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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.
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