The Pros and Cons of Bundling Insurance Policies
Bundling insurance may be a good way to save money, but there are pros and cons of bundling insurance policies.
It’s a common myth to assume it’s the best choice. Not only might you not save money, but you might not get the best coverage because you’re eliminating other policy possibilities.
Understanding how bundling insurance works and what you should consider can help you make the right choice.
What Does it Mean to Bundle Insurance Policies?
Bundling insurance means you purchase multiple insurance policies from one insurance carrier. The most common way to bundle insurance is to purchase home and auto insurance from the same company, but any combination of insurance policies is considered bundling.
Insurance companies offer savings to get more business for less work. For example, if you purchase home and auto insurance from the same company instead of just home insurance, they’ll make much more money. They also have lower administrative costs because you are already a customer.
Insurance companies are motivated to offer you bundled discounts, but that doesn’t mean that it’s always the best choice.
Do You Save Money When You Bundle Insurance?
According to InsuranceQuotes.com, the average person who bundles home and car insurance saves 16.1%, and the average person bundling renters and auto insurance saves 7.9% on annual premiums.
You may find that major insurance companies claim you can save more by bundling, but it’s often just an advertisement to get you to apply. Always look at your actual savings to determine if it makes sense because each person has different factors affecting their insurance premiums.
However, some insurance companies offer premiums on standalone policies that are better than bundled discounts. This is especially true of insurance companies specializing in a single type of insurance, such as auto insurance. Because they don’t have the same risk as an insurance agency offering multiple types of policies, they can offer lower premiums on the insurance they offer that beat bundled discounts. You’d only know if you shop around for the best prices.
Insurance Rates Depend on Many Factors
Car and home insurance rates depend on many factors, not considering the bundled discount. Say you can save 25% by bundling your insurance, but the premiums for both policies are higher than other companies offer; you wouldn’t be saving money, and buying separate policies may make more financial sense.
Your insurance rates depend on many individualized factors. Here are some of the factors insurance companies consider:
- Your location – Some areas have higher insurance rates because of the risks they pose to homes and autos
- Your age – Car insurance rates vary significantly by age; the older you get, the lower the rates get
- Your credit – Some insurance companies consider your credit score when determining your insurance rates because lower credit scores often mean higher risk
- Claim history – If you have a history of making many claims, you are a higher risk and will pay higher premiums
- Type of car – Certain car types are riskier for insurance companies either due to safety issues or theft
- House size and value – The larger your house is or, the more it’s worth, the more expensive it is to insure
How Does Bundling Insurance Work?
It’s easy to bundle insurance. You don’t even have to buy the policies at the same time. For example, say you bought a new car and need car insurance. You find low rates at Insurance Company A but have home insurance with Insurance Company B.
When renewing your home insurance, you could ask Insurance Company A if they offer a bundled discount if you switch your home insurance to them. If they do, you might save money on your car and home insurance, saving you money.
The key is always to ask for the bundled discount. While most insurance companies automatically offer it, don’t assume. Always ask if you have received every discount available to you, including bundled discounts.
Should Everyone Bundle Insurance?
There’s no cut-and-dry answer to this question. Some people save money, as the studies show, but not everyone does.
To determine if bundling insurance makes sense for you, get quotes for each policy from separate companies, and then get bundled quotes, comparing them side-by-side. Be sure when you get quotes that they are for the same amount of coverage from each insurance company. For example, it doesn’t make sense to compare an auto policy with a $25,000 liability coverage with a policy with a $100,000 liability coverage. The higher the coverage, the more the cost.
If you find the best prices with bundled insurance, go for it. If not, though, there’s nothing wrong with having policies with different insurance carriers. Just be sure you can keep track of each policy, their premiums, and renewal dates.
The Pros and Cons of Bundling Insurance
Most financial decisions have good and bad sides, so let’s look at the pros and cons of bundling insurance to see if it’s right for you.
Pros
1. You might save more
There’s no guarantee you’ll save more, but most insurance companies offer at least a small discount if you have multiple policies with them. When you combine this with other discounts, you can save the most amount of money on your premiums.
2. Easier to manage
Having only one insurance company to deal with can make life a lot easier. If you need to file a claim, have a question, or just want to streamline bill paying, having one insurance company can make things easier.
3. Less likely to be dropped
If you file many insurance claims, you may be less likely to be dropped by your insurance company if you carry multiple policies with them. You are more valuable to them when you have several policies, so they may not drop you even if you file many claims and are a higher risk.
Cons
1. You might not save money
While it’s true most insurance companies offer a bundled discount, if you get lazy and stay with the same insurance company long-term, you may not save any longer. If your premiums continue increasing, you may not realize that you’re overpaying and could pay less if you shop around for other insurance.
2. You may sacrifice service
Some insurance companies are only good with one type of insurance and not the other. For example, if you bundle insurance with a company that offers exceptional auto insurance, but its homeowner’s insurance is lacking, you could suffer financial strain if you have a homeowner’s insurance claim and don’t have the robust coverage you thought you had.
5 Things to Do Before Bundling Insurance Policies
Bundling insurance can be a good way to save money, but it doesn’t always work out that way. Here are five things you should know about building insurance before choosing a policy.
1. Make sure the coverage is right
Don’t just take a policy because your insurance company offers a bundling discount. For example, if you buy car insurance and the agent promises you a discount on home insurance, and you just take it, the coverage may not be adequate.
Research the policies and coverage offered to ensure you have the needed coverage. Just because a bundled discount is promised doesn’t automatically make it the right policy.
2. Know who is providing the insurance
Sometimes, you aren’t getting insurance from the agent you talk to because they are an affiliate for multiple insurance companies. You may still get the bundled discount but still have the hassle of dealing with multiple insurance companies, reducing the benefits of bundling insurance.
3. Compare costs
When deciding if you should bundle insurance, it’s important to compare costs. You can compare bundled insurance between two to three insurance companies as well as separate policies from separate companies.
Don’t be afraid to ask for quotes for just homeowner’s or just auto insurance and then a bundled quote. You may find you can get cheaper insurance by buying separate policies from different insurance companies.
4. Consider your needs
If you have special circumstances, such as bad credit or a history of many car accidents, you may need a car insurance company that caters to customers like you but can get home insurance elsewhere.
Specialty insurance providers may not provide bundled insurance discounts; if they do, they won’t be as deeply discounted as ‘standard’ insurance companies like State Farm or Allstate might offer. So, if you don’t have a history of many home insurance claims but have a lot of car insurance claims, you may be better off getting insurance from different providers.
5. Ask if there are third-party companies involved
If you aren’t sure if you’re working directly with an insurance company or a third party who works with affiliates, ask. Before purchasing the insurance, ask who the provider will be.
If you find that the insurance companies will be different, you won’t get the convenience of bundled insurance. If that was your number one factor for bundling insurance, you may want to look elsewhere. However, if cost is your driving factor, it may be the most affordable option.
Is Bundling Home and Auto Insurance Worth It?
There are many pros and cons of bundling insurance policies, so it’s a personal decision to decide if it’s right for you.
If you have a ‘typical’ insurance situation, including average credit and a short or no history of recent claims, bundling insurance could save you hundreds of dollars. This is especially true if you have multiple vehicles or a vehicle and a recreational vehicle to insure, plus a house.
But there’s no guarantee that bundling will save you money. The key is to shop around and determine which offer is best for you. If you find separate policies that cost less, it’s worth dealing with the hassle of having multiple insurance companies to save money.
FAQ
Why is it often a good idea to bundle your insurance?
Bundling your insurance may make sense to save money on your premiums. It also provides the convenience of having one insurance company for all policies. However, it’s not always the best deal to bundle, depending on your circumstances. Shopping around is always a good idea to get the best deal.
Is it a good idea to combine home and auto insurance?
The most common way to bundle insurance is with home and auto insurance. However, you can bundle many other types, including boat, RV, or even renter’s insurance. The largest discount is usually by bundling home and auto insurance, but that’s if you have a ‘typical situation’ and aren’t a high risk that requires insurance companies to charge higher premiums.
Is it really cheaper to bundle insurance?
It can be cheaper to bundle insurance, but there’s no guarantee you’ll save money. The trick is to get quotes from several insurance companies, usually at least three. Ask for quotes for both policies and also separately. Compare the options each insurance company provides to see if bundling makes sense in your situation.
Can you negotiate the price with insurance?
While you can negotiate the price of many things in life, insurance isn’t one of them. Insurance companies base their premiums on specific risk factors. Negotiating would put insurance companies at higher risk and not allow them to offer discounts, such as bundled discounts.
Final Thoughts
Before bundling insurance, weigh the pros and cons of bundling insurance policies. For example, if you have to give up better coverage on a standalone policy to get the bundled discount, it may not be worth it.
Some people save more money or get better coverage by having separate policies, but if you find the best prices with one insurer, you can reap the benefits of a bundled discount.