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Auto Insurance Pitfalls: Avoid These By Comparing Plans

Updated: October 24, 2018

There are many auto insurance pitfalls to avoid, especially for first-time shoppers who do not have experience with negotiating for a policy.

Insurance companies are happy to sell any of their policies, but it is up to the buyer to protect their interests.

A lot of first-time insurance buyers make the mistake of going with the first policy they see, without assessing their options.

Another common mistake while looking at auto insurance rates is to select the cheapest policy, even if it might not have the best coverage.

It is important to research the elements involved in an insurance policy in order to avoid auto insurance pitfalls.

Auto Insurance Pitfalls: Getting Minimum Coverage

Every state in the United States requires a minimum type of liability coverage attached to car insurance policy. Otherwise, the car is no longer eligible to legally operate on the road.

While affordable car insurance policy holders might save some money every month on their premium, they risk the potential of a heavy up-front cost when they get into an accident.

However, simply getting an affordable car insurance policy with the minimum level of coverage is a mistake. Unless you seriously cannot afford more insurance, it is a good idea to get some form of comprehensive and collision coverage.

While affordable car insurance policy holders might save some money every month on their premium, they risk the potential of a heavy up-front cost when they get into an accident. Damage to the policyholder’s vehicle is only covered by collision insurance.

In addition, it makes sense to get a decent amount of property and bodily injury coverage. There are minimum levels included in the liability coverage, but those are often not enough to cover all the costs from a significant accident.

Comprehensive coverage is very useful too, because it allows the holder to claim compensation if the car is damaged by a natural disaster or through vandalism while it is not on the road.

Single Limit vs. Split-Limit Liability:

Shop around for the best auto insurance, especially when it comes to single limit vs. split-limit liability. These terms are unknown to most people, but they matter a lot while selecting an auto insurance policy.

The only time it makes sense to get split-limit liability is if affordable car insurance is more important to the buyer than proper coverage.

Split-limit refers to a set amount of coverage that is split among bodily injury, property damage and total bodily injury per accident. This means that there is only a set amount of protection available for each type of coverage.

In contrast, single limit liability means there is an overarching limit for the entire insurance policy. For example, a $100,000 single limit policy means the policyholder gets that protection for any or all of the relevant coverage categories.

If they have $50,000 in bodily injury costs and $50,000 in property damage, everything is covered. When the combined costs exceed the single limit, the insured must pay themselves.

The only time it makes sense to get split-limit liability is if affordable car insurance is more important to the buyer than proper coverage. Split-limit liability is acceptable if you are only driving the car short distances and are not on the road every single day.

Month-to-Month Cost Increases:

Such terms are often in the fine print, but many insurance companies charge extra if the insured wants to pay their premiums on a per month basis. The rate agreed at the time of signing the insurance papers is only valid if the insurance is paid six months at a time.

Even if the rate increase is not significant, it is only advisable to pay per-month if you cannot make it work because of your current financial situation.

It is very important to ask the various companies whether there is an increase in the fee for monthly payments. If the increase is only a few dollars, it is not an issue. But some companies may have a 10 or 15 percent increase, which can significantly drive up auto insurance rates.

This is one of the common auto insurance pitfalls to avoid. Insurance companies are hoping customers will not notice before signing the deal.

The company either receives six-monthly payments, or a significantly larger total sum on a monthly basis.

Even if the rate increase is not significant, it is only advisable to pay per-month if you cannot make it work because of your current financial situation. Paying every six months also limits the risk of the insurance policy discontinuing because of late monthly payments.

Discuss the Number of Eligible Drivers:

Many insurance companies have affordable car insurance policies available, but they may only apply when the policyholder is driving.

When a policyholder is locked into their deal, it is very difficult to get a good rate negotiated for these additional factors.

It is important to discuss this with the insurance companies before agreeing to any deal. If a spouse is also planning to drive the car, inform the company and ask them whether this changes the monthly premiums.

Similarly, children who can legally drive but are under a certain age may also get attached to the insurance policy. However, the costs of the policy can vary in this situation.

One policy may look extremely affordable and complete when only one driver is factored into the equation. However, other policies may emerge as more cost-effective when you consider multiple drivers and/or adding children to the policy.

The best way to avoid auto insurance pitfalls is to have these discussions before any policy is signed. When a policyholder is locked into their deal, it is very difficult to get a good rate negotiated for these additional factors.

Research a Company’s Claims Process:

Sometimes the best and most affordable car insurance policy on paper is not very good in reality. The most common auto insurance risks include doing business with companies that have a poor claims process.

Read up on reviews of a company and speak with people in your social and work circle to get a better understanding of how quickly the claims process works.

While the policy might be very affordable and complete, this does the policyholder no good if they have a hard time filing claims and getting compensation.

Read up on reviews of a company and speak with people in your social and work circle to get a better understanding of how quickly the claims process works.

Some companies are happy to push through claims within a matter of days. In contrast, other companies make it much harder to get compensation – taking weeks or months for the simplest of situations.

There is also the possibility that the insurance contract includes certain conditions where compensation is not paid out. It is very important to read through the entire contract to avoid these types of auto insurance pitfalls. When a policyholder is better informed, they can avoid nasty surprises while trying to receive compensation after an accident.