An Unexpected Car Insurance Discount

by Michael on Mar 13, 2014 · 2 comments

Photo of Car in Agent's Hands

When we stopped by our insurance agent’s office to add our oldest son to our car insurance policy last month, we got a pleasant surprise.

We were aware that he’d qualify for discounts for his good grades, for having taken a defensive driving course, and for having completed State Farm’s “Steer Clear” safe driver program.

What we didn’t expect was to be presented with an extra discount if we added a life insurance policy on our son’s behalf. Interestingly, this discount actually outweighed the cost of the life insurance policy, so it was a classic win-win.

All told, the good grades, defensive driving, and Steer Clear discounts combined to reduce the premiums associated with his coverage by nearly 52%. But then our agent pulled out the life insurance wildcard.

By adding a small life insurance policy (a $25k Universal Life policy) we’d save an additional 38% — including the nominal cost of the life insurance policy. Now, before we go any further…

Yes, I do realize that there’s no need for him to carry a life insurance policy. And no, I’m not a fan of universal or whole life insurance policies. I’m a “buy term and invest the difference” kind of guy. But it’s had to argue with the numbers.

By picking up this policy, we realized a net savings of 38% on his car insurance. When I asked how/why it worked this way, I was told that it moved him into a “different category” of insurability — or some other nonsense. Whatever.

I’d imagine this this is some sort of loss leader with a goal of getting people on the universal life gravy train in hopes of keeping them hooked going forward. But for now, it’s a great deal. And we can always cancel if we have a change of heart.

1 Kurt @ Money Counselor March 13, 2014 at 11:07 am

You hit the nail on the head I think in your last paragraph. The numbers may well work in your favor now, but in theory you should re-confirm that math every year. Most people won’t of course, and hence State Farm wins. Whole life insurance may be the most lucrative (for the insurer) insurance product sold on the planet, so State Farm is business smart to offer this irresistible incentive.

2 Michael March 13, 2014 at 11:16 am

As long as we don’t make any changes to the policy (increase or decrease coverage), the premiums aren’t supposed to change. So perhaps their hope is that kids will simply increase coverage when they leave the nest vs. shopping around for a better option.

And there are no cancellation fees. If we surrender the policy early, the cash value will be reduced. But we’re not doing it for the cash value, so even if that went to zero I wouldn’t care.

But yeah, we’ll be keeping a close eye on things…

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