Should I purchase coverage from a cheap car insurance company?

A cheap car insurance company might have good service. Many factors affect car insurance rates, including how many claims the company receives. Compare quotes to find affordable coverage.

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Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: May 25, 2020

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Here's what you need to know...

  • Inexpensive insurance rates do not automatically imply poor service
  • Insurance companies determine rates based on the number of claims they pay, so each company is different
  • Being underinsured is a problem for many motorists, as when an accident occurs, they don’t have sufficient coverage to pay for the damages

Drivers who take the time to compare car insurance companies will make a few important discoveries.

For example, drivers will find that car insurance providers charge different amounts for comparable policies. This tends to leave drivers with a few important questions.

Are inexpensive car insurance companies riskier than those that charge higher prices? Or is an inexpensive policy the product of savvy shopping?

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Do inexpensive car insurance companies offer poor service?

As with any service, some car insurance companies simply charge less or more than others. Car insurance companies base their prices on their losses and profits.

If one demographic makes a lot of expensive claims, coverage will be more expensive for drivers who fall into that category. Since these factors vary by provider, prices also vary.

Inexpensive car insurance does not necessarily mean that a company offers poor service, just as expensive coverage does not always mean that a company takes better care of its customers.

Before purchasing a car insurance policy, drivers are urged to review the company’s claims process and policies. Drivers might also want to consult their peers.

This is a great way to determine which companies are easy to get a hold of and offer great service.

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Understanding the Difference between Cheap Insurance and Being Underinsured

Before choosing a policy, it is important to understand that inexpensive insurance is different than being underinsured. To protect drivers, each state mandates the amount of liability insurance that drivers must purchase to drive legally.

For example, California drivers must have 15/30/5 liability insurance.

This means that in an accident drivers have up to $15,000 of bodily injury protection per person and up to $30,000 per accident. Under this policy, the driver also has $5,000 of property damage coverage per accident.

While purchasing the minimum car insurance amount will leave you with an inexpensive policy, this can be extremely risky.

When shopping for a policy, drivers must remember that many states follow a tort system.

Under a tort system, any driver that causes an accident will be responsible for any damages incurred by all involved parties.

In these states, drivers are not just purchasing insurance that will cover their expenses; they are purchasing insurance that will cover entire accidents.

In a serious accident, $30,000 worth of bodily injury coverage will not go very far.

If someone was seriously injured, the driver at fault might end up owing hundreds of thousands of dollars. If the driver is underinsured, this money will come out of his or her pocket.

In this case, purchasing an inexpensive policy is definitely not worth the risk.

However, while many states employ the tort system, some states follow a no-fault system. This means that each driver is responsible for paying his or her own damages in an accident, regardless of who is at fault.

The states that follow this system are:

  • Florida
  • Hawaii
  • Kansas
  • Kentucky
  • Massachusetts
  • Michigan
  • Minnesota
  • New Jersey
  • New York
  • North Dakota
  • Pennsylvania
  • Utah
  • District of Columbia

In Florida, a no-fault state, drivers are required to purchase 10/20/10 liability coverage.

This means that Florida drivers must have at least $10,000 of bodily injury protection per person, $20,000 of bodily injury protection per accident, and $10,000 of property damage protection per accident.

Although Florida drivers are not responsible for covering damages incurred by other drivers, they are responsible for covering their own damages regardless if they caused the accident.

While $10,000 worth of property damage coverage might be enough to cover an older vehicle, Florida’s bodily injury requirements are still very minimal.

In fact, the requirements in most states are fairly minimal. The states with the highest minimums are:

  • Alaska 50/100/25;
  • Maine 50/100/25;
  • Wisconsin 50/100/55;
  • Wyoming 25/100/15.

Most experts suggest that drivers carry at least 100/300 bodily injury liability. Drivers should also ensure that they purchase enough property damage liability insurance to protect their assets.

Consumers who purchase the minimum amount of insurance are taking the chance that they will not be fully covered in an accident.

While this is a chance that drivers are allowed to take, experts always advise drivers to purchase more protection.

Of course, there are a couple of states that do not require car insurance.

How to Choose a Cheap Car Insurance Policy

Purchasing the minimum amount of coverage is not the only way to get an affordable policy.

It is possible for drivers to purchase inexpensive car insurance policies that fully protect them against accidents and other damage.

The key to choosing an inexpensive policy is to compare the prices offered by different companies.

Once you have determined how much coverage you need, get quotes from several insurance providers.

If you have never taken the time to compare companies, you might be surprised at how much your quotes will vary. Taking a few minutes to comparison shop is the best way for drivers to get an inexpensive policy that does not require them to sacrifice coverage.

Get FREE car insurance quotes from multiple providers by entering your zip code now!

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