The risks of buying the cheapest auto insurance

In many cases, the cheapest auto insurance policy offers you the lowest premiums by simply giving you less protection through minimum liability limits, no coverage for your own car, or a high deductible. The low price might feel enticing when you're comparing quotes, but the true cost of this coverage usually shows up at the worst possible moment: when you need to file a claim.

Here's a look at seven common risks of buying the cheapest auto insurance and what each one could cost you after an accident. You'll also see a side-by-side coverage comparison and learn how an independent agent can help you find a lower rate without leaving gaps in your protection.

1. You could be underinsured after a crash

Most states require you to buy a minimum amount of liability auto insurance coverage, which is expressed as three numbers. A 25/50/25 policy, for example, pays up to $25,000 per person for injuries, $50,000 total for injuries per accident, and $25,000 for property damage when you’re deemed at fault.

The cheapest auto insurance policies usually cap out at minimum coverage since it’s the most affordable option, but those limits can run out fast.

For example, say you cause a crash that totals a $45,000 SUV and injures two people who have medical bills of $40,000 and $60,000. A 25/50/25 policy would pay $50,000 toward the injuries and $25,000 toward the SUV, but that doesn’t cover the entire loss. It’s quite possible the other driver could sue you personally to collect the $70,000 difference.

2. You’d have little protection from uninsured drivers

Even with minimum liability laws on the books in nearly every state, roughly 15% of American drivers are uninsured behind the wheel, according to the Insurance Research Council (IRC). An even larger share of drivers have coverage, but their limits are too low to pay for a serious accident. Combined, this means about one in three U.S. drivers is either uninsured or underinsured.

If the at-fault driver’s coverage is inadequate, uninsured and underinsured motorist coverage (UM/UIM) can help pay for your injuries and, in some states, damage to your car. But if you’ve bought the cheapest auto insurance policy, you may have the lowest UM/UIM limits allowed, if you have coverage at all.

If an uninsured or underinsured driver hits you and you don’t have enough UM/UIM protection, you could end up covering your medical bills and lost income yourself — even though you weren’t at fault.

3. Damage to your own car probably isn’t covered

Liability insurance pays for damage you cause to other people and their property, but it doesn't pay to repair or replace your own car. That protection comes from two optional coverages that are usually left out of the cheapest policies:

• Collision pays for damage to your car after a crash, whether you hit another vehicle, a pothole, or a guardrail
• Comprehensive pays for damage from things other than a crash, such as theft, hail, flooding, falling tree limbs, or hitting a deer

Without this coverage, a $6,000 repair after an accident you caused comes entirely out of your pocket. And if you're still paying off a loan or lease, your lender will almost always require both options. 

The cheapest car insurance policies may also skip things like personal injury protection or “PIP” (except in states where it’s legally required), medical payments (MedPay) coverage, rental reimbursement, and roadside assistance. These extras can matter a lot when you’re dealing with the aftermath of an accident or other loss.

4. A high deductible can wipe out your savings

Your deductible is the amount you’ll have to pay toward a collision or comprehensive claim before your insurance kicks in to cover its share. Raising your deductible is one of the quickest ways to lower your premium, which is why the cheapest auto insurance policies often come with a high deductible.

A higher deductible can make sense if you have enough cash set aside to pay it off after an unexpected incident. But before raising your deductible, ask yourself whether you could comfortably cover that cost if something were to happen tomorrow.

Also know that the math doesn't always work in your favor. Say that switching from a $500 deductible to a $2,000 deductible saves you $300 a year in premiums. That feels like a lot saved, but a single claim would cost you $1,500 more out of pocket, which is five years’ worth of savings.

5. You may have less say in how your car gets repaired

Some cheap auto insurance policies keep costs down by limiting how repairs are handled. A budget policy may allow your insurer to use aftermarket or salvaged parts instead of original equipment manufacturer (OEM) parts. While these aftermarket parts can work fine, things like fit and finish can vary, and some drivers may worry how recycled or generic parts might affect their vehicle’s resale value.

Other policies may cap how much they'll pay for shop labor or rental cars. If your selected shop charges more than your insurer agrees to pay, you may have to cover the difference. These limits are usually spelled out in your policy’s fine print, so it's worth asking about them before you buy rather than finding out after an accident.

6. Claims and customer service may be harder to deal with

How a carrier handles claims matters a lot when you're dealing with the stress of an accident, a stolen car, or storm damage. Some low-cost carriers keep expenses down by staffing smaller claims teams or routing most of their services through an app. That might not be a problem for simple claims, but it can mean long wait times or less personalized (human) help with complicated claims or settlement disputes.

It’s always smart to check a carrier's track record first, especially when buying cheap auto insurance. The NAIC complaint index compares the number of complaints a company receives with its size, and JD Power publishes an annual study of auto claims satisfaction. If you work with an independent agent, you can also ask how the carriers they represent have handled their clients' claims.

7. Full coverage can still leave gaps

“Full coverage” isn’t an official policy type. Instead, this term refers to a policy that offers liability coverage to protect others plus collision and comprehensive coverage to protect you and your vehicle. Not only is full coverage a wise choice for many drivers, it also may be required if you have an auto loan or lease.

But even though full coverage offers a lot more than a liability-only policy, the cheapest full coverage auto insurance can still leave you exposed and underprotected. If you’re carrying too-low liability limits, choose a high deductible, or have little (or no) uninsured motorist protection, you could still find yourself in a tough spot after an accident.

Comparing a flimsy low-cost policy vs. balanced coverage

While state requirements and individual policies can vary, there tend to be some important differences in coverage between cut-rate and more balanced policies. The cheapest auto insurance can wind up costing you in the long run.

How an independent agent helps you avoid these risks

Working with an agent can be a great way to ensure that you build a car insurance policy that avoids these risks as much as possible, while still finding you affordable coverage. Independent agents can compare quotes from several carriers at once, so you can see how price and coverage compare together, then tweak your policy until it adequately protects you, your loved ones, and your assets.

An independent agent can also help you buy home and auto insurance from different carriers, if that winds up being the best fit. This way, you can find auto insurance that best protects your vehicle, even if it’s from a carrier that doesn’t offer comparable homeowners or renters coverage for your situation.

No matter where you buy or whom you work with, be sure to review your policy and limits each year before renewal. Your car, household, and financial situation can change over time, and your coverages may also need to change in response.

Cheap car insurance FAQ

Is it bad to have the cheapest car insurance?

The risks of the cheapest auto insurance depend on what that low price policy leaves out. For example, cutting coverage for your own car — such as collision protection on an older vehicle you could afford to replace — can be a reasonable way to save. Cutting your liability limits is riskier, because you'll still be personally responsible for any damages above those limits if you cause an accident.

What isn't covered by minimum car insurance?

Minimum coverage depends on your state. Nearly every state's minimum includes liability coverage for injuries and property damage you cause to others, and some also require personal injury protection (PIP) for your own medical bills or uninsured motorist coverage. Minimum coverage rarely, if ever, includes protection for your own car, though. Without collision and comprehensive, you're stuck paying out of pocket for repairs after a crash you cause, theft, weather damage, or hitting an animal.

What happens if damages exceed my policy limits?

You're personally responsible for any costs above your policy limits, which is why it’s so important to weigh your coverage against your premium. The other party can sue you to recover any damages above your policy limits, putting your savings and other assets at risk. Raising your liability limits and/or adding an umbrella policy can help close that gap.

Is liability-only insurance ever a good idea?

Liability-only coverage can be a wise choice for an older car that's paid off and worth relatively little, as long as your liability limits are still high enough to protect you. A common rule of thumb is to consider dropping collision and comprehensive when their annual cost is more than 10% of your car's value. Be sure to also factor in your deductible when running these numbers.

Get a lower rate with the coverage you need

The cheapest auto insurance isn't always the best value once you account for what it leaves out. Learn how a local independent agent can compare quotes from multiple carriers, explain the trade-offs in plain language, and help you find a policy that fits your budget and your life.