One of the most common misconceptions about insurance is that the more coverage you get, proportionally speaking, the more you have to pay.
In other words, a lot of people assume their $1,500-a-year auto policy will cost them $3,000 a year if they double their coverage. Or, say, that their $5,000 a year corporate cyber policy will cost them $15,000 a year if they tripled the coverage.
Not so fast.
That’s not how the insurance market works. In fact, the lion’s share of your cost is simply based on the claims history and characteristics of the group you fall into. There’s really only so much that cost can vary. So the cheapest policy is usually just the one that scrimps the most on coverage. But the flip side is that you can often add a lot more coverage against catastrophic risks for very little extra price!
For instance, if you’re a small business you could double your business cyber insurance for only a couple hundred extra bucks annually in most cases! Or you could do the same for your personal liability limits. It’s a no-brainer for a lot of people to add way more coverage once they realize how inexpensive it actually is.
Most people default to doing the opposite instead–opting for the lowest possible coverage because “it’s the cheapest.” It’s a big tendency, especially when shopping around online. But you may be giving up huge potential benefits by automatically going with the option that saves you $50 or $100 a year.
And there are other, better ways to save money. For instance, it’s more expensive if you go with a $500 deductible for your auto collision coverage, versus $1,000. You can save money by going with the higher deductible and still increase your liability limits at the same time.
In other words, getting three or four or five times the coverage doesn’t usually cost anywhere near what you’d think it does–but defaulting to the lowest-priced policy can cost you big-time.