Buying your homeowners and auto insurance policies from the same company is known in the trade as “bundling.” While bundling is usually a good deal for the insurer, it may or may not be a financially smart move for you. Despite its name, bundling won’t necessarily save you a bundle.
Why Insurers Like To Bundle
There are a couple of reasons an insurer might urge you to bundle your policies and offer you financial incentives to do so, especially if you’re already a customer. First, it’s less expensive for the insurer to sell additional policies to its current customers than to find and win over new prospects. That’s true in almost any line of business, of course.
Second, and particular to the insurance industry, is the practice of underwriting. Underwriting refers to the investigation an insurance company conducts to determine how much risk you present. It’s likely to include a check of your credit history, income, occupation, place of residence, and driving record. 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.
What’s In It For You
Because bundling saves the insurance company money, it will usually pass some of that back to you in the form of multi-policy discounts and other incentives.
For example, 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%.
What’s more, 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. That could happen, for example, if a house fire damages both your home and your car. In that case you might only have to pay the deductible on one policy, typically the higher of the two.
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 increases your total liability coverage to $1 million or more in case you ever face a major claim or lawsuit.
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.
Why You Might Not Want To Bundle
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 the case in California often. 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.
Also check on the insurance companies’ financial strength with major ratings agencies like A.M. Best and Standard & Poor’s. (You may have to sign up to use their websites, but the information is usually free.)
An insurance broker or independent insurance agent, who has relationships with multiple homeowners insurance companies and car 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.