4 Costly Mistakes People Make When Switching Auto Insurance

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

Switching auto insurance could be a good way to save money or get better coverage. Learn how to avoid expensive errors in the process. 

Switching auto insurance policies can sometimes be a really smart move for drivers. A change may be in order if there’s a cheaper car insurer out there or if a consumer isn’t happy with the customer service they’re getting from their current company.

When switching insurers, though, it’s important to avoid certain costly mistakes. Here are four errors consumers may be in danger of making that could hurt their personal finances in the long run.

1. Not making sure they get the right coverage

One of the biggest insurance mistakes people make is accidentally failing to duplicate the coverage they had when they switched companies.

For example, say a driver has a policy with $100,000 per person in liability insurance, which is more than their state’s minimum. When they shop for a new policy, the company they get a quote from assumes they want only the minimum required coverage of $20,000.

If the driver doesn’t notice that change, they may think the new policy is cheaper because the premiums are lower. But really, they’re paying less because they’re getting less coverage. If that driver later got into an accident and caused a victim to suffer $60,000 in damages, their new insurer would only pay $20,000. The victim of the crash could try to sue them personally and collect the other $40,000 in damages — which the policyholder might get stuck paying out of pocket.

This mistake can be avoided by carefully looking at coverage types, policy limits, and deductibles when comparing the new policy to the old one during the process of shopping for quotes and buying coverage.

2. Allowing a lapse in insurance

It’s important not to cancel an old auto policy before a new one takes effect. Otherwise, this could be considered a lapse in coverage. Insurers consider a driver to be a higher-risk person to insure if there’s a lapse in coverage lasting even just a day or two. Premiums could be as much as 10% higher after a coverage lapse.

Even worse, if something happens to go wrong during the period between when the old policy is canceled and the new one takes effect, the driver could have no coverage at all. A motorist who crashed and totaled a $40,000 car during the period when there was no car insurance in place would have to pay for replacement themselves with no help from an insurer.

To avoid this error, find out exactly when the new insurance policy takes effect and do not drop existing coverage until that happens. A phone call to the new insurer can make the dates clear.

3. Forgetting to ask about discounts

Insurers offer discounts for lots of different things, from being a safe driver to working for a participating employer. When switching coverages, sometimes motorists forget to ask about all the discounts their new company offers. This could lead to leaving money on the table.

To avoid missing out on whatever savings a discount can provide, drivers signing up for coverage should ask their insurer exactly what opportunities exist to reduce premium costs.

4. Not considering how unbundling could affect them

Finally, if a driver has multiple policies with one insurer, they may get a bundling discount that could save them as much as 20% on their coverages. If that driver finds a cheaper auto insurer and switches only that coverage, they may forget to consider the impact on their other policies.

Say, for example, a driver saves 20% on home and auto insurance by bundling. If they can get auto insurance cheaper elsewhere, but that insurer doesn’t have good prices for home insurance, they may decide to switch only their car coverage. If they save, say 5% by doing that, but their homeowners insurance premiums jump up 15% once the bundling discount is gone, they may end up paying more overall.

To avoid this, be sure to look at the total costs of current coverage for all policies with a particular insurer and compare that to what total costs would be for all policies after a change to auto coverage.

Fortunately, avoiding any or all of these errors doesn’t have to be difficult. Drivers just need to make informed choices as they consider all their auto insurance options.

Our best car insurance companies for 2024

Ready to shop for car insurance? Whether you’re focused on price, claims handling, or customer service, we’ve researched insurers nationwide to provide our best-in-class picks for car insurance coverage. Read our free expert review today to get started.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More