Hidden Dangers of Buying Cheap Auto Insurance

Are you looking to cut costs on your car insurance? Here’s some advice: Proceed with caution. Cheap auto insurance could cost you more down the road.

“Nobody should shop for auto insurance by price alone,” says Jeanne Salvatore, Senior Vice President of Public Affairs for the Insurance Information Institute (I.I.I.), an organization dedicated to improving the public’s understanding of the insurance industry.

“You want to get a great price that comes with great service,” Salvatore says. “It’s a balancing act.”

To help you make an informed decision, we’ve outlined five potential pitfalls of having cheap auto insurance.

1) You’re Probably Not Getting the Coverage you Need

Okay, so you found a cheap quote on a car insurance policy. But do you know what’s covered in the policy – and more importantly, what’s not?

In most states to legally drive, you need some liability insurance, which covers the damage you cause to others or to property in the event of an accident. It’s important you know your state’s minimum coverage requirement.

However, collision and comprehensive coverage – which covers your car in the event of an accident, theft, vandalism, fire, and weather-related disasters like floods – is not required by law in the United States, according to the National Association of Insurance Commissioners’ (NAIC) website, which helps regulate insurance requirements.

Do you want protection from these types of accidents? If so, you can expect your rate to rise accordingly.

2) Your Low-Priced Deductible Payment Could Lead to Higher Costs

According to the article “How Can I Save Money on Auto Insurance?” on Insurance Information Institute’s website, one popular way to save on car insurance is to opt for a higher deductible, the amount you pay out-of-pocket before your insurance kicks in.

This could help reduce your premium because you are agreeing to pay a set amount (for example the first $1,000) on any future claim(s).

The pitfall is that if you are unlucky enough to have several accidents, this strategy can quickly become an expensive one.

You should take a look at your finances and make a realistic assessment of what you can afford.

A $1,000 deductible may not make sense if you don’t have that kind of money on-hand in case you need repairs. However, a higher deductible could make sense for low-risk drivers who rarely get behind the wheel.

Be honest and realistic about what kind of protection you need and can afford.

3) No One Wants Bad Customer Service, Even if Your Policy is Cheap

You know the old adage about how the customer is always right? We all know that’s not true. However, it is reasonable to expect prompt and courteous responses to your questions and concerns.

“You want to find a company with a really good reputation for customer service,” Salvatore says.

Salvatore urges consumers to ask friends and family members for recommendations, similar to what you would do if you wanted a doctor or dentist referral. Ask if they have filed a claim with their insurance company and how it went.

You can also check with your local state insurance department to find out the number of consumer complaints received about a particular company in relation to the number of policies sold, according to the I.I.I. website.

4) Friends May Not be Covered on a Cheap Policy

Sometimes as a favor, you let a friend borrow your car. But is he or she covered?

“Perhaps,” writes the Ohio Department of Insurance in a consumer guide on the Ohio state’s website. “Some liability policies cover a licensed driver who drives with your permission, while other policies state specifically that no other person is covered when driving your car.”

What if you borrow a friend’s car?

Whether you live in Ohio, or somewhere else, you owe it to yourself to know the answers to these questions. Don’t wait until after you or a friend get into an accident to find out that your cheap auto policy has some holes in it.

5) Watch Out for Cheap Insurance Scams

If a cheap car insurance quote sounds too good to be true, it probably is. In fact, it may even be fake. Potential red flags can include dirt cheap rates as well as companies and agents who are difficult to reach.

In 2011, some Detroit-area drivers were scammed into buying low-cost, phony auto insurance through a company called Ethos, according to Michigan’s Department of Licensing and Regulatory Affairs.

Fortunately, insurance companies and their agents must be licensed in the state where you live, so verification is usually only a quick phone call away to your local department. While auto insurance scams can be uncommon, it’s better to be safe than sorry.

Before you rush to buy the cheapest auto insurance policy, take a moment to understand everything it entails.