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UPDATED: Mar 13, 2020
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Car salesmen are well-known for their aggressive marketing tactics. Cars are expensive products that people buy infrequently, and competition for the car buyer’s interest is harsh. Many dealerships offer low-cost financing and various special offers to sweeten the deal for shoppers who might otherwise not consider buying a new car. Once a person does buy the car, they need to find the money to pay for gas, maintenance and insurance; the long-term costs of owning the vehicle can reach impressive heights after a few years.
One of the newest programs designed to lure new car owners and reduce the number of uninsured drivers is a test run by General Motors. The policy provides a year-long free insurance policy to people who buy a new car from a GM dealership. After the year is up, drivers will need to begin paying for their own policy.
How the Free Coverage Works
These offers were only available in Oregon and Washington initally. If the experiment proves successful, GM may begin offering similar products in other states. Other dealerships may also begin to follow suit. For the program, GM has partnered with MetLife, which is underwriting the free policies.
Essentially, the dealership is paying for the first year of coverage as a courtesy to car buyers. The policy has full coverage, including collision and liability insurance, and all limits are above the legal minimums in the respective states. Any member of the household can drive the insured vehicle, and the policy does not have any limitations aside from what any other insurance policy would. If the vehicle is declared a total loss at any time during the first year, MetLife will replace the car at its purchase value without taking any depreciation; this comes at no additional cost for the first year, but it may cost extra in subsequent years.
Will This Reduce the Number of Uninsured Drivers?
Although it’s possible that the number of uninsured motorists in Washington and Oregon will go down as a result of this program, it’s unlikely to happen. For the most part, people who can afford to buy new cars can also afford to insure them. Additionally, the coverage only lasts for a year. This may actually lead to a growth in uninsured motorist populations as people fail to renew their policies after the initial period has ended.
Of course, all financed vehicles require full coverage insurance, so allowing a policy to lapse on a new car would be risking the wrath of the lien holder. Prospective car owners would need to consider this in advance and decide whether renewing the MetLife policy or shopping for new insurance is the best deal.
Who Will Benefit From the Free Insurance?
A year of free insurance is appealing to new car owners, and it certainly reduces the immediate costs associated with buying a vehicle. It’s also a relatively small expense for dealerships. An insurance policy costs around $1,000 to $2,000 for most people, and dealerships are probably buying these policies at reduced rates. Compared to the $20,000 or more for an affordable family car, a year of free insurance is a paltry sum. If this experiment encourages more people to buy vehicles, it will definitely boost sales for General Motors.
MetLife, too, will benefit from this program. The company currently holds just 1.3% of the total market share, and it’s hardly competitive with larger insurance companies like State Farm, Allstate or Geico. MetLife’s size makes it difficult for the company to offer competitive discount programs, so its partnership with GM for this is sure to attract more customers. Although customers aren’t required to stay with MetLife after the year’s policy has finished, many people will most likely choose to stay. If the program gains in popularity, MetLife will most likely see some growth.
If they’re smart with their purchases, consumers may also benefit from this program. A year of free insurance will save customers as much as a few thousand dollars, and they can put that money aside to cover deductibles or other out-of-pocket expenses in subsequent years. After the year has ended, consumers should be sure to check with other companies and get quotes to see if they can get cheaper rates elsewhere. If not, they may want to work with MetLife to see if any discounts can be applied to the policy to ensure the best rates.
For drivers living in Washington or Oregon, taking advantage of the free insurance program might be a smart idea. On the other hand, it’s unwise to make any unnecessary purchases even if they come with attractive perks. People who aren’t planning to buy a new car or who don’t like GM products should not be swayed by the appeal of free insurance.