People tend to know the commercials for their car insurance company better than they know their coverage, so here’s a fly-by primer of how to understand your auto insurance with an extra special surprise at the end that’s bound to make you laugh.
Do you know what the 100/300 actually means in your auto insurance policy? I find that one of the least addressed areas in financial planning is home and auto insurance. Is it because we’re more enamored with auto insurance commercials than the coverage pitched? Or is it because most of us are legally bound to carry this insurance and thereby have a tendency to commoditize it and take whatever’s cheapest? I think so. Indeed, that’s how I treated it for many years. But mistakes are made that cause anything from a costly inconvenience to monumental problems—even financial devastation—for too many every year.
For this post, I’d like to share the opening of Chapter 8: “15 Minutes Could Cost You a Fortune,” from The Financial Crossroads designed to grab your attention regarding home and auto insurance and steer you onto the right path.
From Chapter 8: 15 Minutes Could Cost You a Fortune:
You’re involved in a car accident. It’s your fault. The person driving the car you hit is injured. He visits with an attorney who runs late night commercials in between People’s Court re-runs. They decide to sue you. They win and are awarded $950,000. Who pays that bill? The insurance company? Hopefully. You? Possibly. If insurance, which one of those different types of coverage tells you how much they’ll pay? “Gee, I hope that when I saved 15% in 15 minutes I didn’t reduce that particular coverage.”
You’ve seen that commercial that claims to save you 15% on your auto insurance cost if you’re willing to spend 15 minutes. I’ve talked to several people who liked that idea, spent their 15 minutes, and, indeed, saved 15% or more on the premiums that they paid for their car insurance. What is not promised by the unnamed insurance company, which incidentally is also represented by an over-sized lizard and a couple of prehistoric humans, is whether new converts could be guaranteed to maintain or improve upon their auto insurance pricing and still have good coverage. In other words, they may be spending less…for less.
It is not my intent to demonize the above-referenced company. You may very well have your auto insurance with them and be properly insured for a reasonable rate. But it is inside the insurance realm that economic bias is so ever present that we must be very careful to understand what coverage we own for the stated price. Too many have spent 15 to save 15, or followed through on some other tempting sales pitch, only to find that their auto coverage would leave them financially exposed in the case that it was needed. Another “forward thinking” company has recently invited television viewers to choose the price that they would like to pay for their car insurance and allow the company to build a customized policy around the spending restrictions. I’m going to make another suggestion specific to your home, auto, and liability insurance: determine the coverage that you need, and then shop around for apples-to-apples quotes to see who will offer you the best price.