Switching Insurance Companies

We are bombarded daily with radio and television ads urging us to “switch insurance companies” and save big bucks.

Let’s face it; these commercials would not be running so often if they didn’t work…and they wouldn’t work if it weren’t true that we could save some real cash.

But these commercials have been aired for so long by so many different companies that consumers are getting lost in it all.

In fact, a new study revealed that fewer drivers are shopping their auto coverage now than in recent years, despite all these ads.

However, the late comers to the switch and save “game” are still being handsomely rewarded for their efforts, as the same report shows a record percentage of people who do bother to shop are actually switching.

Where do you fit in this craze? Have you already spent 15 minutes in order to save 15%? (For more information, read our “Will 15 minutes really save me 15 percent on insurance?“)

[How much do insurers spend on advertising?]

How to switch car insurance companies?

Switching insurers can save you a significant amount of money. You can do it at any time, not just when your policy is up for renewal.  Even if you have paid your annual premiums, you can get a prorated refund from your company when you cancel coverage midyear. However, you may have to pay a cancellation fee. 

Paying a lower premium for virtually identical insurance coverage should be a no-brainer.

Don’t we all want a little more, or the same, for less…especially in this economy?

OK, you’ve decided you’re ready to shop your insurance. What’s next?

Thanks to the Internet, shopping for more cost effective insurance coverage has never been easier. We are now able to compare coverage from numerous insurers across multiple lines of insurance with just the click of a mouse.

Of course, it is always recommended that you speak with an agent or insurer before actually purchasing your coverage.

There are a lot of coverage options out there today. Failing to purchase the correct coverage or insufficient amounts of the “right” coverage may leave you in a sad state of financial affairs in the event of an uncovered claim.

[Why do insurers deny claims?]

Once you have the right coverage and insurer figured out, you simply purchase the new policy and cancel your existing coverage.

Contact your current insurer or agent to determine how to go about properly cancelling your existing coverage.

You may also want to be prepared to have them try to talk you out of it. You never know, your current insurer may be able to lower your premium and retain your business. So keep your ears open.

[How to switch homeowner’s insurance companies when you have an escrow account.]

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Can an independent agent make it easy to switch?

If you happen to work with an independent insurance agent, simply call, text, or email and ask them to shop your insurance rate with the many insurers they represent.

It’s pretty common for a newcomer insurance company to offer a lower price for the same coverage if they’re looking to build up market share in a certain geographic location.

And if you’ve been with the same company for years, it might be time to ask your agent to do something to earn their commission.

Really, they should have their finger on the pulse when it comes to better deals, so you shouldn’t have to seek it out.

Before each renewal they should ensure you’re still getting the best deal. But in the real world, we know most folks aren’t that proactive.

So every year, around the time of renewal, you might want to give your independent agent a jingle to see if there are any new carriers (or old ones) offering better pricing for your vehicle, house, boat, etc.

If you don’t ask, you may keep paying an inflated price. (For more information, read our “Insurance for Falling Home Prices“)

Read More: Insurance Pricing Cycles: Hard vs. Soft Market

What about a mid-term switch?

While this is entirely possible, it may not always be a good idea to switch insurance companies mid-term.

There is at least one thing to consider when you make the choice to “shop” your premium and switch insurance companies before your current policy ends.

Namely, how your current insurance company treats your cancellation with regard to returning the unearned premium, which is the technical word for the prepaid money they haven’t earned from you for providing coverage you’ve yet to receive.

Let’s look at an example where switching mid-term, or while you’re currently insured under another policy, might not be in your best interest.

Imagine you pay $1,200 for a one-year policy with Company A. That breaks down to $100 per month for coverage.

You shop your premium and find you can get identical coverage for only $1,000, ultimately saving $200 over the life of your current policy.

But before deciding to switch, you will need to determine how Company A calculates your refund. Some companies will give you a short-rate refund.

Basically, they won’t give you a refund based on the exact number of days you were actually insured. This is essentially a cancellation service charge.

If you had six months of coverage, you would have six months of unearned premium and would expect a $600 refund (half of the $1,200 assuming you paid in full upfront).

The short rate refund may include a cancellation fee of $150 dollars. Therefore, you would only receive $450 back at the end of the process.

Watch Out for Fully Earned Fees

Furthermore, your policy may have included a “fully earned” policy fee of $50. (For more information, read our “Five Insurance Fees To Watch Out For“).

Fully earned is the technical term for “no refund for any reason.” They consider it earned for issuing the policy. Either way, you are now down to a $400 refund.

With your refund down to $400, the policy Company B is pitching for $200 less would result in zero savings.

In this instance, it’d be better to wait for your current policy to end and switch at time of renewal.

It’s important to note that if your insurer decides to cancel your policy at any time, you are due the pro-rated refund, which is directly proportional to the time you were covered by them.

However, any “fully earned” fees will still not be refunded. You should be notified of fully earned fees upfront when you purchase any insurance policy.

It is often argued that insurance today has become more or less a commodity.

This means that, similar to barrels of oil or bars of gold, insurance is standardized to a point where it doesn’t matter who you buy from. The only concern is the price, as you wind up with the same basic product.

This is true to a degree, but you will want to make sure you are with a reputable, financially stable company that provides good customer service.

Your insurance agent or insurer should be more than willing to disclose the financial ratings of their company or the companies they represent before issuing your policy.

They should also be aware of the customer service reputations as well. Turn around and walk out the door if they don’t readily offer this information to you.

However, even though switching insurance providers might save you money, there are sometimes situations when it’s better to stick with your current insurer such as: if you’ve had an accident or ticket, if you have a loyalty or bundle discount, or if you qualify for accident forgiveness.

Read more: The best times to shop your insurance.

(photo: Marcin Wichary)

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