Insurance 101: What You Need to Know About Insurance to Save Money on It
We all need car insurance, home insurance or renter’s insurance, but many of us don’t quite understand how it works. But if you understand how insurance works, you’ll be more likely to save money on insurance. Here’s what you need to know.
How Insurance Companies Make a Profit
Insurance customers pay premiums every month or year, and most of the time, insurance companies collect more in premiums than they pay out in claims. They do make money through this overage in premiums, but they make most of their money by investing those premiums. So your insurance company is probably earning large profits by investing your premium payments into a variety of assets.
How Insurance Companies Boost Profits
Once they’ve set up insurance policies, most consumers don’t revisit those policies on a regular basis. They simply continue paying the premiums. Research suggests that some insurance companies take advantage of their “captive” customers, or the ones who are unlikely to shop around for new insurance, by gradually raising their rates.
For instance, a survey by pricing analytics software company Earnix found that 63 percent of U.S. and Canadian auto insurance companies use “price optimization,” or data analysis to determine how high the prices can go before consumers will switch.
With state laws requiring car insurance and mortgage holders requiring home insurance, most consumers feel that paying premiums is a necessary evil. Even when their premiums increase, they often assume those increases are standard, regardless of which insurance company they use. But Gabi’s research shows that’s often untrue: An analysis of thousands of car insurance customers revealed that most could save money by switching companies. Farmers customers could save an average of $707 per year, and customers of Liberty Mutual, Nationwide and State Farm could save an average of $500 annually.
How to Shop Smart for Insurance
If you want to save money on insurance, there are several ways to do that. Car insurance, for instance, is less expensive if you drive a safer car and establish a safe driving record. However, even if you get a great deal on car insurance today, if you keep that policy for a number of years, the premium is likely to rise incrementally over time.
One of the best ways to save money consistently on insurance is to regularly review your coverage and compare rates with other insurance companies. When you find a lower rate, take the time to switch or to ask your current insurer to match the lower rate. While shopping around for insurance used to be a complicated process, but now it’s easy: When you enter your insurance policy information at Gabi, we’ll consistently search for lower rates on the same coverage. And when we find a lower rate, we’ll help you make switch, hassle free.