When it comes time to shop for a new auto insurance policy, buyers often find a huge variety of rates. This can be due to many factors, and while sometimes the cheapest auto insurance is also the best, other times it’s better to go for a more expensive rate and get the highest quality insurance.
How do you know? What’s behind the numbers? Here are a few things to watch for.
Surplus Lines Carriers
Insurers who “officially” offer policies inside most states have to file financial information with the state insurance commissioner. They are held to certain standards. They have to abide by specific state laws that govern their obligations to customers. State regulators largely control auto insurance rates; however, they have to follow the state’s financial guidelines.
Other companies are allowed to offer insurance inside the state on a “surplus lines” basis. In most cases, that means they provide insurance that is not adequately furnished by the regulated insurers, but there’s plenty of grey area. A surplus lines policy is often cheaper, but that may often be because it is less subject to regulation and of poorer quality.
On the other hand, some companies offer surplus lines policies for many years. They meet their obligations. They avoid regulation in order to keep their rates low. Discount insurance sellers often provide quality surplus lines policies that cost a lot less and have fewer fees.
Deductible Dodge Ball
When you buy an insurance policy, you’re essentially paying somebody else to take some of the risk for you. The greatest risk to your car is little stuff, like scratched paint or a chipped windshield. It isn’t big stuff, like getting totaled or striking a pedestrian. Insurance companies will offer really low rates while pushing high deductibles on their policyholders. You’re still covered against the big stuff, but you have to pay out of pocket for the little stuff.
Insurers have really smart people working the numbers for them. Statistically, you’re going to pay more money for nickel-and-dime repairs than you will forking out the extra cash for a policy with a lower deductible.
Apples and Bananas
Insurance is a financial tool, so the cost of a policy is always based on how much money is at risk. Generally, lowering the cost of a policy means lowering the amount of money at risk, which some insurers try to do with some pretty intricate cloak-and-dagger methods. That can include things like requiring you to use approved shops (even when they don’t do good work) or applying conditions to the policy that get them out of paying for certain damages.
The declarations page of a policy generally includes all the pertinent information. Get the declarations page for all the policies you’re shopping and make sure that you’re comparing apples to apples.
Some insurance discounters do a good job of making sure the policies available through them are of high quality. Others, however, aren’t nearly so scrupulous. Be sure to check the credibility of the source you’re shopping, especially if you’re using an anonymous online brokerage.