Wednesday, June 8, 2016, AM | Leave Comment
If you’re used to being a bargain shopper, then you might think you made out like a bandit by finding cheap insurance.
Unfortunately, the truth might not tell such a positive story.
Skimping on insurance can have some pretty drastic consequences for all parties involved.
Here are just a few reasons cheap insurance is a bad idea.
Cheap Insurance Could Mean Bad Financials
Insurance companies have a responsibility to their clients. They must charge enough that they can put money aside into reserves in order to pay out the claims that actually come in.
When an insurance company charges too low a rate, it could mean that they aren’t effectively determining their costs and risks, which in turn might mean that they are not setting a suitable amount in reserves.
If a catastrophe strikes and an insurer doesn’t have enough set aside in reserves, they may not be able to make good on the promises within their issued policies.
Cheap Insurance Could Mean Expensive Deductibles
There are a number of ways to reduce your insurance premiums, one of which is to choose a high deductible.
The deductible is the amount of money that the insured must pay out of pocket for damages experienced during a covered incident. The higher your deductible is, the cheaper your insurance policy will be, but the more you will be responsible for paying after an incident.
Consider a car accident. If you have a $2,000 deductible then it means you have to pay the first $2,000 in damages out of pocket for each incident you have.
The insurer will only contribute above that amount if you have comprehensive auto insurance.
Cheap Insurance Could Mean Low Limits
Another part of your policy that can help drive premiums down is your limit. When you choose a low limit, it means that the insurer isn’t risking as much and as a result they will generally lower your premium.
But if your insurer takes on less risk with a low limit policy then you take on more risk. Because any part of the claim that exceeds the amount of your limit will be something you have to pay for out of pocket.
Filling a Claim could be a Nightmare
If you are opting for a lower cost/value insurance policy then you could be setting yourself up for a headache.
Some companies take forever to get in contact with and will certainly take their sweet time getting back to you. Paying a little more to get the service you absolutely need in a crisis is always a good idea.
A cheap policy may be less expensive in the short term but in the long term, when it comes time to actually use the policy, it could end up being far pricier than you can afford.
Instead of trying to get the cheapest policy, look for ways to design an affordable policy with reasonable deductibles and limits from a company with a high A. M. Best financial rating.Facebook.com/doable.finance