Should You Bundle Insurance?

Many people don't compare all of the options when it comes to purchasing insurance. They might go with the company their parents or friends use, or simply call the company that has the most memorable advertisements. In some cases, this works out, but it's not always the smartest move, and it's definitely a hassle to deal with multiple insurance companies.

Perhaps the biggest mistake consumers make is purchasing insurance through several different companies. For example, they might purchase auto insurance through one company and homeowner's or renter's insurance from another. If this is what you're doing, you may be spending much more than necessary.

Why Bundle Your Policies?

"Bundling" is when you purchase all of your insurance policies through the same company. Most of the large insurance companies offer insurance plans in the three major categories -- auto, home and life insurance. In order to capture more of your business, the company will offer a discount to customers who buy all of their insurance at the same place.

The companies call this a "multiline discount" and the discounts can be considerable. For example, by purchasing both auto insurance and homeowner's insurance, you might get more than a $100 discount on one of the policies. Typically, you'll pay "normal" price for the first type insurance, then receive the deep discounts on future insurance purchases. This is true whether you're adding a second car to your auto insurance policy or adding homeowner's and life insurance with the company that currently carries your auto insurance policy.

What Will You Save By Bundling?

The cost of an insurance plan depends on many different variables, including whether you've filed claims before, whether you've gotten speeding tickets, the value of your home or car, and where you live. It's impossible to say exactly how much money you'll save if you choose to bundle your insurance, but the savings will definitely add up over time. To give you an idea of how much you might save, Nationwide suggests that customers can save up to 20 percent by bundling. You'll definitely save time, though, as all of your bills and paperwork will now be from the same company.

Is There a Catch?

Because the discounts can seem so deep, it's easy to assume that there's a catch. Fortunately, insurance companies provide these discounts as a way to get a bigger share of the market. The policy you get when you bundle is exactly the same as the policy you get when you purchase the policy on its own. It's just cheaper because you've bundled.

One potential catch, though, is the difficulty you'll face when trying to change your life insurance policy. That's why insurance companies instruct their agents to focus on getting you into the life insurance plan. In general, when you first sign up for life insurance, you lock in your rate for a certain number of years. Companies base that rate on your age and your health. As you get older -- and have more health problems and a higher chance of dying -- your rate will go up. Locking you into this rate for 20 or 30 years allows you to save over time, but it also makes it difficult to transfer to another company, where the rate is likely to be higher.

Do Your Research

Bundling insurance products is generally a good way to save money, but it isn't always the case. It pays to check out all of your options. For example, you might get a homeowner's insurance quote from the company that sells you auto insurance, but find that another company's homeowner's policy is significantly cheaper, even with the first company's discount. When you check with that company about adding an auto policy to bundle, though, the cost of their auto insurance might be high because you recently filed a claim. Take the time to do the math to see where you'll save the most.