Is buying discount auto insurance worth the risk?

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Joel Ohman
Founder, CFP®

UPDATED: Aug 7, 2019

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Here's what you need to know...

  • Discount auto insurance will get you the bare bones coverage required by your state, but you will get no customer service
  • The minimum coverage required will often not be enough to protect you financially in an accident
  • Make sure the insurance provider you use is licensed in you state

Not everyone has a lot of money to purchase car insurance. However, this doesn’t mean you cannot afford a policy that will cover your needs.

Opting for a discount insurance policy will save you money on your premium each month, but you should understand the risks that go along with buying cheaper insurance policies simply to save money.

Is it really worth buying cheap insurance just to save a few bucks a month?

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Drivers Barely Cover State Minimums

Most discount insurance policies will provide just enough coverage to legally drive your car. Keep in mind that the state minimums are often not adequate levels of coverage. These minimum levels are set primarily so each driver has at least some coverage.

You can be held personally liable for any damages that your policy will not cover. That is something you have to think about when purchasing a discount policy.

Saving a few dollars now could cost you thousands if you got into an accident.

Forget About Customer Service

If you purchase discount insurance, you can forget about having an agent to talk to when you have policy questions. There may not even be a customer service number to call at all.

Most discount insurance carriers may have some automated system in place if you ever need to file a claim. Other than that, you are on you own if you have any type of problems with your policy.

Filing a claim may be difficult as well. Not having an agent will make it difficult to get in touch with your insurance company if your car is ever damaged.

Discount carriers may not even list legitimate contact information. You could be dialing a number that doesn’t even exist. We grade some of the biggest car insurance companies on their customer service.

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Discount Auto Insurance Is Shady

Most discount auto insurance providers are obscure companies scattered across the country. Their first goal is to get as much of your money as possible.

Actually providing any type of liability protection is secondary to them. They may even give you insurance documents that aren’t even real.

Ask to see an insurance license from any discount insurance company you want to buy from.

Most states require each insurance company doing business in your state to be licensed in your state. Failure to provide this information indicates that you are being potentially defrauded.

Less reputable insurance companies also will provide quotes that are much lower than the national average. Some quotes may be for as little as 75 percent of the national average.

Any police offer who pulls you over is not going to be amused if you don’t have a legitimate insurance policy. You could be cited for failure to carry insurance on your vehicle. Vehicles could be towed to an impound lot on the spot.

This will cost you more time and money all because you didn’t want to go with a legitimate insurance provider.

Do Some Research Before Purchasing a Policy

The best thing you can do for yourself is to check with the Better Business Bureau before purchasing your policy. They will be able to tell you how reputable an insurance provider is.

Checking with local consumer groups can give you more insight into local auto insurance providers.

Understanding how a company has acted in the past can give you a good idea as to how well they will serve your needs. Checking their auto insurance rating may also be a good idea.

Any company that has an A.M. Best rating of less than a B+ should be avoided.

A rating of less than B+ means the company is having some financial difficulties. Your claims may not be covered in the event of an accident.

Larger Companies Have Discount Plans

Most national companies have plans available to those who are struggling to make ends meet. There is no reason to deal with a company that you have never heard of before.

Customize your policy to get only the coverage you absolutely need. You should be able to get a good price from a reputable insurance company.

Check to see what discounts are available to you.

  • Safe driver discounts
  • Bundling discounts
  • Other money-saving options

This will allow you to get a policy that is both adequate and affordable. It can be dangerous to drive your car without having adequate levels of insurance protection.

Purchasing your next policy through a discount provider may be a big mistake. You won’t get the level of coverage or service you may need. Having to pay for damages from a car accident yourself can wreck your finances.

Don’t risk going bankrupt due to a car accident. Find a way to come up with a few extra dollars each month for auto insurance. It will be the best decision you ever made.

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