Really Cheap Car Insurance - You Want It Cheap? Start Here
If you're looking for auto insurance, but would prefer not to spend an arm and a leg in the process, I have good news for you! There are a number of cheap car insurance providers out there who provide quality coverage at low rates. Personally, I highly recommend 'Cheap Motors'. They have been providing me with excellent service over the past couple of years and I'm always very happy with the price.
Having said that, there are other insurance companies out there who offer even better deals than Cheap Motors. I've reviewed a few of them in the past, but up to now I haven't gone into much detail about how they actually work.
In this post, I'm going to examine what a few of these cheap car insurance providers do differently in order to provide you with lower rates. We'll discuss how each company manages claims, and look at the products they offer on both a monthly and annual basis. I'll also be comparing them to their more expensive peers on the market, so you will be able to make a more informed decision on your purchase.
So, let's get started!
Understanding how car insurance works and its cost is critical to deciding whether you're getting good value for money. Here's a quick introduction:
In the United States, car insurance is mandatory in all fifty states. It provides financial protection against collisions and other losses which might result from a driving related accident, including theft of your vehicle or its parts. The cost of the premium can vary widely depending on the location and driving record of the driver; therefore most people seek quotes from a number of different providers when buying insurance policy for their automobile.
A few factors that are considered by the insurers in determining the cost of an insurance policy include:
Here is a quick table of quotes from 10 providers selling car insurance on the market today. The data is taken from a comprehensive study done by 'Insurancequotes.com'. For each provider, I'm providing you with an overall score and average annual premiums for a couple of sample driver profiles:
However, before we examine what these companies do differently to keep costs low, it's important to first understand exactly how insurance providers calculate their rates.
If you're buying auto insurance, then you're probably looking at two different types of rates: 'actual cash value' and 'replacement value'.
Actual Cash Value vs Replacement Value
Actual cash value (ACV) is an estimate of the cost of your car, truck or motorcycle in today's dollars. In other words, how much could you sell it for in a used car dealership? In contrast, replacement value (RV) is an estimate of what you could sell your vehicle for when it's damaged or totaled. The RV number is usually lower than the ACV because there are likely to be repairs that would have to be made to the vehicle in order for it to be ready for resale; and these repairs might increase its original cost.
However, it's important to note that the ACV and RV numbers may differ significantly for a variety of reasons. For example, if your vehicle is damaged, then this will increase its current value. Also, there are additional accounts such as depreciation and interest accrued during the time your vehicle was in your possession.
Let's look at an example to make this more clear:
Joe's family owns a new Ford Escort recently purchased for $15,000. He drives it regularly without any problems, but one day he crashes into another car while making an illegal turn at a convenience store. The collision is so severe that the car is deemed a 'total loss' by his insurance provider.
Joe's insurance provider takes into account:
Based on this information, the insurer can provide a ballpark estimate of what Joe's car might be worth in the current market, though it will usually need to be repaired before it could be sold. The total cost of repairs may have some impact on this figure, but it should still fall within $10,000-$12,000 range. This is equivalent to approx 60-70% of the vehicle's original cost.
On the other hand, Joe can estimate how much his car might fetch if he were to sell it in its damaged state on Craigslist or at an auto dealership. Based on the above information, this would amount to $5,000-$6,000.
However, it's important to note that this estimate is still subject to a number of factors, including the condition of your car and whether it has any additional accessories (such as a sunroof), which will also reduce its value. In fact, many auto insurance providers have decided to exclude such items when calculating replacement value for free-market vehicles.
Car Insurance Claim policies
As a paying customer of an insurance company you may face some very unpleasant situations when it comes time for you to make a claim related to your vehicle. So, it's important to understand the process, which differs from company to company.
As you can imagine, there are a number of cases in which an insurance claim will have to be submitted:
1. Bodily Injury (BI) related incidents
2. Property Damage (PD) related incident 3. Loss of Use (LOU) 4. Towing & Storage 5. Collision 6. Liability 7. Medical Payments 8. Personal Injury Protection (PIP)
In most states, BI incidents are handled by an independent adjuster on behalf of the insured; or sometimes a claims investigator employed by the company itself.
Here is a brief overview of how these claims are handled:
A BI claim typically falls into one of two categories:
1. A collision case is when the insured collides with another vehicle or object. 2. A non-collision case is when the insured's car strikes something such as an animal, sign, utility pole, tree or any other external object which causes damage to the vehicle.
The process for BI claims differs between companies and between states as well; but in general, these are your typical cases where you file a claim after being involved in an accident.
Conclusion
As you can see, there are a lot of moving parts in the car insurance industry that lead to different types quotes for those buying their polices on the free market. This is a complex industry and it's important that you understand how they work before buying.
If you're interested in learning more about how the insurance market works, then I highly recommend checking out 'The Insurance Maze', a free short film that was created by 'The Health Foundation'. It provides an excellent visual explanation of insurance companies' business practices and how they affect consumers like us. The film is just 13 minutes long and it's worth watching if you want to know more about auto insurance and medical bills. You can watch it here.