Shopping around for Insurance is great, right? You get the power to pick and choose a policy that works best for your needs – and your wallet. While saving money is an important factor to consider, it’s also important to be aware of the downsides of cheap Insurance policies.

First off, cheap car insurance is not ALWAYS bad. However, it too often is. If you are in a tight spot now and are looking to save money on insurance, can you imagine paying for insurance that leaves you hanging during a claim, by not paying out enough funds or not paying out at all? “Claim denied” is what so many people worry about hearing. That is usually what happens when you shop for insurance solely based on price – you lose coverages.

Most policies that you can buy online or through a 1-800 number is likely going to be a policy that isn’t what you need, or a policy with too low of coverages. We’ve seen this through our own experience, with customers we saved from bad situations, and research; the people on the other end of the line usually just care about making money off the sale and will leave off important coverages or even skimp on state-required coverage! Yes, we’ve seen that too, sadly. They don’t seem to care about protecting you, your family, or your assets. Which is exactly what Insurance is for.

Potential downsides to cheap insurance that does not provide enough coverage:

Small fender benders can be more costly than your policy limits.

In the state of Oregon, the minimum property damage limit required is $20,000. That means, if you run into a 1995 Honda Accord, total the vehicle, and are found at fault, the cost to replace the Honda Accord comes out of that $20,000. That is great for an older junker car, where the owner doesn’t really care about the looks, repairs, etc. or one that is only worth $1,000. BUT, can you imagine running into a 2020 Tesla where the average base cost of a new vehicle is $50,000? I can guarantee you the $20,000 will barely begin to help with the costs to replace that vehicle. And guess who is stuck with the remaining $30,000 out of pocket? You! Is that cheaper monthly rate where you save $5, $10, or $25 a month worth it now, when you now owe $25,000?

Even if you did not total a Tesla, a fender bender with one from 2019 cost this customer almost $36,000 dollars.  Even a fender bender with a Tesla exceeds the lowest required limits by more than $15,000. Just look at that picture of damage in the article! Bumped the back left side. That’s it. That’s all it took.

You may not be able to properly repair your own vehicle after a claim:

When shopping around for cheap car insurance, an easy way for companies to charge a cheaper rate is to not include comprehensive and collision coverage on the quote/policy. These coverages are the ones that payout for damages to your own vehicle in many situations. If you do not have them on your policy, your vehicle will not be repaired with insurance funds if you are at fault. It will come out of your own pocket. This means that you could potentially be left with no vehicle after a claim if it’s totaled out or very expensive repair costs to keep using it.

Hidden Exclusions (things that are NOT covered):

How many times have you actually read the terms & conditions of something you’ve bought? Not often, right? If you buy cheap car insurance, you may want to make an exception here. “Cheaper” car insurance, most of the time, will include exclusions that may come back to haunt you. Exclusions are the restrictions or “rules” of what is not allowed or covered If you file a claim and are found to be in violation of an exclusion, most cheap insurance companies will deny the claim, leaving you to pay for the damages out of pocket. Most of the time, exclusions are not discussed or talked about when you purchase a policy. Some common exclusions are:

  • Step-down provision – Allows the insurance company to drop down your liability coverage to just state minimum, even if you pay for higher limits, when someone not listed as a driver on your policy (a permissive driver) operates your vehicle. This could be as simple as a friend borrowing it for the day. And yes, their accident will also go on your record.
  • Excludes drivers under 25 – Some insurance companies won’t cover an accident if the driver of your vehicle is under the age of 25. Drivers under this age are statistically riskier (more likely to be involved in accidents) so by excluding coverage for these individuals the insurance company is able to reduce your rates by giving you less coverage.
  • No coverage for drivers borrowing your car– Most policies will extend coverage to those outside your household that you give permission to use your car every now and then, but some do not and only drivers listed on your policy are actually covered.
  • Coverage doesn’t extend to a rental car – Some personal auto policies will cover a rental car with the same liability and collision coverage you have on your own vehicle, but some cheaper companies do not extend coverage to a rental car. So maybe you are “saving” $100 a year on your auto policy but rent a care once or twice for a week and have to pay the $30+ a day for the insurance on the rental car which adds $210+ a year cost so you are actually losing money having “cheaper” insurance.

Bottom line- is cheaper car insurance really cheaper in the long run? Not always. Would you rather pay $25 more a month now for higher coverages, or pay $25,000 later for totaling the Tesla? Or simply rear ending one with a little dent. Even after 2 years of paying for higher limits, you may be only out $600 ($600=$25×24 months), rather the $25,000 you would be stuck paying if you had a “cheap” policy. Cars are only getting more and more expensive to repair and replace. What will cheap coverage cost you and your the future?