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Auto Insurance Disaster: 5 Common Reasons That Could Get You in Trouble

Updated: October 27, 2018

Getting auto insurance is not as easy as people think. Customers mistakenly think that getting a cheap policy is all they have to do.

There are many facets to auto insurance that buyers must understand before they can get a “good” policy.

There is a giant misconception that a cheap policy is automatically a worthwhile policy.

In reality, a lot of the cheap policies offered by auto insurance companies come with very little protection, which means more out of pocket expenses after an accident.

It is important for people to compare the price they are paying vs. the coverage they are receiving.

Refusing to Shop Around

If someone is satisfied with their auto insurance policy, and they have been with the same company for a few years, there is a tendency to stick with what they know. This is a mistake.

The best way to save money on auto insurance in the long run is to change your policy every few years.

Shopping around for auto insurance is not restricted to people who want a policy for the first time. Customers who already have insurance still need to see what is out there. If you do not shop around, you are missing out on discounts from other companies every year.

The best way to save money on auto insurance in the long run is to change your policy every few years. Not only does this cause your existing provider to offer discounts, but it shows you cheaper policies that other companies are offering.

Check the date on your auto insurance policy. If it is expiring in the next few months, it is time to start shopping around for offers.

If you have a good driving record, you will get offers with plenty of discounts from other companies that serve your state.

Buying the Cheapest Policy

There is a saying in business that says: “you get what you pay for.” While this is true for all products and services, it is very relevant to auto insurance. If you see a policy quote that is much cheaper than any offer from other companies, take a look at the fine print.

Unless you absolutely cannot afford more premium payments than the cheapest policy on offer, it is important to look at what each policy is offering.

The cheapest policy quotes are usually so low because they offer minimal coverage in the event of an accident. This means paying more out of pocket, which costs you more money in the long-run. The cheapest companies also have the worst customer service records.

Unless you absolutely cannot afford more premium payments than the cheapest policy on offer, it is important to look at what each policy is offering. Are they providing comprehensive and collision coverage? Is the deductible at a manageable level?

Paying a little more for a thorough policy is better than saving a few dollars for insufficient protection.

The only time you should accept a flimsy but cheap policy is when you have serious financial problems.

Comprehensive Coverage

For newer and more expensive vehicles, it is of paramount importance that you get comprehensive auto insurance coverage.

If your car is only worth a few thousand dollars, there is no need to pay hundreds of dollars a year for comprehensive coverage.

What is comprehensive insurance? It is the part of auto insurance policies that pays for damage from natural disasters, theft or personal negligence while the vehicle is not being driven. More expensive cars are likelier to get stolen or vandalized, which is why you need comprehensive insurance.

However, continuing to keep comprehensive coverage on your policy even as your car declines in value is a mistake. If your car is only worth a few thousand dollars, there is no need to pay hundreds of dollars a year for comprehensive coverage.

In this case, it makes more sense to save that money and keep it in a savings account. By saving money on comprehensive coverage for an older car, you can raise more funds to eventually buy a new car if something happens to your existing vehicle.

As a general rule, comprehensive coverage makes sense if you cannot afford to repair/replace your current vehicle. As the car gets older, comprehensive coverage is less necessary.

Not Taking Available Discounts

Here is a secret that few people know: auto insurance companies offer tons of discounts for new and existing members. However, they do not always advertise those discounts or activate them until requested by the customer.

Simply ask your company about the discounts on offer and how you can qualify for them.

For example, insurance companies have discounts for young drivers who get good grades, belong to certain alumni organizations or take defensive driving courses. Simply ask your company about the discounts on offer and how you can qualify for them.

Discounts are also available for installing car alarms and other safety features into your older vehicle. Again, the insurance company may not mention all of these discounts up front, but they are obligated to inform you of their existence when you ask.

By not looking into the discounts offered by different insurance companies, you are leaving free money on the table with each negotiation. Also look out for these types of discounts when you are engaging in your annual “shopping around” of better insurance deals.

You will be surprised by how these discounts can add up and save you a ton of money on a yearly basis.

Excessively High Premiums

The comparison of auto insurance premiums and deductibles is something that every insurance buyer must consider before committing to a policy. In general, it makes sense to keep a lower deductible, because you do not want to pay thousands of dollars in out of pocket expenses after an accident.

If you do not cause accidents, you will make far fewer insurance claims, which means you are never activating the deductible portion of the policy.

However, consistently keeping a high premium to justify the lower deductible is not going to save you money. Statistics show that you will pay premiums a lot more often than deductibles, especially if you are a safe driver.

If you do not cause accidents, you will make far fewer insurance claims, which means you are never activating the deductible portion of the policy.

Start with a lower deductible / higher premium ratio when you first get a policy for your new car. As each year passes without an accident, consider increasing the deductible and lowering the premium. Put the difference in a savings account and watch the money add up over the years!

It is especially sensible to increase deductibles for much older vehicles, because you can probably pay for those repairs out of pocket without any issue.