Why are some car insurance quotes cheaper than others?
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UPDATED: Mar 13, 2020
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If you’ve shopped around for car insurance, you’ve probably noticed that not all car insurance quotes are created equal. If car insurance rates depend on personal risk factors, like where you live, how clean your driving history is and whether you’ve had claims in the past, then why would different companies offer you different rates? If you’re looking for car insurance quotes, you can simply enter your zip code in the box on this page, but if you would like to get more info about why some car insurance rates are lower than others, read this article first.
Imagine you call Company A, give the insurance sales representative your information, and get a quote. You think this quote is more than you can afford, so you go to Company B’s website, enter your information, and get a much lower quote. You were the same person when you called Company A and went on Company B’s website, so why did you get a much lower car insurance rate offer from one company than from the other?
There are two main reasons that car insurance companies offer different rates. The first is that there are real variations in the costs that insurers pass on to their customers.
The Cost of Doing Business
Some companies offer better customer service and higher quality claims service, but they pass these costs on to the consumer. Some companies will charge you more for car insurance than other companies would charge you for that same policy, but you get better service and more peace of mind for that extra money. We’ll talk about this in more detail later.
Types of Coverage: Apples and Oranges?
The second reason that you might get two very different quotes from different companies (or very different quotes from two different sales representatives at the same company) is that the two quotes you’re comparing are not for the same type of coverage. Auto insurance coverage can range from the bare minimum state requirements to coverage so extensive that you feel a bit claustrophobic. When you receive a car insurance quote, it’s not always obvious what type of coverage it’s for, so you have to be sure to specify what you want.
One of the factors that has the biggest impact on your quote is whether the coverage is comprehensive or liability-only. According to the Insurance Information Institute, liability coverage is required by nearly all states, and it only covers damage that you do to other vehicles, people or property. In contrast, a policy with comprehensive car insurance also insures your vehicle against damage. Quotes that are for liability-only policies will seem very cheap compared to comprehensive policies, because they are for less coverage.
The Insurance Information Institute explains that another factor affecting your car insurance quote is the policy deductible. Deductibles are the amount you have to pay upfront before the insurance coverage kicks in. The lower your deductible is, the more likely it is that the car insurance company will be on the hook for any claims, so insurance companies charge more for low-deductible policies than for high-deductible ones. In some cases, insurance agents will ask you what deductible level you would like when they give you a quote, but often they will just assign you the highest possible deductible in order to give you the lowest quote they can.
One last factor that affects the car insurance quote a company gives you is the extent of coverage you choose. While your state might specify a minimum amount of liability coverage that all drivers are required to maintain, this amount is often not enough to cover the damages from an accident. To avoid being financially drained in the event of an accident, many drivers opt for higher levels of liability coverage than what their states require. Since these higher levels of coverage increase the amount the insurance company will be required to pay in the event of an accident, companies charge more for higher coverage limits. If you get two different car insurance quotes, be sure they are both for the same level of coverage so that you know you are not comparing apples and oranges.
Different Companies, Different Rates?
Let’s say you follow the advice outlined above and make sure all of your car insurance quotes are for the exact same type and amount of coverage. However, you’re still getting different quotes from different companies. Sometimes this happens because there are genuine differences among car insurance companies in terms of their overhead costs and the level of service they provide; in other cases, some companies simply think they can get away with charging you more, especially if you are a high-risk driver who may have trouble getting coverage. To compare the levels of service offered by different companies, J.D. Power and Associates’ 2010 Auto Insurance Industry Survey is a helpful resource.
Another reason that you might get different quotes from different companies is that they do not all offer the same discounts. For instance, if you drive a hybrid car, you’re likely to get lower rates from Travelers and Farmers Insurance because they offer discounts to hybrid car drivers. If you apply for an insurance policy with the same company you have your homeowners’ insurance policy with, you’re likely to get a lower rate from that company than from other companies, because most insurance companies offer a multiple-policy discount. Research available discounts and be sure you ask insurance company sales representatives to apply them.
Before you enter your zip code in the box to compare auto insurance rate quotes, keep in mind the moral of this story: be sure you’re comparing apples with apples, and remember that the quality of service you’re receiving will affect the price.