Are Bare Bones Cheap Auto Insurance Policies Right for You?

Detroit, Michigan is poised to become a test site for a bare-bones auto insurance program aimed to get the city’s uninsured drivers to carry some kind of coverage. Michigan’s 19% uninsured driver rate is well above the 13% national average, and some estimate that as many as half of Detroit’s drivers are uninsured or illegally using addresses outside the city to obtain cheaper rates. The proposed cheap car insurance policy plan is modeled after a California program that offers reduced minimum policy injury limits of $10,000 per person and $20,000 per accident with qualification restrictions. (Under the California plan, you must be at least 19, have been licensed to drive for at least 3 years, have a household income that is no greater than 2.5 times the poverty level and your vehicles can’t be worth more than $20,000.)

The rationale for these cheap car insurance policies, which often cut premiums by as much as 50%, is that it’s better for drivers to have some kind of car insurance than none at all. But some fear that people injured by holders of the bare-bones car insurance policies will quickly exhaust the policy limits. Opponents point out that most states’ minimum requirements are inadequate as they stand and lowering the requirements for some will only result in more lawsuits or more seriously injured people on Medicaid.

Is Minimum Cheap Auto Insurance Enough?

• Every state sets its own minimum auto liability insurance. They vary from a low of $15,000 per person and $30,000 per accident for bodily injury and $5,000 for property damage (commonly written 15/30/5) to a high of 50/100/25. As the policy holder, you’re on the hook for any costs that exceed those minimums. And, really, how far will 5 grand go toward repairing that Lexus you rear-ended?
• Anytime an accident happens and you’re at fault, you could find yourself on the wrong end of a lawsuit. It’s true that many of these cheap auto insurance policies will pay for legal disputes, but only up to the limit of your coverage.
• Considering that you generally get what you pay for, minimum cheap car insurance may not be a deal. You’re far better off shopping online for the best price on the amount of coverage that will protect you. You’ll get competitive quotes for car insurance from top rated companies and some peace of mind in the bargain.

If you’re driving an old beater, rarely put more than a couple hundred miles a month on your vehicle or are really strapped for cash, then any car insurance is better than none.

How to Get Cheap Auto Insurance?

There are however strategies that can help you get cheap auto insurance coverage. Here are a few for your consideration:

1. Shopping Around For Cheap Auto Insurance

Do not make the mistake of keeping your insurance with the same company forever. Insurance is a very competitive business and each company is constantly changing its focus to better underwrite to their particular niche of the market. You will find that the insurance company that you wanted when you were newly married is not the company you want when your kids are growing up.

2. New Policies

A new policy can sometimes be a lost leader for an insurance company. They may have spare capacity one year and be very interested in getting more policyholders even at a premium that is not attractive. Some companies discount the first year premium assuming that you will be with them in years two through six, so they will make their profit in those years.

3. Renewals To Get Cheap Auto Insurance

The second and subsequent years where you stay with the same insurance carrier can cost you some extra money. Most policies would have an automatic or scheduled premium increase in year two and so on, to take into account that there is claim inflation, i.e. a dented fender might cost more in year two than it did when you first got the policy.

4. Technology

In today’s world, technology changes the complexion of insurance each day. On some days the staffing of insurance companies gets cheaper as they employ more computers. On other days the cost of fender repair gets cheaper because they are plastic rather than metal. These savings are likely not passed on to you unless you shop for a new policy.

5. Coverage Differences

Not all companies offer the same coverage. While the name of the coverage might be the same, like “auto physical damage” coverage, the claim staff may approach claims completely differently. One company may let you go to your favorite repair garage and others may cause you to drive all over the state looking for cheaper parts for your car.

6. Gimmicks

Many companies have gimmicks they market to entice you to buy insurance from them. It can be such things as: claim free discounts, multiple product discounts, no cancellation after first accident, $xxx dollars of savings, just to name a few. Keep in mind that, as noted above, they are not in this for charity. They know the cost of each of these gimmicks and that cost is blended into the premium.

Keep In Mind

The best approach is to shop online. Select companies or Brokers that have been in business for many years.

Enter the minimal data requested on the site to get a sense of the premium per company in your area. Then do some research on the companies and their ratings and ask friends, which companies they like or where they have had a good claim handling experience. The lowest price is not always the best purchase.