Did My Car Insurance Company Just Try to Scam Me?

by Travis Pizel · 15 comments

My son had a huge smile on his face as he drove us to our insurance office. He just passed his driver’s license road test, and we were headed to talk to our insurance agent to add him to our policy.

We were prepared, handing them a copy of his license paperwork, as well as a copy of his most recent report card to score us a 15% good student discount. As the agent was entering the information into the system, she lowered her glasses and said, “I should probably mention, there’s something we suggest for all newly licensed drivers.”

And that’s when she proceeded to explain additional coverage that we needed to purchase.

Know Your Current Policy

We currently have $100,000 liability coverage, meaning if we get into an accident the other party would be covered for up to $100,000 of medical coverage. Our agent recommended the following changes:

  • Increasing our liability coverage to $300,000
  • Adding an umbrella insurance policy (that would tack an extra $1 million of coverage on top of not only our automobile policies, but our home owner’s insurance as well)

The reason given was that newly licensed drivers have a higher rate of accidents, and it would be a shame to have him get into an accident, and then have our liability coverage be insufficient.

At first it seemed like a great idea, and I was ready to tell our agent to sign us up on the spot. But, having been burned countless times with impulsive purchases, I simply asked for the paperwork to review and discuss with my wife.

Take Time to Consider

As I thought about it more, it seemed like my insurance company was simply using the emotional concern I had for my son as a new driver as a tool to convince me to buy more insurance. While it’s true that new drivers have a greater rate of accidents, does that really warrant an increase of over a million dollars of coverage?

If our current liability coverage was insufficient for our son, wouldn’t it have also been insufficient for my wife all along?

It’s very possible that $100,000 of liability coverage is too low, as we’ve had our policy set like this for well over ten years. But, that’s not how a need to increase our coverage was marketed to us. They played on our concerns over having our young son driving around town by himself.

Don’t Agree Before Doing Research

Doing a little research I found the minimum liability insurance required by law varies by state. In the state we live, Minnesota, we’re required to have a minimum liability coverage of $30,000. Having $100,000 is fairly standard, and $300,000 is considered the high end.

My research also showed that a $1 million umbrella insurance is the maximum policy offered by most insurance companies. So not only did my insurance company play off our emotions to sell us more insurance, they recommended the absolute maximum they offer.

When contemplating making changes to your insurance policies, I recommend three things:

  • Don’t Be Impulsive: Take your time to fully contemplate the best course of action. This will help take the emotion out of the decision.
  • Do the Research: Just because your insurance company is recommending something, doesn’t mean it’s the right choice for you. Do some research to determine what is required, what you’re comfortable with, and what fits within your budget.
  • Get a Second Opinion: Get more than one agent’s opinion on what coverage is right for you. While you’re at it, get a quote and see if you can get the same coverage for cheaper somewhere else.

Even though it became fairly obvious that my insurance had their own income stream in mind when making their recommendation, we may still change our policy. The increase would add $20 to our monthly insurance bill, and may add quite a bit of peace of mind.

But whatever we decide, it won’t be based on the emotions that come with having our young son having his license. It will be be based on logic, research, and what’s the best choice for our family.

Have you experienced something like this with your insurance company? How do you deal with recommendations based on emotions?

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{ read the comments below or add one }

  • Ed Grozalis says:

    When you consider your net worth, from what I’ve read, your retirement accounts(IRA/401K) and probably your home can be excluded because I don’t believe courts can award those assets. The house might vary by state.

  • Randall says:

    When choosing the amount of liability insurance to buy, look at your family’s net worth & get enough coverage to cover that. Why pay for a million dollar liability, or even 300,000 if your net worth is significantly less? Bill is right on.

    • I agree, Randall – thanks for reading and commenting!

      • Eric says:

        While I think insuring up to your net worth is certainly a better approach than blindly choosing your liability coverage, I have to disagree with with having liability coverage as high as your net worth. Rather I agree with Bill above that you need liability insurance to cover the value of your assets. There are lots of people in the scenario where the value of assets is higher than their net worth, most anyone who is not upside down in their mortgage is in this category. Imagine I have assets valued at $500k, but due to debts my net worth is only $300k. I believe I should have liability insurance to cover the full $500k asset value, because if there is a judgement against me, it is the assets they will come after. Coverage up to my net worth of $300k would leave $200k at risk.

  • Bill says:

    Here is a link to a Wall Street Journal on how much insurance do I need:

    http://guides.wsj.com/personal-finance/insurance/how-much-car-insurance-do-you-need/

    What it says on liability insurance is pretty simple. You need enough insurance to cover the assets that you have. If you don’t, then you risk losing those assets if a judgment is made against you. This is not about the cost of insurance or where you should buy it, but about whether or not you have adequate insurance coverage. You may go your entire life without needing liability insurance. Many of us do, but some don’t. The recent harsh winter and spate of weather related auto accidents will bring these points home to a number of unfortunate individuals.

    • Great points, Bill…and thanks for the link. I definitely want to protect what my wife and I have. I believe I’m underinsured, and since I can afford more insurance, the right choice is to bump up the policy. increasing my liability AND adding the umbrella insurance is only $20 a month.

  • Kevin says:

    If our current liability coverage was insufficient for our son, wouldn’t it have also been insufficient for my wife all along?

    The cost of auto insurance varies from one group of drivers to another because some groups have worse driving records, higher accident rates and more costly accidents than others. The highest insurance rates are paid by any male driver under the age of 25… Drivers age 15 to 20 accounted for 10 percent of all drivers involved in fatal crashes in 2011 and 13 percent of all drivers involved in police-reported crashes.

    http://www.rmiia.org/auto/teens/Buying_Auto_Insurance.asp

    • Bill says:

      As long as you are talking about your limits of liability, it probably was insufficient for you, your wife and your family. If you got hit with a $500,000 judgment and had a $100,000 limit of liability, you would be responsible for the $400,000 that wasn’t covered. You have to decide how much risk that you are comfortable with. If you injure someone and disable them, you may be responsible for their living expenses from here on. If you have no job and no assets, you might want to take the exposure. When you have a job, a family, a house and are saving for college and retirement, how much of that do you want to put at risk. I’m retired and my wife and I are living off our savings. I certainly don’t want to risk losing that.

    • Right, they have a higher accident rate….but do they typically cause more harm or property damage? I have a hard time believing that…and accident is an accident, and if we are underinsured for a 16 year old driver, then we’re underinsured period. That’s my thought process anyway…

  • I usually feel like I need to come up with an answer on the spot for insurance coverage. Usually I decline. I can always do more research and add it back later. Sometimes it’s hard to get a straight answer about what is covered and how and it takes a lot of research.

  • Bill says:

    I don’t see it that way. In this day, I think that a $100,000 limit of liability is too low. I increased mine years ago and I don’t have any children on my policy. Is the $1,000,000 policy necessary? I don’t know. I recently had to look into a $1,000,000 general liability policy as a requirement for a job. The job fell through, so I didn’t get the policy, but I would not have been able to get the job without the coverage. I would consider the cost of the additional coverage before rejecting it. If it doesn’t cost much, I would probably add it. You are the one at risk. You may never have a claim filed against you, but, if you do, it could cost you. It’s common for auto and homeowner’s policies to have a $1000 medical coverage, but that won’t even pay for an emergency room visit anymore.

    • I think we agree, Bill…..I can see how $100K may not be sufficient…but I would have rather the agent approached it like this: “Say, you have 100K in liability. Have you ever thought about increasing that? It may not be sufficient, and here’s why (and go on to cite reasons). If you can afford it, you may think of upgrading.” Do not make it fall under false pretenses of I need it because my son just got his license…..does that make sense? Thanks for sharing your thoughts!

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