Most American drivers start out using the same insurance company that their parents had, and never really think to switch. Some drivers may have changed insurance companies somewhere along the way to save a few bucks, but for the most part, they've made no conscious choices about their insurance provider. Many first-time homeowners get their homeowners insurance in the same way, as it's probably the company that their real estate agent or title company had recommended. Life insurance purchases usually follow a similar path.

People buy insurance for reasons of convenience as well as, of course, initial price. As a result, a lot of people end up with a hodgepodge of insurance carriers, and have no reason for doing so. This is fine if you enjoy opening extra mail and paying bills to three separate insurance carriers every month, and possibly overpaying for your combined insurance premiums, but you probably don't, so read on to find out how bundling your policies can help you save big on insurance.

The Benefits of Bundling
Many of the big insurance companies price their insurance rates to attract a particular segment of the market. They usually price their insurance to attract homeowners who need to insure not only their cars, but also their homes and their lives (and other things). Many other companies can beat them on price if it's left to a head-to-head price check on a single line of insurance (such as auto or home), but these big companies want customers who will stay with them for years instead of shopping around for a better deal every six months. To accomplish this, companies give the best deal to clients who will use their company to insure all three main lines of insurance, as people who buy one type of insurance usually have additional items that need insuring and end up paying much more in total annual premiums than the single-line customer who only insure a car or a house.

Companies offer "multiline discounts" to attract customers who will need more than one type of insurance. These companies offer a cheaper rate to insure both your house and car than if you insured each one separately at different companies. The same goes if you add a second car or a life insurance policy – the discounts keep adding up.

How Much Do You Actually Save?
When combining auto, home and life insurance, it wouldn't be unusual for many families to spend between $3,000-5,000 - or more - per year. Of course, these rates depend on where you live, the value of your home and car(s), driving habits, personal health and so forth.

What's the Catch?
For just one line of insurance, most large multiple-line companies aren't extremely price-competitive. After all, those thousands of people on staff can really add up. By combining your policies under one roof, the companies benefit from economies of scale and can justify more discounts by getting additional total premiums. In other words, they have more of your money to work with and therefore can justify charging you less.

As for life insurance, people who have a life insurance policy are much less likely to switch insurance carriers because of the difficulty (or even impossibility) of changing policies. This difficulty is due to medical issues, age and the possible need for further medical exams, among other factors, and so people usually keep their life insurance policies in place. For this reason, many large insurance companies emphasize to their sales teams that life insurance sales are a critical product.

Companies also want to give discounts in order to retain customers because it is expensive for companies to continually process (also known as underwriting) a revolving door of new customers. Due to the added expense associated with customer turnover, insurance companies prefer to have customers who carry multiple lines of insurance and keep these policies in place for years. Moreover, bringing all of the insurance from a particular household slightly diversifies the company's risk.

The Bottom Line
Combining all of your policies with one insurance company can save you money compared to having a variety of carriers. It's also important to remember, that when one company is handling all of your insurance policies, that's less time that you must spend sorting through and paying each policy. And as they say: time is money.

Related Articles
  1. Insurance

    15 Insurance Policies You Don't Need

    Learn how to save money by saying "no" to unnecessary coverage.
  2. Savings

    6 Retirement Savings Tips For 45- To 54-Year-Olds

    Now is the time to kick savings into high gear. Find out how.
  3. Retirement

    Variable Vs. Variable Universal Life Insurance

    Do you know why you might need one policy versus the other? Read on to find out.
  4. Home & Auto

    Long-Term Care Insurance: Who Needs It?

    No one is immune to the possibility of one day needing long-term care - and the costs can deplete a life savings.
  5. Options & Futures

    Top Tips For Cheaper, Better Car Insurance

    Accident, theft, vandalism - make sure your coverage will protect you when you need it most.
  6. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Insurance

    Learn about the SPDR S&P Insurance exchange-traded fund, which follows the S&P Insurance Select Industry Index by investing in equities of U.S. insurers.
  7. Retirement

    Strategies for a Worry-Free Retirement

    Worried about retirement? Here are several strategies to greatly reduce the chance your nest egg will end up depleted.
  8. Markets

    The 5 Biggest Canadian Insurance Companies

    Learn more about the insurance industry as a whole, how it functions in Canada, and the five largest Canada-based insurance companies.
  9. Insurance

    How to Shop for Home Insurance

    Tips for getting the best protection for your place and possessions.
  10. Investing

    Things Nursing Homes Are Not Allowed to Do

    What rights do a home's residents have? The same ones they they had before they entered the facility.
RELATED TERMS
  1. Comprehensive Glass Policy

    An insurance policy that covers glass that has been broken or ...
  2. Coastal Barrier Improvement (CBI) ...

    A federal law that makes federal disaster relief and federal ...
  3. Net Collections

    A term used in medical accounting to describe the amount of money ...
  4. Directors And Officers Liability ...

    Directors and officers liability insurance covers you if you're ...
  5. Linked Transfer Account

    Accounts held by an individual at a financial institution that ...
  6. Equitable Division

    A legal theory that guides how property acquired during the course ...
RELATED FAQS
  1. What are some examples of when insurance bundling is a bad idea?

    Some insurance companies offer only one type of insurance, while others offer many different types. Insurance buyers often ... Read Full Answer >>
  2. How soon should I start saving for retirement?

    The best answer to the question, "How soon should I start saving for retirement?", is probably, "yesterday," and the second ... Read Full Answer >>
  3. Can I use my 401(k) as a collateral for a loan?

    Although federal Internal Revenue Service, or IRS, regulations prohibit using a 401(k) account as collateral for a loan, ... Read Full Answer >>
  4. How does the trust maker transfer funds into a revocable trust?

    Once a revocable trust is created, a trust maker transfers funds or property into the trust by including them in a list with ... Read Full Answer >>
  5. What happens if my insurance claim falls below the deductible level?

    Though the ins and outs of health insurance are often confusing, the concept of the insurance deductible is relatively straightforward. ... Read Full Answer >>
  6. How is the deductible I paid for my insurance claim treated for tax purposes?

    The deductible you pay on your health insurance policy may be tax-deductible if you meet certain conditions. However, whether ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!