When Does it Make Sense to Shop for Insurance?
Thanks to your support, I’ve made it to the Elite 8 of the Tour de Personal Finance! I could really use your help again, and you can vote for me by writing “Mistake” in the comments here: Tour de Personal Finance Round 4. Thanks a lot!
There’s a lot of advice out there to shop for insurance as a way to save money. The typical refrain is that you shouldn’t be mindlessly loyal to your insurance company, so each year when your contract is about to be renewed it’s smart to shop around to see if there’s a better deal out there.
I agree with this logic to some extent, but there are plenty of situations where it’s not the ideal move to shop for insurance.
Keep the point of insurance in mind
Before you go out looking for the cheapest insurance you can find, it’s important to remember why you have insurance in the first place. Insurance is one of the most powerful pieces of financial protection that you have. It protects you financially from situations you can’t control but could potentially devastate your finances and leave your family in a tough spot.
With this in mind, cost should not be the primary factor when considering what insurance to buy. It should certainly be a part of your decision, but in the end the protection you receive needs to be the top concern. In the same way you wouldn’t necessarily rush to buy the cheapest car seat for your child, you shouldn’t automatically jump at the cheapest insurance policy. In both cases, you need a product that meets your needs for protection first.
When it makes sense to stay put
I’ve been with Amica for my car insurance ever since I started driving. I have since added my renter’s policy and my umbrella policy with them. In that time I’ve had several claims, and every single time my claim has been handled quickly, professionally, and in my favor when it was fair to do so. I couldn’t possibly be happier with the care I have received.
From time to time I have looked around to see what the same coverage would cost with other companies. While Amica certainly isn’t the most expensive insurer, they also aren’t the cheapest. It’s pretty easy to find less expensive coverage elsewhere. And yet I have never made the switch. Why? It’s pretty simple really. As I talked about above, making sure my family is adequately protected is my number one goal. Amica has shown me again and again that the coverage they promise is real. I have absolutely no doubt that a legitimate claim would be handled quickly and as promised.
Given that the entire point of insurance is to make sure you’re protected when you really need it, you should be willing to pay a little more for that assurance. Now, it should be within reason, and you certainly shouldn’t blindly pick the most expensive coverage. But understand what you want and what you’re paying for. If the coverage you need costs a little more, then that cost is worth it.
When it makes sense to shop for insurance
Sometimes it does make sense to shop around for new insurance. The first instance is when you’ve have poor experiences with your current insurer. Maybe they haven’t acted quickly when you’ve filed a claim. Maybe they’ve tried to get out of paying a legitimate claim. Whatever the case, if they’re not providing you with the insurance protection you need, it’s time to look for a new provider. One good place to start is J.D. Power’s insurance ratings. Another good option is to ask friends and family about their claims experience with their own insurers. Again, you’re not necessarily looking for the lowest price. You’re looking for a company that will deliver on the coverage it promises.
There are also examples of insurance where the coverage is fairly simple and cost might play a bigger role. One example is life insurance. It’s pretty difficult to haggle over whether or not someone has died, so with a basic term life insurance policy you’re not likely to get a lot of push-back from the company on whether they have to pay. Your main concern here is whether the company has significant history and financial strength to feel confident that they will be in business for as long as you need them. One simple tool you can use to filter out shakier companies is the website term4sale.com. Their default search parameter is to limit to companies with a “Minimum Life Company Rating” of A- or better. This will return life insurance quotes only from companies deemed to be financially strong. You should do a little bit more research to determine how long the company has been in business, but as long as they’ve been around for a while and still look to be strong you can shop a little bit more on price. This is exactly the strategy we used when switching from high-cost life insurance policies.
Conclusions
Shopping for insurance year after year can certainly save you money in the short-term, but you need to be careful that it isn’t at the cost of long-term financial security. Insurance has a real purpose beyond just being a line item in your budget, so you need to make sure that you focus on the value you receive rather than the price you pay. When the time comes that you actually need the coverage, you’ll be happy you did.
Photo courtesy of willlaren
I have had Allstate for my car insurance/homeowners FOREVER. I am always tempted to switch but I have been with them for at least ten years and I suppose I’m a loyal customer =) I’ve called around to get quotes before and have never found anything cheaper for the amount of coverage that I have.
I don’t think there’s anything wrong with being loyal, as long as your truly happy with the service. It sounds like you are, and the price is good, so there’s really no point to switching.
I think people definitely overlook the value of certain insurers over others. My wife has had her insurance agent her whole life and I switched to her a few years ago. I definitely have been happy and she would take care of anything if we had problems. My wife’s car got broken into at school a few years ago and Brenda did a great job of taking care of the situation and making sure my wife was okay and that everything was taken care of. You can’t beat that kind of service!
There’s definitely a lot to be said for good service when you need it. I’ve personally never worked with an agent for home or auto insurance, but I’ve heard good things if you can find a good one.
I am a personal lines insurance agent and I think people should shop around at least every three years. Every year your insurance will just go up (unless you make a bunch of changes to your policy.) By switching your insurance every three years you can save a lot of money.
Oh I don’t think there’s any doubt that you can save money by switching. That much is pretty indisputable, at least in most cases. The point here is that cost isn’t the only factor, or even the most important factor. The most important factor is making sure your coverage is solid, which might mean going with a higher-cost provider. There’s definitely a balance, but I wouldn’t personally switch solely because of cost.
We have a big brand name insurance, yet have never shopped around. It is low on the priority list of financial tasks to complete. Not sure the reward would be worth the time spent either.
It definitely depends. If you can save a few hundred per year and obtain similar, or even better, coverage and/or service, I definitely think it’s worth it. But if your company has been there for you when you’ve needed it and the price is at least competitive, then it might be worth sticking around. I still like looking, I just haven’t felt the need to actually make the switch.
As for the value, I would add that having a local agent can be very valuable. I took a policy that was direct with the company without an agent for a few years. I didn’t find the experience to be as positive and I just switched this year to a policy with a local agent. It is actually cheaper and it is nice to have someone to go to with questions.
I’ve definitely heard plenty of people talk about the benefits of working with an agent. It’s not something I’ve done with auto or home insurance, but definitely sounds like it’s worth looking into.
One thing I would worry about with an agent is the possibility that they would want you to switch more often so that they can collect bigger commissions. I don’t know this for sure, but I would guess that they get a bigger commission when they sign a new policy for a company than when they simply keep a policy in force with a company. I could be wrong about that, but it would be something I would want to know.
Definitely agree that you should look at the long-term financial security and not just the short term costs when it comes to insurance. There are probably plenty of insurance companies that may be cheaper but will give you a hard time and deny coverage when you really need it. Having that type of insurance company behind you is not worth saving a few bucks.
Couldn’t agree more. It’s important to remember the real reason you’re buying insurance in the first place.
I agree you should be looking for the long term security before much else. We’re with USAA for almost all of our insurance needs (non-medical that is) and couldn’t be happier. They’re not the cheapest, but they have great service and an awesome mission.
My wife had USAA and we were deciding between them and Amica. I’ve heard awesome things about USAA and was excited about the possibility of using them, but in the end Amica was less expensive and we felt the service was just as good. But I think you’re definitely in good hands with them.
We are with American Family and it was good to see them rated well on the JD Powers site you linked to. However, my term life policy is more expensive (by about $100) compared to some other “A” rated companies noted on your other link. Next year it’s probably time to move that.
It could definitely be worth looking at a different life insurance provider if the cost difference is significant. We just recently switched and it was pretty easy. You can read about it here if you want: http://momanddadmoney.com/2013/06/my-life-insurance-mistake.html
Just make sure you get 100% approved for your new coverage before you drop the old one. You don’t want to get into a situation where you no longer have coverage because of some weird mix-up.
I was just engaging in this sort of thing this weekend (a post will be upcoming about it). Although my story is a little more about getting a cheaper price, I do fully agree that going with an insurance rep that is highly regarded is absolutely key! What good is an insurance company if they aren’t going to be around in a few years to protect you!
Our car insurance with AAA has gone up for the third year in a row, and I started shopping around at the other reputable brands for the same thing and found cheaper prices. I’m still waiting to see if our agent comes back with a price match or if we’ll have to go with another company.
I’ve heard a lot of people complain about AAA’s price raises recently. I do think it’s a good idea to shop around, even if you like your coverage, just to see what other options are out there. You may or may not find something you like better, but at least you know. Good luck with the search! Looking forward to hearing how it went.
Insurance is one of those things that’s like a guessing game of ‘what might happen’ in the future. You could gamble and have short term savings, but if something goes wrong a disastrous deductible. I still don’t have life insurance, but then again it’s just me (see my dating post). 🙂
I look at it less like a guessing game and more as an analysis of a reasonable worst-case scenario financial hardship. Rather than trying to guess whether something will or won’t happen, I think about the consequences if it did and decide how I’d like to plan for it. Especially with a family, if I’m serious about protecting them financially, then insurance is really the only way to go. As a single person, I’m not sure there’s really much need for life insurance.
I think you should shop around asking specifically for the amount of coverage you want, understanding your own policy. Keep the deductibles the same or as close as possible when comparing, too. Good, quick customer service is important. (My fiance was in a car accident one time and like a good neighbor, his insurance company didn’t pay for his hospital bill. He went in to the office to confront them about it. Instead of the situation getting solved, they tried to sell him a Life Insurance policy.) Bundling can bring your prices down, and so can that loyalty. A lot of companies will give you a discount simply for being with them a long time. So glad you’ve got a company that works for you!
Your last two points are good ones on how to save money. I definitely agree that it’s worth shopping around every now and then too see what else is out there. And I also think it’s a great point to make sure you know what you want before you start shopping. You want to dictate the terms to them. Not the other way around.
Congrats on making the Tour De Personal Finance. I voted.
Thanks Lindsey!
There are few things I hate more than shopping for car insurance. You fill out a form (which takes half an hour or more sometimes) on one of those comparison sites and you get a price from 2 or three companies. And then over the next month, another five or more call you, as often as twice per day trying to get your business, often without ever actually providing you with a quote.
I’ve never found it particularly enjoyable either. I have heard a number of people recommend working with an agent, and I think that could be a good way to go if you can find a good one. It’s certainly something I’ll look into going forward.
Great post, Matt. Thanks for the link to the ratings part of the site. We switched insurance companies when we moved out to the farm last fall. I was relieved to see that our new company rates nearly as well as our old one. Whew!
The ratings are definitely helpful. Nothing compares to personal experience though. Hopefully they’ve been good to you so far!
I agree with this. I learned at an early age that shopping around for insurance every year just to save a buck is not a good idea. You want to find a good solid company and build a relationship with them so that when you need them for an issue you know that you can rely on them.
Yep, that’s pretty much my philosophy as well. I would switch if I knew I was going to get the same level of service, but otherwise you’re saving short-term money at the cost of long-term security. That’s not a trade I like to make.
Congrats on making it this far in the Tour De Personal Finance Matt!! I agree with the assurance put of it and a lot of times you get cheaper quotes and the coverage is no where near the same as the one you had. My wifey does the shopping around but its not to find another company she just wants better quotes to get ours lowered. We like who we are with but sometimes it seems that the prices are a little too high compared to other rates.
Thanks Thomas! John is crushing me right now though, so I think the run is over. Anyways, the price/quality balance can be difficult. For me, as long as the price difference isn’t crazy and as long as I keep getting great service when I need it, I don’t really see us switching. I’d rather pay for quality when it’s something important.
I just went shopping around for a better rate last week and I found that no company could come close to the coverage that I have with Nationwide and the price. One company flat out told me that they wouldn’t even be able to come close and wanted to know how I got such a good rate. I wouldn’t have known that my rate was so good without looking elsewhere.
That’s a good thing to find out! The only thing I would wonder about is whether the cost is low because the service might be bad when you need it. I have no idea if that’s the case with Nationwide, but it might be worth looking into.
I have been with them for 14 years. They have been excellent with their service. Always quick when I needed them.
Hey Matt!
Thanks for that advice. I agree coverage is very important and is more important that price. However you don’t want to pay more than you have to.
I’m with Geico. But I might want to switch to Amica. What’s the best way to find out how they actually handle the claims and such? Any idea when shopping arround how would decide on the service and not just the price?
Oops sorry for typos in earlier comment.
What I was trying to ask was:
Any idea when shopping around, how do you decide and find out how good an insurance company’s service is? When you are not just trying to find the lowest price. (But on our budget we do want a good low price.)
Hi Julia. You ask an excellent question and one that honestly doesn’t have a great answer. I think the best place to look is the JD Power ratings I link to in the article. That’s your best bet at objective ratings that account for a large part of the population. Beyond that, I think the best sources are probably trusted online forums, such as the ones at bogleheads.org, where you can ask the question and get a large number of opinions. If you can do that in a few forums you can get a pretty decent sample of answers. I wish there was a more definitive source, but as far as I know it doesn’t exist.
Great article, thanks Matt. For some insurance the decision to shop should be closely linked to certain life events. For example, when you start earning an income you should look into disability insurance. If you have co-signed debt or are expecting a child it’s a good time to look at your life insurance needs.
Once purchased disability and term-life insurance make less sense to shop around on a regular basis. I say this because prices tend to increase the older you get. As you mentioned, the focus should always be on choosing the right insurer, policy features that match your needs and a coverage amount that is unique to your situation.
Agreed. If the insurance is likely to get more expensive as the years go on then it probably makes the most sense to spend the time on making a really good initial decision. Shopping around will likely be counterproductive, though in some cases it can still make sense. We changed life insurers a year into our initial policy because we realized there were significantly cheaper options out there.