Just about everyone, including you, shops for car insurance based on rates. The cheaper, the better, right? Well, not always. Sure, it feels great to see that low bill from your auto insurance company, but rarely do car insurance shoppers take a look at the finer details. The major pitfall is that you could pay more in the long run. Here are the ups and downs of cheap car insurance.

When and Why Cheap Car Insurance is Gooddeclining car costs

Don’t make the mistake of thinking cheap car insurance is automatically a good or a bad thing. It goes deeper than that. But if you’re in a tough financial spot, a low rate may help you for a little while until you get back on your feet. It’s at this point that the least expensive car insurance policy might work best for you, but make sure the company has a good history with customers.

  • Get the lowest rate you can get, but make sure the company you choose doesn't have a terrible record with customers.
  • Check out reviews, but also realize that you may have to compromise in order to get a low rate.
  • Put aside how much you save for a better policy later. If you save $50/month, sock it away for later. Don't just spend your savings.

What Does Cheap Insurance Typically Cover?

car accident night

There's a reason why cheap car insurance is cheap. Something's gotta get cut. Typically, you're just covered for liability, which is the technical term for when your insurance company covers damage to the other vehicle as well as other property or injury to others. Technically, it pays for damaged cars/property, medical care, and lost wages for other drivers and passengers if you caused the accident.

Your insurance company is not responsible for covering your costs or injuries, so if you want to repair or replace your car, it will be at your own expense. If you are injured, and you don't have medical insurance, your hospital bills will be your responsibility. What you saved in monthly rates can end up costing you thousands more, so car insurance isn't just a short-term cost consideration. 

More Than Out-of-Pocket Repair Costs

car dent repair

Repairing your car out of your own pocket isn't just the only cost you can incur when you get in an accident. Even if your inexpensive policy has a collision provision, it may include the cost of a car rental, so you'll have to figure out a way to get to and from work if you can't afford to rent a car for a few hundred dollars a week.

Public transportation might not get you close to where you need to go, or it might not meet your schedule's needs. What's worse, if you're not covered, and you don't have the money to fix your car, it will sit there unrepaired until you can afford it, and you'll still have to find alternate means of getting around. 

Your Deductible Could Be High

car insurance deductible

When it comes time to file a claim, your deductible could financially cripple you. In order to get your insurance company to pay your claim so you can get your car repaired, the deductible has to be paid first. You don't always think about the deductible when you're shopping for low rates since you're thrilled with the cheap payments, but when you get in an accident, and you have to pay $1,000 before you get coverage paid out, that could really set you back. Realize that driving with a higher deductible raises your level of risk.

  • Low rates typically mean a higher deductible unless your driving record is superb. Even in cases where you have a perfect driving record, your deductible can still be high if you want rock bottom rates. 
  • If you get in an accident where the damage to your car is less than your deductible, it'll still cost you money to get it fixed since you will likely choose not to use your car insurance. 

How to Decide

car insurance policy

Ultimately, which car insurance policy you choose is all about money. Go for a cheap policy, and you might never get in a car accident, so your costs could remain low, but you drive at a high level of risk. If you opt to get a policy with excellent levels of coverage, and it incorporates liability, collision, umbrella, rental, etc., your monthly costs are more, but your coverage also ensures you won't pay out of pocket even if it's your fault. The decision is a difficult one, and you may need to blend by opting for a cheap policy until your finances are in better standing. 

  • Changing policies is easy. Most insurance companies don't charge any penalty if you change, and your coverage can typically begin immediately, so there will be no lapse in coverage.
  • Make sure you have accurate information to get a quote including:
      • Employment information
      • Driving record
      • Vehicle Identification Number
      • The number of drivers using the car, as well as names
      • Where the car is parked at night
      • The car's make, model, and year
      • # of miles driven daily/monthly
      • Your vehicle's primary use (business, recreation, commuting)