You thought you had a great deal. You found car insurance advertised cheaply that fit your budget and your needs. You signed up and didn’t think twice about it until you received your first bill, only to find that the price was much higher than expected.

Don’t let this happen to you! Be aware of the hidden costs in cheap car insurance and avoid these common schemes.

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Common, Hidden Costs:

  • Driving Record Checks – How often is this cheap provider planning to check your driving record? If they are frequently checking, that gives them the opportunity to raise your premium multiple times throughout the term. Some even do frequent repair checks to see how much your vehicle has depreciated, allowing them to give you less and less money for replacement costs if you are in an accident.


  • Higher Deductibles – Pay attention to your deductible. Yes, a higher deductible means a lower premium, but can you afford to pay that deductible out of pocket? If that’s a risk you don’t want to take, consider paying more so that you can pay a lower deductible if you do get into an accident.


  • Non-Specific Coverage Plan – You get what you pay for. Chances are, if the premium sounds like something out of a fairytale, it probably is. Read the fine print to discover what exactly you are covered for. Some non-standard providers might not offer coverage to anyone under the age of 21, or even 25. Most carriers will provide coverage for once-in-awhile, permissive drivers—if your child or roommate drives the car a couple times a month—but these cheap carriers don’t always do that. That means you might be paying for a fender bender or a serious accident out of pocket.


  • Installment Fees – Installment fees are actually pretty standard across different carriers. Paying your premium in smaller amounts throughout the term can be helpful, but just double-check with your carrier to make sure they aren’t charging you an exorbitant fee to do so.


How to Avoid:

Be smart, and be investigative.  It’s financially intelligent to look for the best rate around, but don’t sacrifice what car insurance should be for a stand-in carrier. Value is important.

Here are some considerations to think about.

Do you need more than the state-mandated minimum coverage? Is roadside assistance important to you? What about accident forgiveness? If you have loans on your car, you may want to think about what will happen if your car is totaled, and perhaps decide to purchase gap insurance. Will discounts help lower the rate from another provider?  

We’re not here to say that cheap auto insurance is always bad or that you can’t find good coverage at a low rate. You can! Just be aware of what your car insurance is actually covering. If you’re confused about car insurance, check out these auto insurance basics.

Remember to get all of your questions answered. If your agent is hard to reach, you feel pressured to buy or you’re uneasy about your auto insurance contract—take a step back. Reconsider what types of insurance you need and go from there.

Car insurance is a big purchase. It’s one of those consistent expenses you must calculate into your budget. So make the right decision for you and remember that you don’t necessarily have to stay with the same insurer. You can always compare options and change your mind.

Photo Credit (top image): Alex, NobMouse, Matthias Ripp