Every Single Auto Insurance Ad

March 26th, 2014

Want to save money on your auto insurance? Just switch to our company and save about $500, says every single auto insurance company:

farmers

nationwidesavings

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GEICO savings

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How is it possible for every single auto insurance company to save you $500? The key is how the companies calculate these $500 savings figures.

Imagine two drivers, Alfred A. Awl and Bill B. Butt. Both call Car Insurance Inc. to see whether they can save on their auto insurance. Car Insurance Inc. tells Alfred A. Awl the insurance he can get will cost him $500 less than his current plan. But Car Insurance Inc. tells Bill B. Butt his new insurance would cost him $300 more.

Alfred decides to switch to Car Insurance Inc.; Bill stays with his current insurer.

In this scenario, “drivers who switched” saved $500. But that doesn’t mean Car Insurance Inc. is the best choice for every driver — Bill’s plan would have cost him more money (which is why he didn’t switch).

Generally, consumers only switch auto insurers when they’re going to pay less. So when each auto insurance company surveys its new customers, of course they’ll find that the new customers saved a lot of money. So ad claims like this one . . .

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. . . can be a little misleading. Allstate calculated that figure by surveying “new customers” (i.e., people who switched) in 2012. But not all Allstate customers “saved” $498, as there are probably some current Allstate customers who could find a cheaper plan with another insurer. And vice versa.

The lesson here? Don’t believe any one company’s claims; comparison shop at all of them. Maybe you could save $500. When it’s time to renew your auto insurance policy, see which can offer you the best deal. Auto insurance companies all calculate prices using their own formulas, so some company out there may offer you a similar plan at a much lower price.

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