If you have been searching for auto insurance but have a nagging feeling something is getting in the way of you securing the right policy, you might be onto something. Research has found that our psychological biases could impact our ability to make the best purchasing decisions. Fortunately, these biases don’t have to hijack your car insurance search. By learning how to overcome them, you can empower yourself to locate and buy the best car insurance.
How You Can Find the Best Car Insurance
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While it’s intriguing to delve into the psychological biases that could impact your ability to find great coverage, it’s essential to take a quick look at some tips to consider when researching auto insurance companies and their offerings:
- Learn the basics of auto insurance. It’s good to get a general understanding of how auto insurance works and how your driving history, age, zip code and credit score can impact your premium.
- Determine your preferred coverage amount. It’s not always easy to decide how much car insurance you need. Look at factors like the make, model and year of your vehicle as well as how far and often you drive to help you decide whether you need full coverage, a liability policy or something in between.
- Think about your deductible. According to the Insurance Information Institute (III), you could lower your premium costs for collision and comprehensive insurance by 40% or more if you increase your deductible by $1,000. However, if you take this route, be sure to set aside enough to cover the deductible in the event of an accident.
- Check for discounts. Insurance companies offer a wide range of discounts. When shopping for coverage, see how you can save with actions like bundling different types of insurance, paying your premium in full and maintaining a good driving record.
Biases in Decision-Making Could Impact How You Purchase Coverage
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Psychological biases, also known as cognitive biases, occur when we subconsciously oversimplify information that we process and, as a result, make illogical decisions. Psychological biases in decision-making can impact almost any aspect of our lives. They could especially affect our auto insurance shopping choices since research has found that 95% of decisions made concerning purchases occur in the subconscious mind.
Let’s say you purchased a policy from an insurance company because you believed it had and always would pay out the highest claims. This is an example of the psychological bias known as a confirmation bias, which is when you make a decision that confirms your existing beliefs, whether it is true or not.
Relying on psychological biases could drastically impact your ability to find the best policy, which is why it’s good to learn how to overcome them, so you don’t make a car insurance purchase you later regret.
How to Overcome Psychological Biases When Researching Auto Insurance Companies
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These six psychological biases could affect your ability to make sound decisions when you shop for car insurance. Learn some tricks and tools you can use to counter these biases and make better purchasing choices effectively.
1. In-Group Bias
It is normal to rely on friends and family to help you make tough decisions like narrowing your auto insurance coverage options. That’s unless you fall into an in-group bias when seeking advice.
Having an in-group bias means you show favoritism towards your group of trusted individuals. For example, one of your friends tells you to choose a specific insurance company because it offers the cheapest car insurance. You purchase a policy only to discover that the company isn’t very reputable.
Instead of taking the sole advice of your friends and family, the III recommends shopping around until you secure a minimum of three quotes from companies that sell directly to consumers, sell through their agents and sell through independent agents.
If you’re unsure which companies to research, consider using a quote tool to find car insurance providers ranked by their affordability, discounts, financial stability, customer satisfaction and other factors that matter to you.
2. Negativity Bias
If you’ve been in an at-fault car accident and had to pay out of pocket to fix your car, your fear of this happening again might convince you to buy the maximum amount of coverage in the future. Unfortunately, this would mean you’ve fallen victim to a negativity bias, which occurs when you focus more on a possible negative outcome (losing money in an accident) than a possible positive outcome (saving money by spending less on your coverage).
It’s perfectly fine to be cautious, but you don’t want to pay more money on coverage than necessary. To avoid spending too much when buying insurance, consider basing the amount you purchase on your current and actual risks. If you’re not sure where to start, check your state’s minimum coverage requirements. From there, you can build up enough insurance to cover your assets in the event of an accident, helping you feel confident that you’re fully protected while also saving money.
3. Dunning-Kruger Effect
Have you ever drawn a conclusion about a situation before having all of the information you need? If so, you might have subconsciously relied on the cognitive bias known as the Dunning-Kruger effect.
Let’s say you’re watching TV and see a car insurance commercial that leads you to draw a negative conclusion about its coverage. As a result, you cross that company off your list of contenders, despite the possibility of it being a great option.
It’s a good idea to shop for coverage with as many car insurance providers as you can, including those you’ve subconsciously prejudged. This way, you can compare premiums for different levels of coverage and also explore numerous discounts. The more companies you research, the better able you will be to make an informed decision.
4. Choice Overload
Choice overload occurs when you are presented with so many options that you struggle to select any of them. Let’s say you have been shopping for coverage through multiple insurers for days and know you don’t have much time left to choose a policy. In an effort to make a decision, you pick coverage with your current homeowners insurer because you can get a discount on your auto insurance if you bundle the two policies.
Auto insurance discounts like this one are great; however, it’s best not to choose your policy based on this one factor. If you’re wondering how to find the best car insurance without getting overwhelmed, consider using an online tool that allows you to compare car insurance quotes and review insurance companies all in one place. This can simplify your search and help you find the best policy for your circumstance.
5. Emotional Shortcut
Does your investment portfolio include insurance companies? If so, you’ve probably conducted some research on their underwriting profits and losses, expense and loss ratios and other important details that can enhance your investing decisions. Over time, you might have come to love one company because of its positive impact on your portfolio. Does that mean you should automatically choose it as your auto insurance provider? If you do, you could fall victim to the affect heuristic, or emotional shortcut bias, which is the act of making a decision based on your emotions.
Instead of taking the emotional shortcut and choosing your insurer based on whether it has aided your portfolio, consider other factors like how much you could lower your monthly or annual expenses through your deductible, discounts and more. By shopping around, you could snag a great deal on your coverage while still saving and growing your money.
6. Commitment Bias
Commitment bias refers to subconsciously making a decision consistent with previous decisions, whether or not it is best for you now. Let’s say you love to make annual auto insurance payments with a credit card since doing so can help you accumulate reward points. When it’s time to choose another policy, you decide to select an insurer that offers the lowest annual premium so you can stay committed to paying with your credit card and accumulating reward points while also saving on your coverage.
Though it can be tempting, it’s best to avoid choosing a policy from the sole vantage point of building credit card rewards or even securing the cheapest premium. Instead, consider different ways you can reduce your car insurance costs before you begin shopping with insurers. This way, you can find a quality, low-cost policy that meets your needs while enjoying the perks associated with paying for your policy via your credit card.
You don’t have to fall victim to psychological biases when searching for auto insurance. If you are mindful when shopping for coverage, you can recognize when you’re leaning on a bias and quickly counter it with these six tips.
About the Author
Stacey Bumpus is a freelance writer who loves creating personal finance content in areas that include insurance, budgeting and savings. While Stacey currently enjoys writing for MoneyGeek.com, she is also proud to have had her work featured on MSN Money, Business Insider and Credit Karma among other online publications.
- The Association for Qualitative Research. “Commitment bias.” Accessed December 7, 2020.
- Central Intelligence Agency. “Psychology of Intelligence Analysis: Chapter 9: What Are Cognitive Biases?” Accessed December 7, 2020.
- CogBlog, Colby College. “Either you’re in or you’re out: The power of in-group bias.” Accessed December 7, 2020.
- Exposé Magazine. “The Interactions of Heuristics and Biases in the Making of Decisions.” Accessed December 7, 2020.
- Harvard Business School. “The Subconscious Mind of the Consumer (And How to Reach It).” Accessed December 7, 2020.
- Insurance Information Institute. "Nine ways to lower your auto insurance costs." Accessed December 7, 2020.
- Insurance Information Institute. "How to save money on car insurance." Accessed December 7, 2020.
- Iyengar, S.S., Lepper, M.R. “When Choice is Demotivating: Can One Desire Too Much of a Good Thing?” Accessed December 7, 2020.
- Pennycook, G., Ross, R.M., Koehler, D.J. et al. “Dunning–Kruger effects in reasoning: Theoretical implications of the failure to recognize incompetence.” Accessed December 7, 2020.
- Review of General Psychology. “Confirmation Bias: A Ubiquitous Phenomenon in Many Guises.” Accessed December 7, 2020.
- Vaish, A., Grossmann, T., & Woodward, A. “Not all emotions are created equal: The negativity bias in social-emotional development.” Accessed December 7, 2020.