This post is from staff writer April Dykman.
I had procrastinated until I could procrastinate no longer.
I was in the middle of buying a house, and one of the many, many things on my ever-growing to-do list was to find a home insurance policy. My auto insurance policy also was up for renewal, and so I hoped to get a decent discount by buying both policies from one company.
But the idea of having to call several companies and providing the same info was pretty unappealing, so put it off for days. Finally, I spent an afternoon getting online quotes, then dealing with the inevitable follow-up calls. All three quotes were in the $1,000-$1,300 range for both home and auto. I also called a local agent at State Farm, someone I've used in the past, and he quoted me $1,250.
But comparing the four policies on anything other than price was pretty confusing. Should I go with the cheapest? Would I regret that if ever I had to make a claim? Did all four policies cover the exact same stuff? It seemed like they didn't. Why did one insurer think I needed one type of coverage, and another think that I needed a different type of coverage?
I had no idea which company to go with, and the clock was ticking. I needed to tell my loan officer which company would insure our home, and our closing date was quickly approaching.
It's not easy to shop around
Every money expert says to shop around for your insurance policies every year. Just call three or four insurance companies, get quotes, and pat yourself on the back for saving hundreds on your insurance policy. Ta-da!
But how many of us actually do it?
I always intend to do it. I know it's good advice. But by the time a policy is up for renewal, it's just easier to renew and pay than it is to spend an afternoon calling several companies, repeating the same information again and again, and waiting in misery as they assault your ears with static-y, easy listening on-hold music. Shiver.
And then it's still not over. You'll probably have follow-up questions, so you have to call back. It's also incredibly hard to compare some of these policies, since they're written in (intentionally?) confusing language. And if you go with the cheapest, is the company really reputable? To find out, you'll need to do a lot of additional research.
Why is it so difficult to comparison shop?
There are a few reasons it's hard for consumers to shop around for insurance.
First, we have a limited amount of time. Sure, it is worth it to spend time on something important like this. But how many companies will you call? I called four. Maybe extra-diligent folks would call seven or eight? That's still not that many companies, if you think about all of the insurance companies out there. It'd be great to shop them all, but no one has the time or the desire to do that.
Second, we're not experts. Even if you know insurance pretty well, it can be hard to figure out if you're sufficiently covered or if you're over-insured.
Third, it's difficult to compare quotes. For instance, “manuscript” policy forms that don't use industry-standard wording can be difficult to understand and make it even harder to compare one policy to another. “A lot of companies write their own policy forms to exclude coverage that typically leads to a lot of claims,” says Jon Schildt, managing principal at Calculated Risk Advisors. “Like the definition of water damage. Is it when wind pushes water from the ocean into your house or when rain builds up and floods your home? How that's worded can affect how much you get reimbursed.”
But just as I started to despair, the State Farm agent offered to introduce me to his wife.
An easier way to shop for insurance
It turns out that his wife, Nancy, was an independent insurance agent. Unlike “captive” insurance agents who only sell one brand of insurance, independent insurance agents shop from a long list of carriers.
Nancy took my information, and a couple of days later she called me back with a few options. The policy she recommended would be $700.
Shocked, I asked her to repeat that number. Then asked her to verify that it was for both home and auto insurance. Yes, $700. Yes, for both policies. No, it's not some scammy fly-by-night company. And in fact, it was a very recognizable name.
Nancy emailed me the details for all three options, I reviewed them, and I went with the one she recommended, feeling relieved to have it done. I was also feeling pretty great about myself for not paying almost two times more, even though Nancy did all the work!
Why cut in the middle-woman?
It's not as though I'd never heard of independent insurance agents. I've used a couple in the past, but honestly, I was never impressed.
For instance, one time I was working with an independent agent and I pointed out a way that we could save money on our renter's insurance. “You know, I ran the numbers, and you're right,” he said. “You do save more money that way!”
Yikes. I'm not an insurance expert by any stretch of the imagination, so that made me nervous about what else he might be missing.
And there are other natural concerns. For one thing, an agent is still a salesperson, and they work on commission. The more insurance you buy, the more it benefits them. That doesn't necessarily mean that they're out to scam you, it just means you have to really think about what you need and weigh that against their advice. “A good adviser won't pressure-sale you, they'll look at your budget and what your needs are,” says Michael Brunet, partner and director at Harry & Company in Ontario. Even so, keep that GRS tenet in mind: no one cares more about your money than you do!
Despite the possible cons, a I learned that a good agent provides a lot benefits, such as:
- Better price. You'd think that because a broker takes a cut, you'd be paying higher prices. But when you shop direct, it's typically the insurance company that's saving money. “The independent agent doesn't charge you anything, they get paid by the insurance company,” says Brunet. “You're going to get help, they're going to do the work, and you come out on top because you save money and time.” Independent brokers also shop more carriers than individuals typically shop, increasing your odds of getting the best possible deal.
- Less hassle. Not only do they do the shopping for you, but a good agent will help you compare policies. “We take the insurance policy and break it down in spreadsheet format in terms of coverage and wording used,” says Schildt. “Things like price, definition of named insurer, limits, and sub-limits that each policy has. So we show clients that they have maybe three quotes, and the pricing might be similar, but here's how the coverage differs. So maybe you decide to pay a little more because you see that you can get much better coverage.”
- Long-term customer service. An independent agent wants to keep your business year after year. So when your policies are up for renewal, they can shop around for you again to make sure you're still getting a good price on your policies. “We also know if a company is going to go up in premiums,” says Schildt. “So when that happens, we get on the phone with our clients who have policies with that company, tell them about the increase, and start shopping around for them.”
- Peace of mind. I liked being able to ask Nancy how the companies and policies compared. In fact, according to Riskheads.org findings, brokers are “largely far more efficient at cross checking policies than consumers, and also very good at educating their customers, explaining what types of coverage were available and answering queries.” Agents also have errors and omissions policies, meaning if they make a mistake, like selling you a policy that doesn't cover your needs, they could be liable for malpractice, and you could recover damages you suffered as a result of their mistake. It's not a pleasant situation, but it is extra protection.
I've tried a couple of not-so-great independent agents, a captive agent and I've shopped for insurance on my own. This recent experience with a good independent agent has been the best one yet.
But I'd love to hear about your experiences. How you shop around for insurance? What are the pros and cons you've experienced with each method?