What happens when you combine multiple auto insurance discounts?

By SmartCoverage Team on March 8th, 2018

YOU get a student discount, and YOU get a good driving discount, and YOU get a multiple car discount, and YOU get a bundled home and auto insurance discount!!! And YOU –”

– Auto insurance Oprah

What if you were to qualify for all of the auto insurance discounts under the sun? There are discounts out there for employment categories, winter tires, good credit, etc. etc. The list goes on!

Basically, any phrase that can attract a customer base can be attached to an auto insurance discount. So, it makes sense to ask your broker or provider about the kinds of discounts you might qualify for, at every renewal point.

Let's say you qualify for a few insurance discounts, how do they work in combination with each other?

Combining discounts

Even if you qualify for one hundred discounts worth 1%, you will never receive a 100% discount.

Most auto insurers use “a multiplicative discount system to calculate your savings,” according to LowestRates.ca.

In practice, your insurer will combine all your discounts and then arrange them in descending order.

For example, you have qualified for three discounts worth 20%, 15%, and 10%, respectively, on a monthly bill of $100. You may think you’ll be getting those percentages stacked on top of one another, to get a cool 45% off your bill.

You can plug in your own annual or monthly insurance costs and discounts, but watch how it actually breaks down below:

  • First, they’ll take 20% off of the $100, to put you at an $80 bill.
  • Next, they’ll take 15% off of $80, to put you at a $68 bill.
  • Finally, they’ll take 10% off that $68 bill, leaving you with a bill of around $61 and change.

It’s not far off from the $55 you would pay if the 45% was applied to the $100 cumulatively (it's only $6 more), but it is a bit of a difference that allows the insurers to offer all these discounts to you, without going bankrupt.

Other discount methods

Some companies will logically add up all the discounts you qualify for, but then cap it at a predetermined level. Over the years, people have found this method of calculation unfair.

With the first method we've mentioned above —where your rate receives descending discounts— people are still able to receive every single discount they qualify for instead of being refused based on a cap.

It's all marketing

You should always keep in mind the fact that these “discounts” are really just marketing tactics used to bring in more customers.

These discounts can be thought about as a variable that goes toward decreasing your insurance premium because you're considered a "safe driver".

If you’ve never even heard of discounts on auto insurance, read our article on some of the ways you can go about securing them.

Another foolproof method to find the best insurance quotes is by shopping around to find providers that offer the best discounts for you. You are unique, after all. 

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