Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Laura Walker graduated college with a BS in Criminal Justice with a minor in Political Science. She married her husband and began working in the family insurance business in 2005. She became a licensed agent and wrote P&C business focusing on personal lines insurance. Laura serviced existing business and wrote new business. She now uses her insurance background to help educate drivers about...

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Reviewed by Laura Walker
Licensed Agent for 10 Years

UPDATED: Mar 12, 2019

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In the current economic climate, people are looking for any opportunity they can to save a few dollars. Between the unemployment rate, reduced wages, and inflation, people simply have less money to spend on their bills.

Auto insurance companies understand that cost is a major motivator in the market right now, and the majority of advertising is aimed at cost-effective policies.

With so much focus being placed on getting the best deal, customers may inadvertently purchase a policy that will not offer them the best coverage.

Use our FREE quote tool to compare insurance rates today!

How are car insurance rates determined?

In order to understand why cheap car insurance may not be the best choice for you, you may need to know a little about what goes into your rate.

The Amount of Coverage

The first factor the insurance company takes into account is the coverage on the policy. The more coverage you have, the higher your premiums. Consumers may be tempted to drop their coverage to the absolute minimum in order to cut costs, but if you are in an accident that will not give you the protection you may need.

For example, if you choose to carry only liability insurance and your vehicle is in an accident, your insurance cannot pay for damage to your vehicle. If you are at fault for the accident, or the person who hit your vehicle does not have insurance, you will be financially responsible to pay for the damage out of your pocket.

Even if you are not concerned with repairing your own vehicle, you should take care to be sure your liability limits are high enough to cover every possible situation.

You can carry liability insurance to cover property damage with a limit as low as $5,000, but it’s very easy to exceed that limit in a single accident especially if you have the misfortune to damage a luxury vehicle or are involved in a multi-car accident.

If you are at fault for an accident and cause more damage than your liability limits can cover, you can be held personally liable to pay for the damage and may be sent to collections.

How much is the deductible?

Another factor that goes into your premium amount is your deductible. If you choose a policy with a higher deductible you can save money on your premium.

Bear in mind, however, that the deductible is the portion of your repairs that you are responsible for paying out of pocket. If you carry a very high deductible on your policy and your vehicle is involved in an accident, you may not be able to afford repairs.

Coverage and deductibles are not the only factor in determining insurance premiums. When you choose a quote online you decide your coverage and then can obtain quotes for identical policies between many different insurance providers, so why is there so much variance between companies?

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Cheaper Premiums often means Cheaper Service

Some car insurance companies can afford to provide reduced rates by cutting costs in other areas. Companies might outsource their customer service or reduce their staffing in order to save money.

They may also deny claims or write very specific exclusions into your policy in order to reduce the number of claims they need to pay out, or even attempt to discourage you from filing a claim on your own policy if you are not at fault for an accident.

If you save money on your premiums, you may end up paying for it in service. This is not always the case, as some low-cost providers also have excellent customer service departments, but it is a factor you should consider seriously before choosing an insurance company.

Your Quotes can change after a review

Also bear in mind that your actual insurance will probably cost more than the quote you receive online. Your driving record plays a major part in determining your rates. Drivers who are considered “high risk” need to pay more in their monthly premiums.

High risk drivers are defined as those who may have a higher chance of being involved in an accident; this includes people under the age of twenty-five, young men, and people who own high performance or sports cars.

If you have a history of accidents or citations your rates will be higher than someone who does not have these on their history. Because the online quote sites will not know these all facts about you immediately, the quote you receive online will not reflect the most accurate final cost of your policy.

Outside Factors Influencing Premiums

ome costs are also completely outside of your control. If a company needs to spend a lot paying claims in a specific area of the country — for example, to pay for a catastrophe like an earthquake or hurricane — the company will need to recover that cost by raising rates in the area.

If you live in an area that has been damaged by a catastrophe, your rates may increase whether or not you filed any claims on your policy.

Saving money on car insurance is a good way to cut costs in your monthly bills, but only if you know exactly what your money is paying for and are comfortable with the provisions of your policy. You should always be careful about cheap car insurance ads because they may not accurately reflect your insurance needs.

In some cases you may, in fact, be paying more for insurance than you should be, and can save money without sacrificing quality by changing to another provider; in other cases, the reduced price quote comes at a tremendous cost to customer service or coverage.

Do your research and choose your insurance carefully or you may end up losing money if you are ever involved in an accident.

Use our FREE quote tool to compare insurance rates today!