If you carry several types of insurance, chances are high that two or more of them are from the same insurance company. In a 2015 study, consumer research company J.D. Power found that 78 percent of homeowners insurance consumers bundle several of their policies with a single company.
High as that figure is, it still leaves nearly one in four consumers who buy their insurance a la carte, from several companies. The J.D. Power study found these “unbundlers” were more likely to be from so-called Gen Y, also known as millennials; their bundling rate was 65%, and they were more likely (at 48%) than other age groups to cite lower premiums overall as a reason they chose to to forgo a bundle.
For insurance companies, bundled customers are not only preferred because they bring in greater overall premiums than those that purchase one or possibly two lines of coverage from you. In addition to the usual economies of bundling, insurers also benefit due to their underwriting practices. Underwriting refers to the investigation an insurance company conducts to determine how much risk each client presents. For consumers, it’s likely to include a check of your credit history, income, occupation, place of residence, and driving record, though this list varies according to the types of insurance you apply for.
Since underwriting needs to be done for every new customer, the insurer saves money when an existing policyholder it has already investigated applies for additional coverage.
The insurer also saves if you’re a new customer applying for homeowners and auto insurance policies at the same time. The cost of underwriting is essentially spread over two policies rather than one.
However, while bundling is usually a good deal for the insurer, it may or may not be a financially smart move for consumers. Despite its name, bundling won’t necessarily save you a bundle. Here’s how to find out if it’s right for you.
The upside of bundling
It’ll save you on premiums
Because bundling saves the insurance company money, they will usually pass some of that back to you in the form of multi-policy discounts and other incentives.
Bundling two policies, like your home and car insurance, might bring you a discount of roughly 10% to 15% on the package. Adding a third policy, such as life insurance, might mean a discount of 20% to 30%. State Farm, for example, offers up to 17% lower premiums for bundling auto insurance with one of their other policies.
It could save on deductibles, too
If you’re ever in a situation where you need to make a claim on more than one policy, you could save money on your deductible, the amount you’re responsible for paying out of pocket before your insurance coverage kicks in. For example, if a house fire damages both your home and your car, you might only have to pay the deductible on one policy (typically the higher of the two deductibles).
It may help you get umbrella coverage
Having both your home and car policies with the same insurer might also be a requirement if you want to buy umbrella insurance—a type of policy that can increase your total liability coverage to $1 million or more in case you ever face a major claim or lawsuit that exceeds your net worth.
Umbrella coverage allows you increase the liability limits for both your auto and homeowners policies in a way that’s simpler and cheaper than buying greater coverage individually for each of the two. As a rule, a $1 million umbrella policy should cost between $150 and $300 per year, with every extra million costing about an extra $50 to $75.
Finally, there’s something to be said for the convenience of dealing with one insurance company or agent. You’ll have fewer bills to keep track of and may develop a more personal connection with the agent, which can be useful when you have insurance questions or need to file a claim.
Savings aren’t guaranteed
Bundling won’t always save you money. For example, your insurer might be very competitive in its car insurance rates, but high-priced when it comes to homeowners policies--as is often the case in California. In that case you might do better, from a financial standpoint, to go with two separate companies.
So before you settle on a bundle, it could pay to shop around a little. Make sure, of course, that you’re comparing policies with similar coverage limits, deductibles, and other provisions.
An independent insurance agent, who has relationships with multiple homeowners and auto insurance companies, can also help you decide whether it makes more sense to bundle your policies or buy them a la carte, as well as which insurance company (or companies) would be the best match for you.
Keep an eye out for captive insurance agents that only represent a single insurer as, while they’ll be able to offer you a quote for certain companies that independent insurance agents won’t represent, the agent won’t be able to disclose if you would get a better deal elsewhere.
Maxime Rieman is Product Manager at ValuePenguin. Educating and assisting shoppers about financial products has been Rieman's focus, which led her to joining ValuePenguin, a consumer research and advice company based in New York. Previously, she was product marketing director at CoverWallet and launched the personal insurance team at NerdWallet.
© 2022 Newsmax Finance. All rights reserved.