Car insurance isn’t sexy. We don’t like to spend a lot of time thinking about it, and we don’t like spending too much money on it. After all, car insurance presents an intangible value to our lives; we only need it when there’s a problem. So does it make sense to get the cheapest auto insurance possible and save your money for other things? You can only answer that question if you can predict when- and if- you will need to use your auto insurance for a claim.
Pros of Cheap Auto Insurance
Most states require drivers to carry liability insurance. This means that you must carry insurance to cover a medical, injury or property claim made by another person. The primary reason drivers buy cheap auto insurance is because state law requires it. There is no other way to get a driver’s license, and if a police car pulls you over, you are required to show proof of insurance.
The main advantage of buying the cheapest auto insurance policy is that you will pay a lower monthly premium. To some drivers, the money saved every month can be used to cover other expenses. However, the alleged benefits of a cheap insurance policy may disappear entirely if you ever use it. The savings that come with a cheap policy may cost you far more in the long run.
Cons of Cheap Auto Insurance
The drawback of carrying cheap auto insurance emerges as soon as you make a claim. Say, for example, that you have a high deductible auto policy. A higher deductible typically means you will pay a lower monthly premium. But if you have a high deductible, such as a deductible of $5,000, you must first pay that amount out of pocket before you get any coverage. If you saved $50 dollars a month on your premium by carrying a high deductible policy, it will take 100 months- nearly ten years- to pay yourself back the $5,000 out of pocket that you spent. In this way, you’d be spending far more by paying the $5,000 deductible than you would have spent had you bought a low deductible policy in the first place.
More problematic, if you carry cheap auto insurance, you will likely have less coverage and lower policy limits. If you are an individual of moderate to high worth, your assets may be exposed if there is a claim for serious personal injuries by someone who claims you injured them. For example, if you carry a policy insuring up to $200,000 per occurrence, but the injured person sustains serious injuries or an extended hospital stay costs in excess of $200,000, he or she will likely pursue a claim against your personal assets including your home, car, equipment, and business. Again, the money you saved by getting cheap auto insurance costs you more in the long run, and may even cost you your home.
So before you decide whether to get a low-cost insurance policy, make sure you know the risks. Only get the minimum cost policy if you have absolutely nothing to lose.
