No, the average person does not save $500 when they get an insurance quote!

|
Advertisement

In a popular commercial I am sure most of you have seen, one insurance company claims customers who switch to them save hundreds of dollars. The next insurance company claims the same thing. So does the next one, and the next one, and the next one.

What’s going on here? Not every insurance company can be hundreds of dollars cheaper on average than all the others. Are all these commercials lying to us?

Well, these commercials aren’t exactly lying to us, just twisting the truth to a point where the truth becomes completely meaningless. That isn’t the strangest twist though. The strangest twist is that these not-completely-honest commercials aren’t really hurting consumers, but are actually giving out pretty good advice.

Read more: Best automobile insurance companies

How every insurance company can claim to be the cheapest

Here is a simple example to show how a company can claim to have the lowest premiums, even if they are more expensive on average. Let’s imagine there are 4 customers who call an insurance company for a quote. All of these customers pay an annual premium of $1,000 at their old insurance company. When they call the new company to get a quote, here are what the quotes look like:
table.tableizer-table {
border: 1px solid #CCC; font-family: Arial, Helvetica, sans-serif;
font-size: 12px;
}
.tableizer-table td {
padding: 4px;
margin: 3px;
border: 1px solid #ccc;
}
.tableizer-table th {
background-color: #104E8B;
color: #FFF;
font-weight: bold;
}

  Premium at old insurance company Quoted premium from new company Savings from switching
Customer 1 1,000 1,100 n/a
Customer 2 1,000 1,100 n/a
Customer 3 1,000 1,100 n/a
Customer 4 1,000 900 100
       
Average 1,000 1,050 100

If you look at this table and conclude the new insurance company is more expensive because their premiums are higher on average then you obviously don’t work for the marketing department of a major insurance company.

If you were the person in charge of making commercials for insurance companies you would take this data and claim in your commercial that “customers who switch to us save an average of $100.” The key part of this claim is the part that says “customer who switch…”. What they are saying is they aren’t looking at all of the customers, just the few that switch.

If you got a premium quote that was higher than your old company would you switch to the new company? Yeah, me neither. People who just save a small amount may not switch either if the savings aren’t worth the hassle of switching. This claim allows insurance companies to cherry pick only the data they want, and ignore all the quotes that don’t make them look good.

The first three customers are completely ignored in this calculation. All that is left is the customer that switched, the fourth customer. He or she saved $100 so the average savings is $100. That is how all insurance companies can make the same claim to lead customers to believe their premiums are a good deal. Not exactly a lie, but not exactly honest either.

It may not be honest, but it’s still a pretty good idea

Let’s not get too mad at the insurance company commercials though, because they are actually giving us pretty good advice. What these commercials are trying to do is encourage people to shop around for insurance and get quotes. As it turns out, that is exactly what Clark recommends.

Advertisement

Read more: The two best insurance companies right now

Shopping for insurance and getting several quotes is how you find the best deal. So you should do exactly what the commercials recommend and call around to see if you can find a lower premium. Just don’t be too surprised if the quote you get isn’t really hundreds of dollars less than what you were paying before.

For more money-saving advice, see our Insurance section.

Advertisement
Welcome bonuses can be a great way to boost the value of a credit card. Best Credit Card Welcome Bonuses for 2021 - If you're in the market for a new credit card, you may be hoping to cash in on the hundreds of dollars in signup bonuses offered to new customers. Welcome bonuses and offers are a marketing tool that credit card…
The best cell phone plans include Tello, Mint Mobile, Visible, T-Mobile, Consumer Cellular and more Best Cell Phone Plans and Deals in 2021 - Team Clark ranks the best cell phone plans and deals! See our favorites for unlimited data, families and cheap plans starting at $10/month.
  • Show Comments Hide Comments