Why the Cheapest Insurance Isn’t Always the Best Insurance

Last Updated on September 14, 2023

Cheap car insurance is great for your wallet today – but it can backfire in the long run. There are plenty of downsides to getting cheap car insurance. It’s important you’re aware of these downsides before you choose to protect your car with cheap insurance – like bare minimum insurance policies.

Why the Cheapest Insurance Isn't Always the Best Insurance

The Benefits of Cheap Car Insurance

First, let’s start with some good news: cheap car insurance doesn’t have to be bad car insurance. It’s not always a bad idea to get cheap car insurance.

If you’re in a tight spot financially, then cheap car insurance might be the best option until you’re in a better position. The benefits of cheap car insurance include:

  • You keep more money in your pocket today
  • If you never get into an accident or need to make a claim, then you can save money with few downsides
  • You can pay for only the coverage you need
  • You can invest the money you save on your insurance premiums into a savings account and then access that money when you need to use it – like after a collision that exceeds your policy limits

Here’s the thing: cheap car insurance is only a problem if you need to make a claim or if you get involved in an accident. Many people go their entire lives without needing to make an insurance claim or being involved in an accident.

With that in mind, let’s look at the downsides of cheap car insurance.

Downsides of Cheap Car Insurance: Why It’s (Usually) a Bad Idea

Generally speaking, drivers with low-cost car insurance are going to face tough consequences when they need to make a claim. Cheap car insurance is what you get when you want to legally drive on the road without spending a lot of money.

Is cheap car insurance worth the added risk? Is it worth exposing yourself to risk to save a few hundred dollars a year? Keep reading to discover some of the significant downsides of cheap car insurance.

Even Small Accidents Can Exceed Your Insurance Coverage

Cheap, basic liability car insurance plans come with low coverage limits. Many experts, including Dave Ramsey, recommend having a minimum of $500,000 of liability coverage per accident. Some recommend $1 million or even $2 million for maximum protection. However, cheap car insurance policies may offer just $10,000 or $30,000 of coverage per incident.

It doesn’t take much damage to exceed a $10,000 car insurance policy. Even a minor fender bender can exceed that limit – particularly if there are multiple passengers in the car who all require costly medical treatment.

You May Be Unable to Properly Repair or Replace Your Vehicle After a Collision

A cheap car insurance policy only provides liability coverage. That means your insurance company will cover damages you inflict on other drivers, property, passengers, and vehicles. However, your cheap car insurance policy will not cover the costs of repairing or replacing your own vehicle.

If you’re in a collision, then your car insurance policy may cover the costs of repairing the other person’s vehicle along with their medical bills (assuming you were at fault). However, don’t expect it to cover the costs of repairing your own vehicle: basic liability coverage doesn’t cover damage to your own vehicle.

You’re Left Without a Vehicle After a Claim

Can you afford to repair your vehicle out of pocket? Can you afford to replace your vehicle if it’s totaled in an accident? Can you afford to go without a vehicle for a few weeks while your vehicle is being repaired? These are all questions you need to answer if you want to buy cheap car insurance.

Many drivers with cheap car insurance will be left without a vehicle after an incident. Typically, those with cheap car insurance don’t have huge cash reserves. If you can’t afford to repair your vehicle after an accident, and your cheap car insurance doesn’t cover it, then you won’t have a vehicle until you can afford to repair it.

You’ll Get Worse Service From Your Insurance Company

Some insurance companies provide better customer service to their higher-paying customers. Customers with comprehensive insurance policies or multiple bundled insurance policies will get better service than a customer with a basic liability car insurance plan.

This may not be a big deal – until you need to make a claim or contact your insurance company about any questions you have.

You May Have a Higher Deductible

One of the best ways to get cheaper car insurance is to raise your deductible. A typical car insurance deductible is around $500. However, some drivers raise this deductible to $1,000 or higher in order to lower their premiums. You pay more when you make a claim but pay less each month. One of the downsides of cheap car insurance is a higher deductible, which means you’ll pay significantly more money when you need to make a claim.

Conclusion: Think Carefully Before Buying Cheap Car Insurance

Cheap car insurance can be a great deal. Unfortunately, it can also be your worst nightmare when it comes time to make a claim. In a minor accident, you’ll need to pay for repairs or a new vehicle out of pocket. In a more serious accident, you might be forced to declare bankruptcy as you’re forced to pay for the medical bills and damages of other drivers out of pocket. Think carefully before buying cheap car insurance.

James Shaffer
James Shaffer James Shaffer is a writer for InsurancePanda.com and a well-seasoned auto insurance industry veteran. He has a deep knowledge of insurance rules and regulations and is passionate about helping drivers save money on auto insurance. He is responsible for researching and writing about anything auto insurance-related. He holds a bachelor's degree from Bentley University and his work has been quoted by NBC News, CNN, and The Washington Post.
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