Pros and Cons of Bundling Insurance
Shopping for insurance is a big deal. If you feel like it’s a small deal, you need to make a bigger deal out of it.
Why does it matter so much? Mostly, it’s because signing up for a giant monthly bill better come with some serious benefits. If you go with the most generic plan, you’ll still pay a good sum of money and might not get the actual coverage you need when the going gets tough.
It honestly shouldn’t cause as much strife as it does, but the inner workings of insurance make it a complex puzzle. Quality policies operate on the assumption that you aren’t likely to need those protections. The market relies entirely on covered individuals not using their coverage. So when you present yourself as a customer who might file claims regularly, it becomes a lot harder to get a truly comprehensive policy.
Insurance companies look for good reasons to insure you, and one of the best ways to entice them is buying multiple plans. The more you buy, the better the insurer’s odds of taking more from you than they give out. It doesn’t sound fair, and it isn’t meant to be. When you need the help, that’s when the scales hopefully tip in your favor.
Of course, getting affordable, quality coverage isn’t as easy as finding a two-for-one deal. Depending on what you need and what kind of life you lead, a bundled policy has numerous pros and cons. While it’s virtually impossible to find coverage that’s absolutely flawless, shopping around and researching can help you find something suited for your situation.
I’m going to keep this narrowed to home and auto insurance, going over what you can expect and what you should try to get. Most types of insurance can be bundled, but we’ll keep it to the big ones for now. After reading you might decide a package deal doesn’t make sense for you, or it might just be the thing that saves you hundreds of dollars each month.
Coverage you need at an affordable price? There’s a lot to like about that, including some conveniences you might not have thought about. First, the most obvious…
You can find all sorts of discounts from insurers - safe driver, first-time homebuyer, good student - but few compare to what you save when you put multiple policies into one package. The reason being that you’re paying more than one monthly premium, and that’s the bread and butter for State Farm, Geico, Progressive and everyone else.
Bundling home and auto can save you as much as 25% on your premiums and usually no less than 7%. Savings depend largely on where you live: Midwest bundlers tend to see the biggest savings, often over 20%, while people in Florida, New York and Hawaii get closer to a 10% premium discount. Wherever you are, it all still depends on the value of the assets in the policies and the risks you present.
Insurers want to handle all your coverage. They want you to pay multiple premiums, and they’ve shown a great willingness to discount policies in order to win your business.
2. One Point Person
Insurance can feel like an unfeeling industry, and it oftentimes is. Because of that, when you work with a friendly agent who understands your personal situation, the process becomes much more amicable and more likely to work to your advantage.
Even while everything becomes more automated and app drive, a human being with your best interest in mind still makes a big difference. Filing claims and keeping your premiums in check often comes down to a professional going to bat for you. Having multiple coverages with one agent makes you a more valuable client and also means you spend more time in contact with that person. While that doesn’t guarantee you’ll become best friends, you’ll be more than just a name in the clientele file.
While insurance company CEOs are more likely to focus on the bottom line, the agents put in work to keep clients happy so they don’t take their business elsewhere. If you have a decent relationship with your agent, there’s a good chance they’ll be on the lookout for ways you can save. And if that person looks after multiple policies, they’ll have more chances to put money back in your pocket.
3. Lower Probability of Dropped Coverage
If it hasn’t happened to you before, insurance companies will absolutely drop a customer who becomes too much trouble. They won’t do it after your first fender bender, but once you’ve got a handful of claims and it’s clear you have liability issues, your agent will probably start looking for the door.
That changes when you have two policies intertwined. Even as you present a headache for the auto division, the premiums you pay on property insurance keep you from becoming expendable. That bundled package might just make you valuable enough for your provider to overlook the other claims.
Getting dropped by an insurer causes all sorts of problems, from out-of-pocket expenses to finding another agent who will offer an affordable policy. While you shouldn’t assume dual coverage will wipe away your problems, it does make you more appealing to your provider.
4. Combined Deductible
Sometimes, sometimes, insurers will combine the deductible for your home and auto insurance and get you a smaller total than if you had two separate amounts. In a year when you file multiple home and auto claims, a combined deductible can save you thousands of dollars.
You have to ask your agent about this one; don’t assume your bundle will automatically result in a deductible reduction. If it does, give your agent a hug and yourself a pat on the back.
I think the pros make a strong argument for insurance bundling, but I’m not about to let this become a one-sided argument.
1. The “Too Good To Be True” Effect
We mainly look to bundle for premium savings. That’s why I made discounts the first item on the list of positives above. Unfortunately, those alluring savings often come back to bite when you have to put your coverage to use.
Say you have quality coverage for auto and you’re looking to add home. You might assume the second policy will be comprehensive and thorough just like what you already have, but that isn’t a given. If the bundle ends up being far cheaper than you expected, there’s a good chance the coverage you’re adding is barebones and inadequate.
For whatever reason, people pay more attention to the details when buying separate policies and let more stuff slide when getting a package deal. Agents usually know this and will try to package some of their cheaper, flimsier policies when you go to bundle, hoping you’ll opt for the sale and ignore the substance.
2. Disappearing Benefits
Ever had a price adjustment within one of your insurance policies? Of course you have! Whether it’s going up or down, premiums rarely stay put for too long. This is especially true when you get an awesome introductory rate on an insurance package.
Sometimes it happens over the course of five years, other times you’ll notice a big jump in just six months. You may have been told about the creeping premium rates and were initially OK with it, or it might have been noted in the finest of fine print and you’re caught completely off guard. In any case, the price on one or both of your policies could very well sneak up over time.
There are two main reasons to expect these incremental increases. First off, it might just be the company’s way of breaking even on whatever savings they offer you. It could be that you get a really awesome price break for the first couple years, but then for the next couple years you see those savings dissipate. In the end you’re paying a pretty average rate and you just have fond memories of the time when your insurance was really, really affordable.
The second reason you might see a slow upward trickle on premiums is a little more devious. Because you have two policies and the burden of finding coverage isn’t weighing on you, insurers know you’re a little less likely to go shopping for a new policy. As the premium hikes come in, there’s an expectation you’ll just grin and bear it and, unfortunately, that’s generally how things play out. Some of you may be reading this and thinking about how you’ve just been dealing with expensive monthly premiums for decades because the thought of finding a new provider exhausts you.
While good agents will try to find discounts in order to keep your business, many of them will try to raise prices when they feel confident you won’t cut ties. When you’ve got multiple policies with one company, they’ll start feeling a little more confident and might see about squeezing a few more dollars out of you each month.
3. “New Policy, Who Dis?”
If you work with a reputable insurer and an agent you know, this probably won’t be a big deal. If you go with cut-rate insurance through a questionable company, it’s possible the coverage you add to your bundle will be outsourced to an affiliate. This could be a non-issue; it could also be a disaster.
With an affiliate policy, the coverage still falls under the name of your primary insurer but the details get sorted out elsewhere. This means when you have to handle a claim or rework any specifics, it won’t be as easy as you’d like. Instead of calling the guy you’ve known for years and have a relationship with, you’re dialing an 800 number and spending an hour on hold. By all definitions, that’s pretty annoying.
You also might end up with a policy that doesn’t cover as much as you expected. You’ll feel lied to and cheated, but the paperwork will be on the side of the insurer and you won’t have a leg to stand on. For the most part, the affiliate insurer problem is just a nuisance, but it can end up costing you money if you don’t have the coverage you thought you did. That’s why, per Pro #2, it’s really nice if you have all your policies handled by one trustworthy agent.
What To Do?
As you can see, all the pros and cons exist in a sort of grey area. Depending on where you live and what you’re insuring, the pluses and minuses of a bundled package will vary. Your neighbor could combine home and auto and save $500 a month, and you could try to do the same thing and end up with worse coverage and $30 savings. A lot of it depends on the provider and how they assess your value and risk.
In general, if you don’t have lots of outstanding claims or a property that catches on fire every single year, bundling could provide great savings. We all hope to pay for insurance and never use it, and if that’s how things play out you should get affordable premiums along the way. Good agents will tell you truthfully about what you stand to save, so do what you can to find a person you trust. That will make all the difference when figuring out if bundling is the right move or not.
A final note about adding life insurance to the mix. More often than not, I’d say keep that one separate. I think 20-year term life insurance purchased every 5-10 years makes the most sense, as it’s easy to get and offers the coverage you actually need. If you throw it into a bundled deal, you start playing with fire and this is an area where you definitely don’t want to get burned.
With home and auto, do all the bundling and unbundling you want. Remember that the relationship between you and your insurer is mutually beneficial. It’s not like a bread salesman who only has so much of a product to offer. Insurance companies get by on volume, so your business is very much needed. If you want two forms of coverage, your agent will likely do as much as he or she can to make it happen. As long as you don’t lose sight of your value, the savings are out there for the taking.