What’s behind a pitch for low-cost insurance?

You hear about low-cost-insurance from advertisements all the time “In just minutes we can give you a lower price for your insurance coverage!” You need to take a long hard look at what you are buying for low-cost-insurance and understand what drives the promise of savings.

I remember seeing an advertisement that declared “We can save you thousands of dollars on your Yellow Page advertising!” When I looked into how they could manage this extraordinary feat, it was quite easy – they reduced the size of the ads.

The same is true in most kinds of insurance. Lower prices often mean less coverage or higher deductibles.

First, you need to know how much the insurance company is willing to pay if you make a claim. These are called the limits of coverage. It is relatively easy to offer someone a low price for their insurance if you don’t expect to pay out a lot if there’s a claim.

For example, in Maine the state law requires all drivers to have a minimum of $50,000 in liability coverage. That insurance coverage will pay for damages you cause to someone else. In today’s world, $50,000 doesn’t go very far if medical bills and vehicle replacement are required. If the amount exceeds the $50,000 limit, you are still obligated to pay the balance. If you don’t have the money, you can be sued and risk the loss of your home or other major assets.

We insist all our customers carry a minimum of $300,000 in liability for their auto coverage. A case in point happened to a friend – he was struck by another driver and suffered long term injuries that chewed through the $50,000 minimum within months. As the victim, he could have sued the other driver but found it wasn’t worth the trouble as the driver had no assets. Maine’s “wrongful death” statute says you can be liable for up to $500,000.

Another technique that produces a low price is to charge a higher deductible. Let’s think about auto coverage again. A deductible means you get to pay first until the deductible amount is reached and then the insurance company pays the balance up to the limit of the policy. If your quote includes a $1,000 deductible to repair your vehicle, that’s about the cost of a typical fender-bender. In that case, the insurance company wouldn’t have to pay much if anything.

Finally, a consumer should think about the role of the agent. The largest companies in the country for auto insurance are known as direct writers. They sell only their own insurance products that typically can cost about the same as other insurance policies when higher limits and lower deductibles are factored. The other option is to work with an independent insurance agency like Clark Insurance that typically will represent dozens of companies that offer different features and benefits at a variety of price points.

Whichever route you choose, be sure you ask good questions to ensure you get the coverage that protects you and your assets.

Your decision should be based on what fits your lifestyle and protects you against the things that happen when you least expect them, not simply the lowest price. It’s a question of value versus price.

Photo by free pictures of money

Photos by free pictures of money,