The auto insurance market has become hugely commoditized, mostly because insurance companies, by and large, have chosen to market their produce (auto insurance) strictly based on the cost (what you pay for the policy).
How many insurance company slogans could you recite in 30 seconds?
Chances are, the ones that come to mind have something to with ‘switching & saving’ or ‘spend 15 minutes and save 15%.’ But how does a 15% savings help you if you have a serious claim: let’s say a $350,000 claim for injuries you caused in an accident, and you find out you don’t have coverage? Or not enough coverage?
And what does that say about insurance companies, and their perception of how consumers determine their auto insurance buying decision?
It’s not unrealistic to assume that insurance companies believe that the price, the bottom line, is all consumers care about regarding their auto insurance. So this is where they spend their billions in marketing campaigns: trying to convince you that if you switch your auto insurance, you’ll save $500.
The Dilemma
Not all auto insurance policies are created equal. In fact, there are literally hundreds (maybe even thousands) of different types of auto policies once you factor in the potential terms, definitions, exclusions and endorsements that can be added to an auto policy.
And if the insurance company has convinced you that your auto insurance policy purchase is as simple as selecting the policy that’s the least expensive, how likely do you think it is that you’ll get the right policy for your situation?
And one of the most important considerations you need to make when purchasing auto insurance is to understand who is covered by your policy when driving your car.
Tip. Not all insurance companies have the same language in their policy, so a driver could be covered by one insurance company, but excluded by another. The time to find out a driver is excluded is NOT after an accident occurs.
All the coverages in your auto policy apply when you are driving, but they can also apply when other people are driving your vehicle (assuming that driver is not excluded). The coverages are actually for the car, not the person.
Note. However, if someone is going to be a regular user of your car, that person’s name needs to be added to your policy.
Your insurance company wants to know who’s going to be using your car. That stands to reason. After all, you could be a great driver, with no tickets or accidents. But your spouse, your teenage child or your reckless cousin could have a poor driving record.
If you let these people drive your car without telling your insurer and these people have an accident, your insurance company isn’t going to be very happy.
In fact, the company will probably cancel your policy.
Tip. It’s not wise to risk losing your policy by failing to disclose who’s driving the insured vehicle. Keep in mind, however, that if you add drivers with lousy records or who haven’t had much driving experience, your premiums will likely go up.
Any parent of a driving teenager can tell you this. Teenagers are notorious for getting tickets and having accidents. They’re also very inexperienced drivers. As such, when your child gets his or her license, your insurance premiums will go up when you add your child to the policy.
If you buy all six of the major auto insurance coverages, your policy will cover you in most every instance in which you cause damage or injury to your car, yourself, your passengers, or drivers and passengers in other vehicles.
But not all.
Note. The standard auto insurance policy has some “exclusions,” which is insurance-talk for, “We won’t cover that.” Here are some examples where your auto policy won’t provide coverage:
- If you intentionally try to cause damage to your car or another vehicle, and this includes liability coverage
- If you’re using the vehicle to transport other people for a fee (such as Uber & Lyft, but this does not apply to car pools where the expenses are shared)
- If you’re using the vehicle for certain business activities (this does not include traveling to see clients or taking a standard business trip)
- For damage caused by normal wear and tear, freezing, mechanical or electrical breakdown, or road damage to tires
- If your car is damaged because of radioactive contamination, intentional or accidental discharge of nuclear weapons, war, insurrection, rebellion or revolution
Some insurance companies have ‘exclusions’ in their auto policies for any driver that’s been a member of your household for more than 30 days, that has not been added as a driver to your policy.
Doesn’t sound like a big deal, right?
Well consider this real-world example: a 16-year old driver is successful in obtaining his drivers license. He’s been a member of the household for 16 years, far longer than the 30-day provision provided in the policy. Mom & dad drop the ball and forget to add him as a driver to their policy when he gets behind the wheel.
Where do you think that leaves this family if this driver is involved in a serious accident where he causes over $500,000 in damages to the operator of a motorcycle that he pulled in front of at a busy intersection?
It’s nightmare claim scenarios like this that reinforce the importance of your insurance, not just your auto insurance but all of your insurance policies, being tailored to your individual needs.
The premium you pay will always be important, and should never be ignored as a factor when determining which auto insurance policy makes the most sense for you. However, you should never base your buying decision solely on the price alone.
As long-time insurance educator John Eubank, CPCU, ARM, once said: “The bitterness of no coverage is remembered long after the sweetness of low price has been forgotten.”
If you’re working with a knowledgeable, experienced insurance advisor, you should be presented with options that will provide the best level of protection, and the most affordable premium: better known as getting the best value, NOT the cheapest policy available.
If you’d like to learn more, contact one of our Licensed Advisors . We’re here to help.