by Ed Sneneh, Illinois Car Insurance Rates Specialist in Chicago
Insurance Navy, 4717 N Pulaski Rd, Chicago, IL 60630  Phone (773) 478-3700

Several insurance companies advertise the concept of 'low cost auto insurance rates' and other use 'low car insurance rates' in the marketing campaigns. But are these rates really low or the actual cost of the automobile insurance really low? The answer depends on the definitions that you, the customers, attribute to the phrase 'cost.'

The financial or accounting definition of 'cost' in the mind of most consumers is the final price tag place on the product or service. So if  an 'auto liability insurance policy' with company A costs $200.00 every six months and another 'auto liability insurance policy' with Company B costs $250 every six months then company A has lower cost. This definition of 'low cost car insurance' is probably the most widespread definition among people. For many people who have more educated knowledge of proper financial terminology definitions the phrase 'cost' is not related to the above mentioned scenarios.  The above scenario is only related to the price of a particular product. Some people call the above the 'accounting cost of auto insurance,' or the 'financial cost of auto insurance.' The cost in the economic jargons is something else. For that reason there are lots of problems embodied in this definition.

Definition of Economic Cost: The phrase cost from economists' perspective is the total value for all sacrifices that the consumers put forth in the in process of acquiring a product and services. This includes the price of the service plus opportunity cost attached to it.

The auto insurance premium is the amount that you are required to pay in return for a promise to offer a future service in the future. So the price you pay is in exchange for the value of certain services that may or may not take place in the future (compensation for accidents, claim services, etc.). The problem here is that the cost of the future services is pretty much variable. So while company A may settle your claim against an uninsured motorist after 5 days and paper work of 3 hours with $50,000 bodily injury paid for your $70,000 medical bills, company B may take 5 months to settle a claim and 35 hours of paper  and other documentation & phone time, and may pay you only $20,000 for the same bills resulted from the uninsured motorist. As you can see the cost of company B is significantly lower, only if there is a no not-at-fault auto accident with an uninsured motorist. Now each scenario produces different possible services with different costs associated with these services. For that reason the actual economic  cost of auto insurance is not as clear as it sounds in advertisements. Comparing accounting or financial cost of car insurance, or the monetary premium, is the easiest part.

The implication of the above is that people should always consider things other than the price tag or the accounting cost of automobile insurance. Among other things, the amount of coverage, financial strength of the insurance company, claim services and claim handling are all equally important. The best auto insurance rates are the ones that will allow you to have the coverage that (1) You properly need, at (2) The price that you can afford.
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Insurance Navy, 4717 N Pulaski Rd, Chicago, Illinois 60630 (773) 478-3700. We stay focused on Auto Insurance in Chicago Illinois and low rates for Illinois SR22

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