The Difference Between Cheap vs Expensive Car Insurances

Every Insurance Company has its own unique financial situation — some might have been hit by a slew of claims in recent times, thereby marring their profitability. Others might have followed lax underwriting procedures, leading to high losses. High incurred losses means that insurance companies would try to recoup the losses via jacked up premiums — reasonably within boundaries set by the insurance regulatory bodies..

Certain insurers might feel that they’ve achieved reasonable profitability and hence might offer discounts to bag more customers.

State-run insurance companies in India (i.e., PSUs) almost surely suffer from high underwriting costs and overhead costs as they maintain lots of ageing staff (I’m implying that they don’t work productively) and they run all these physical branches in costly urban areas.

You can compare a digital startup such as Acko with an Oriental Insurance Company. I could bet that Acko’s premiums quoted would be lesser than Oriental’s. Acko runs a fully digital operation and they don’t waste money on physic branches, sending policy papers by mail, on employing full-time staff etc. It goes without saying that they pass on these cost savings to customers.

It also depends if you’re buying via a web aggregator such as PolicyBazaar or an online broker such as coverfox.com; insurers often offer low premiums on these websites which they wouldn’t offer anywhere else.

When you’re shopping for car insurance, it’s tempting to choose the company offering the cheapest policies. After all, the average American pays $815 for car insurance each year, according to the Insurance Information Institute, and that’s a big chunk of change. A cheaper provider or plan can make a big difference in your monthly budget.

However, price shouldn’t be the only factor in your choice of auto insurance provider. There are both positive and negative reasons why some car insurance policies are cheaper than others.

Differences in coverage

It may sound obvious, but having more coverage costs more. A policy with $100,000 in liability coverage for each accident is more expensive than opting for the minimum, which may be as low as $30,000 in some states. Adding comprehensive and collision, which covers damage to the vehicle, can also be pricey.

For many drivers, carrying the lowest possible level of car insurance is a bad move. If you cause serious injuries to another driver and his passengers, $50,000 is unlikely to cover their medical bills, leaving you potentially on the hook for the rest. And if you have a newer car, it’s wise to carry comprehensive and collision for at least a few years, when it would be most expensive to replace.

Consider whether you have assets to protect before choosing a lower liability limit. Even if you don’t own a home or have much money in savings, it’s smart to buy more than the minimum. If you’re getting drastically different quotes from different providers, make sure you’ve elected the same options from each.

Differences in companies

Shopping for a specific level of coverage will probably give you a smaller spread of quotes, but it won’t erase all of the price differences between insurers. There are many reasons why some companies offer less expensive coverage than others, including:

Overhead. Car insurance companies that employ celebrity spokespeople and have offices all over the country have higher costs, and their policies may reflect this. Include a few local insurers in your search for comparison.

Volume. Don’t count the big guys out, though. Larger insurers may be able to better recover from losses after receiving a high number of claims, allowing them to avoid raising premiums.

Additional services. If your insurer offers extras such as roadside assistance, those will definitely cost you. Whether this cost is worthwhile is for you to decide.

Driver type. Although drivers with clean records get lower rates, some insurers cater to those with tickets or other violations and offer them lower premiums, relative to the competition. Other insurers provide specialized discounts to drivers of hybrids, students, and other groups.

The bottom line

Cheaper car insurance isn’t necessarily better than expensive car insurance, but it isn’t necessarily worse, either. As long as you have adequate protection, all that matters is that you have the features you need — and not those you don’t.

No car insurance company is a perfect fit for every driver, but with a little bit of research and patience, you can find the perfect fit for you.