you've had over the past five years.
Current or previous insurer’s nameInclude anyone on the policy or in your household.

Don’t Wait Until the Last Minute to Look

It is never too early to start looking for a cheaper policy.

If you’re looking to buy a new or used car in the near future, you should start comparing quotes now.

How much you pay for car insurance will depend on the car you buy.

We recommend picking out a few car models that interest you and compare how much you’ll pay for a policy for each model.

If you aren’t buying a car but still want to pay less for auto insurance, you should start getting quotes about one month before your renewal date.

Why one month?

Well, according to theBalance.com, you’ll get a slightly better quote a few days before your policy’s renewal date since insurers know you are ready to get a new policy. 

As you get closer to your renewal date, quotes will be higher.

The one thing you should NOT do is just let your policy auto-renew.

If you do that, you’ll pay as much as $100 more each year.

If you are happy with your provider, that’s great.

But don’t assume for a minute that they will just give you a loyalty discount.

They won’t unless you specifically ask, and even then, it’s not guaranteed.

Even if you plan on staying with your current auto insurance provider, get a few comparison quotes about 21 days before your policy renewal date.

Contact your car insurance provider and ask for a loyalty discount.

Use the comparison quotes you got to help you get the coverage you want for a price that works for you.

Keep Your Personal Information Updated

Once you’ve purchased your policy, it’s easy to forget about.

Most of us don’t even think about it until we need it.

However, any changes in your daily life can help lower how much you pay for car insurance.

For example, if you changed jobs and drive less to get to work, you should let your company know.

Car insurance costs less when you drive less each day.

Updating your job title can also help you pay less.

Below is the price difference for a bank teller and retail worker with a college degree and high school diploma:

OccupationQuote
Bank Teller with HS diploma$607
Bank Teller with college education$511
Retail worker with HS diploma$722
Retail worker with college education$510

Just be careful in the title you give your company.

Data shows that the job title you use could impact how much you pay for a policy.

For instance, using the job title “office manager” will cost you more for a policy than using the title “office administrator”.

Go figure!

Why You Should Avoid Companies That Promise Super Cheap Insurance

It might look like you’ll save a lot of money each month if you buy a super low-cost policy. 

Don’t be misled.

Buying one of those advertised plans is a very bad idea.

You won’t save money.

In fact, data shows you will pay way more with those so-called “Supra Low-Cost” plans than you would with more standard coverage.

When you need proper car insurance coverage the most, you will be left out to dry.

There are far better ways to save money.

Sure, you won’t save $100/month like the ads claim.

However, when you shop around and compare cheap car insurance quotes from trusted companies, you will still save money.

More importantly, you can enjoy peace of mind knowing you’re properly insured should the unthinkable happen.

Sources

NAIC.org Study

Treasury.gov affordability study

Consumerfed.org CFA studies

ConsumerReports Methodology

Greg Fowler

Greg Fowler

Managing Member of AutoInsureSavings LLC, Greg has been in the insurance industry for 12 years and enjoys rebuilding vehicles. His goal is to help drivers save on anything related to automobiles. Travel and enjoying the outdoors are some of his hobbies. The best way to reach him is at his Twitter or Facebook Profile.

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