Are Insurance Loyalty Discounts Worthwhile?

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Many insurers offer discounts to loyal customers. Loyalty discounts seem like an obvious win-win scenario, the insured gets a discount and the company reaps the benefits of a loyal customer. Although this might be the case for many a loyalty discount, that does not mean loyalty programs aren’t worth closer inspection.
In fact, some companies use customer loyalty programs and rewards as a guise for increasing their policy rates.
So, are loyalty plans really worth it? Here’s what you need to know.

What are loyalty discounts?

A loyalty discount is a way for a business to reward a loyal customer by giving them a reduced rate. Loyalty discounts also act as a means to dissuade customers from switching to the competition.
When it comes to insurance, a loyalty discount may automatically kick in after you’ve been with the insurer for a certain amount of years or you may have to ask for one. When it comes to significant car or home insurance discounts, it can mean a huge difference in your monthly rate.
Here are some companies that offer loyalty discounts:
  • Geico
  • Nationwide
  • USAA
  • Allstate
  • AAA
  • State Farm

Are loyalty discounts worth it?

As mentioned earlier, it depends. There are a few factors that can help you determine if your loyalty discount is actually saving you money.
One of these factors is how you received a loyalty discount.

When a loyalty discount is worth it

For instance, if you tell your auto insurance that you are considering switching to the competition and they offer you lower premiums under a loyalty discount to incentivize you to stay, odds are you will be receiving a competitive rate.
If you are considering switching companies, you probably have an idea of the average cost of similar plans so you will be able to recognize the best deal when you see it. Therefore, it is in your car insurance company’s best interest to give you a good deal if they want to keep your business.

When a loyalty discount might be costing you money

Whereas, if your loyalty program kicks in after you hit a benchmark amount of time with your insurer, you might actually be paying more for your insurance than you did before you got your loyalty discount. Some insurance policies use loyalty discounts to mask price increases. For example, you may get a 20% loyalty discount, but your yearly rate was raised by 30%. Therefore, you’re still paying 10% more after your loyalty discount. This is called “price optimization” (a fancy term for raising the price) and it is illegal in some states.
Price optimization hinges on the hope that the insured is taking the “discount” at face value and not doing math or researching the best rate. In other words, insurance companies use price optimization to lure complacent customers into paying higher premiums.

The takeaway

There are no bad discounts (unless you count price increases masquerading as loyalty discounts). However, there are ways to increase the likelihood that you’re getting the best deal. By shopping around for insurance, you will be able to decipher a good deal from one that might actually be costing you money.