When buying life insurance – or any other type of insurance – bundling has become the buzzword of choice. “Bundle” all of your insurance policies – life, homeowners, auto, and business – with the same provider and you’ll save a fortune. Generally speaking, that may be true, at least from a cost standpoint. But it’s not always the best strategy, particularly as it relates to the quality of the policies that you’re including in the bundle.
Having all your insurance eggs in one basket
You are probably familiar with the concept of diversification when it comes to investments. The same should be true when it comes to insurance policies. As a matter of financial integrity, it is never a good idea to have all of your financial products coming from one company. Trouble within the company could result in problems with each policy that you have with them.
While we normally think of problems with an insurance company as being financial, there are issues that go beyond money. The company could be facing some sort of significant legal challenge that will not only affect its financial position, but also its ability to continue operating.
Regulatory issues can be another factor. Companies, even large ones, sometimes run afoul of regulations. Or it could be that a new set of regulations has been passed that falls particularly hard on a single insurance company. If that is the company holding all of your policies, it could be a rough ride.
Not all insurance companies are good with all types of insurance
One of the best reasons for diversifying different coverages with different insurance companies is that not all insurance companies are good with all types of insurance. A company that is very strong with auto insurance may be very weak when it comes to health insurance.
Though most insurance companies do handle a variety of different types of coverage, there is usually one that they are especially strong in. Whatever that specialty is, that is the type of coverage that you want from that particular company.
You should look to get your auto insurance from the best auto insurance provider, and your life insurance from the best life insurance provider. Never assume that a company is good for life insurance because they’re good another type of coverage.
If you find that the company is poor with one type of policy, you may be stuck with all the others
This is where being in a bundle of insurance policies can get messy. Let’s say that you have one company providing all of your insurance needs. One day you file a claim for health insurance, and find that the company is completely uncooperative.
The issue that you’re having with the company with health insurance, can spill over to concern about every other type of policy that you have with them. An insurance company is an organization that we pay to be on our side in the event of a crisis. If you find out that they are not when it comes to your health insurance, you will have solid reason to question if they will be there in the event of an auto insurance claim, a business catastrophe, or even a life insurance payout.
The whole complicated arrangement can leave you feeling very insecure about virtually every one of your insurance policies.
Complications if you decide to move one type of coverage outside the bundle
If you decide that you’re entirely unhappy with a certain type of coverage within the bundle, you may find it difficult to drop that policy without disturbing all the others.
Let’s say that you decide that you’re completely dissatisfied with the insurance company’s auto insurance plan. You’re so angry that you decide that you will cancel the auto insurance coverage, and go to another company. But if you do, you’ll likely find that the premiums on your other policies within the bundle will rise, perhaps even significantly.
One of the disadvantages to anyone in a bundle plan is that it can make it very difficult for you to shop for alternative policies outside the bundle. Since the premium cost of all the policies within the bundle are dependent upon the whole package, making changes to the bundle can end up costing you more money than you would save going somewhere else.
So while a bundle can save you money on your premium costs overall, it can also have the effect of trapping you into the bundle with no easy escape.
Bundling insurance policies is a noble effort to contain premium costs. But it’s not without its limitations either.