The Cost of Cheap: Why Going for the Lowest Price Isn't Always the Best Choice
Updated: Feb 7
You get what you pay for.
You've probably heard this saying most of your life. It's either said in different ways, like quality over quantity or it saves you money short term, but long term you'll end up paying more.
When purchasing anything it's hard to not factor in a product being "more expensive" than another. Our brains are wired to find the best deal, and when we get that deal the dopamine hit just cant be beat.
There are hidden costs to purchasing "cheaper" or "less expensive" products. I remember growing up and going to the hardware store with my dad because he needed a new hammer. Looking through the aisle with him I grabbed a $10 one and showed it to him. He had in his hand one that costs $35 dollars. I was dumbfounded that he was willing to pay for something that costs so much, when there was a cheaper option right there that would get the job done.
The thing with "cheaper" tools though is sure, they may get the job done, but they can cost you in the long run when a month after purchasing you have to go buy a new one because the one you bought broke, or its just not doing the job.
There are a ton of examples of quality over quantity and cheaper costing you more in the long run, and nowhere is that more evident than in personal auto insurance.
When you quote your insurance out, you're normally looking to make sure you are paying the best price. Sometimes, if you are really wanting to get away from a carrier, you'd even ok cutting some coverages here or there to just pay a little less every month.
At our agency, we harp on coverage over price, for the sole reason of educating our clients. Getting a cheaper policy can be great on the wallet short term, but there are plenty of downsides to getting cheap 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.
First off, lets talk about benefits of a cheaper policy.
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.
Why a cheaper policy is normally a bad idea
Generally speaking, drivers with cheap auto insurance are going to face tough consequences when making 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
Consider the meme at the beginning of this post.
You're driving your 2001 VW Passat. You're not paying attention and you end up sideswiping a Lambo.
Do you think your Georgia state limits of $25,000 per accident is going to cover the damage?
That's just factoring in damage alone. Say the passenger in the Lambo is injured. You can bet $25,000 is not going to cover it. Looking over a study of average claim costs last year, for a few of the most common car accident injuries:
Whiplash or other minor soft-tissue injury — $2,500 to $20,000
Mild to moderate concussion — $20,000 to $30,000
Bone/rib fracture — $15,000 to $100,000
Moderate neck or back injury — $30,000 to $100,000
Knee or shoulder injury — $30,000 to $100,000+
Traumatic brain injury — $100,000+
Severe back injury — $100,000+
Spinal cord injury/paralysis — $1,000,000+
Wrongful death — $500,000 to $1,000,000+
It's not only car vs car accidents either. It's not hard to find a story on the local news about someone confusing the gas for the brake pedal and running into a building. Is your $25,000 limit coverage going to be enough to cover a rebuild?
What happens when my insurance doesn't cover the total cost?
It's here where we find the true answer to just how much having lower limits can cost you.
Georgia is a “fault” state when it comes to auto insurance claims, which means when you get hurt in a car accident due to someone else's negligence, you have three options for seeking compensation for injuries and damages. You can file a claim with your own insurance company, file a claim directly with the other driver’s insurance company, or file a lawsuit in court.
This all means, basically if you cause more damage than your insurance can pay out you can bet that you will be receiving a call from a lawyer. It's a pretty strong bet as well that they will be going after everything you own.
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.
Ready for a better way? Click here to learn more about personal auto insurance or to start a quote and get your coverage where it should be.