Who doesn’t like a deal? I do. Same quality product or service at a discounted price, sign me up! But is this always the case? Is cheap insurance always the same quality as the more expensive alternatives?
There is an old saying that goes, “You get what you pay for.” There’s definitely truth in that commonly used phrase, especially when you purchase something based only on the price. For example, buy some no-name brand item, lets call it a “widget,” from a discount store at a rock bottom price and then purchase a comparable, but higher priced high end brand “widget” from a more popular provider (after doing research and searching reviews). Chances are that the “widget” from the big brand provider with the top quality reviews is likely to outlive the cheap knock-off “widget;” and probably comes with much better after-purchase service and support.
Is cheap insurance actually really expensive?
So, lets bring this discussion a little closer to home. Insurance companies frequently advertise “low, low rates,” “big discounts” or “savings” as if low rates and savings are the most important thing in the world. Don’t get me wrong, saving money is very nice. And, we also include these savings messages in some of our marketing. But it’s not the only thing that we feel is important for our customers. Service and value are always top of mind for us.
The reason a cheap insurance policy might not be the best option, is because it might not meet your needs. There’s no denying that the possibility of saving money is a very strong draw for many buyers, but insurance for you, your family, and your most prized possessions may not be the right place to look for the cheap option. After all, we are talking about your most significant assets and your family’s financial security. Cheap insurance may come back to bite you later.
The benefit of a cheap insurance policy is simply more money in your wallet, in the short-term. And yes, that can be a very important consideration in that buying decision. However, that cheap insurance policy could be significantly more costly down the road. The reasons for this are many but here are just three:
- Less coverage
- Less broker service and support
- Rates can go up
Lets look at these three individually:
So, you shop around and find a cheap insurance policy. You make a 15 minute call and save some money. Imagine your shock, when you need to make a claim and you come to realize that your policy doesn’t cover this particular situation (or only covers part of your loss). You have been paying these low premiums for nothing!
Here are a couple of examples. If you choose a cheap home policy that doesn’t cover theft but then your home is broken into, you will be stuck paying out-of-pocket to replace your TV, computer, sound-system, jewelry, and anything else that might be stolen. If you don’t have coverage on your wife’s engagement ring and that is lost or stolen, you are left with nothing. If your basement gets water damage and it is only covered up to a certain amount and the replacement cost is much more (because you have an amazing space down there with expensive finishings and custom built-ins), you will have to pay the extra out of pocket to get it replaced. If you take the $2000 deductible option to save some money instead of the higher priced $500 option you will be out of pocket an extra $1500 at claim time. In all these examples, that cheap policy will suddenly feel very expensive!
Less broker service and support.
What we have learned over the years by talking to people who were once fooled into buying a cheap insurance policy (that was perhaps too good to be true), is that they had inadequate access to support and expertise from the company or agent who sold them the policy. They could never speak with someone and never got the advice that they needed to protect their families. Often the company selling the cheap insurance has to make up for the reduced income by reducing other service features such as access to staff to help you, or they send those service jobs to far away locations where costs are lower. The bad news, these service staff don’t know you or the neighborhoods where you live and can’t provide the same level of support as someone living right here. Local brokers deal with difficult home claims, auto accidents, and natural disasters every day, and you need them on the ground and on your team if something goes wrong. Without the advice of an independent broker in your time of need, you may make the wrong, and often a more costly decision. Those upfront savings can be lost very quickly.
Rates can go up.
Insurance companies set the premiums that brokers provide to their customers. And these rates are subject to change. Cheap rates have nowhere to go but up! So a policy might only be cheap to get you to switch; then after a short period of time, your rates will go up. If you are on payroll deduction, you may never actually notice these rate increases. The bad news, you start paying more and more and you’re still stuck with less coverage and support. If you are paying by payroll call an independent broker so that you can make sure you are not paying too much!
Cheap rates also change as your personal situation changes. Your cheap car insurance policy might get more expensive very quickly if you have too many speeding tickets or even if you get hit by another vehicle. However, the policy that would have cost a little more may have offered protected rates which don’t change even if you have an accident. The industry often calls this “accident forgiveness,” so that your rates won’t go up just because you had a minor accident!
Talk to a trusted broker
Naturally, there are exceptions to every rule. It is possible to find a great deal and get great coverage with excellent service. We know it’s possible because we provide these policies to our customers every day! But it is vital that you do your homework. Don’t be ticked by a great price. Make sure that the policy is available at a great price and provides you the value and protection you deserve.
It is clear from the above that a cheap insurance policy can actually be very expensive. Instead of thinking, “What’s the cheapest insurance I can get?” you should be asking about what you need and what you want from your insurance. You can get it all — best price and best coverage!!
Work with a trusted independent broker, who is an expert in insurance. Give them all the information to help them understand your unique needs, and they will guide you through policy options in a range of prices and levels of coverage. Then ask them questions. Lots of questions. They should help you make sense of all that insurance speak!