Have you ever gone to Costco just to grab the jumbo cheese and bag of organic peppers, you manage to come out with a head full of information on their Auto Insurance and $300 in stuff you hadn’t planned on buying!
You might be thinking, hey, Costco is known for its good deals, I bet the insurance is no different. While you’re not completely wrong – it is generally a good deal for a lot of people – there are definitely things to beware of.
What Is The Costco Auto Discount?
Like most things purchased through Costco homeowners, Costco Life Insurance, and Costco auto insurance are offered to members at a discount. Costco doesn’t actually do the insuring itself but is partnered with CONNECT by American Family Insurance.
Does Costco have good deals on auto insurance? CONNECT has competitive rates on its own, but purchasing through Costco saves an additional 5-10%+ for members off CONNECT’s regular rates. For most, that discount covers the cost of their Costco membership, sometimes more.
Executive Costco members also get perks like free roadside assistance and towing, up to $75 per occurrence. You’ll also get lifetime renewal, meaning they will always renew your policy, regardless of how many infractions or accidents you might have over the years. Of course, limitations apply. For example, this is not available to those who live in Michigan or Maryland. It doesn’t apply to anyone with major infractions already, or if you fail to pay your insurance premiums. They will not extend lifetime renewability if you buy a car that is uninsurable, or if you can’t provide the documentation they need. But for most, this is a perk that provides peace of mind.
With all that said, there are a few downsides you might want to weigh their offers against. Let’s dig into the 5 things to be aware of when deciding if Costco insurance is right for you.
Costco Insurance Discount Doesn’t Apply to All
Though Costco is pretty much everywhere, the states they offer insurance in varies. It is not available in Alaska, Wyoming, North Dakota, Louisiana, Maine, and Rhode Island. In Tennessee, you can purchase insurance through Costco, but won’t receive any rate discounts by doing it that way. And in Massachusetts, insurance is only offered to those paying the Executive membership tier.
Online experiences also indicated that the savings varied widely depending on the state you live in. Some people claimed to cut their insurance policy price in half, while others said they had modest savings, enough to cover their Costco membership.
It appears that prices are based on where you live, with some places being significantly cheaper than others, and some not offering it at all. If you’re planning an upcoming move, definitely double-check if you’re still covered in the state you’re moving to.
Expect Them to Raise Their Rates After The First Year
As with most insurance companies, the rates offered the first year are enticing, but often don’t remain that way. Some complaints against Costco insurance allege disproportional rate increases after the first year. Several claimed their rates doubled the second year of holding the policy.
The most common complaint was having policy rates double after only minor infractions.
Whether the rate increase you receive is excessive or not is based on many factors, but be prepared to shop around after the first year to make sure you’re still getting the best rate for your current situation.
Poor Customer Service
As we discussed, Costco doesn’t provide the insurance, CONNECT by American Family Insurance does. And it has poor customer service, especially in relation to claims delays and settlement amounts.
American Family Insurance, the company that underwrites Costco Auto Insurance, has 1.14/5 stars on the Better Business Bureau (BBB) website.
We also found that, according to the National Association of Insurance Commissioners, the complaint index was 3.98 for 2019 (the most recent year data is available). This means that they had almost 3x more complaints than the national average.
Beyond customer complaints, the hours of customer service are very limited, which you might not have had if you bought directly from CONNECT. Costco lists its call center hours as of Monday – Friday 8:00 a.m. to 11:00 p.m. Eastern Time, 9:30 a.m. to 8:00 p.m. Eastern Time on Saturday, and no hours on Sunday, as they are closed. A far cry from the 24/7 that many other companies offer.
Premiums Are Not Eligible for 2% Member Reward
As a Costco member, you’re likely used to getting deals. If you hold an executive membership, you’ve been earning a 2% member reward on all your purchases. However, the premiums you pay for auto insurance are paid to CONNECT and are therefore not eligible for the 2% member reward.
While you are still saving 5-10% off the regular premium price were you to buy through CONNECT directly, it’s still a little disappointing that it doesn’t contribute to the cashback program, especially when other extra services, like Travel, DO count.
Cost Savings vs. Quality Coverage
Do you really want the cheapest thing you can find? It usually comes at the cost of coverage. If the answer is yes, that’s just fine. We are all different and have different needs. Some people would rather pay out of pocket for the majority of repairs and stay out of the system as much as possible. But for a lot of people, the cost of not having quality coverage for whatever their personal situation is just doesn’t add up. There is a benefit, up to a point, in being protected in the event of a major loss.
Buying the cheapest insurance isn’t always the best, especially if the savings on your premium come at the cost of not being properly or adequately covered for your personal situation in the event of an accident.
Costco is known for providing good quality with good value, which is why savvy people shop there and would be attracted to auto insurance offered by them. But it’s not always the best coverage. Ensuring you have adequate coverage for yourself, including affordable deductibles, falls upon your shoulders. Doing your due diligence, especially when the rates seem like a steal, is paramount.
For example, the company that underwrites Costco auto insurance is CONNECT by American Family Insurance. AFI acquired The General, a non-standard insurance company, which means they only take high-risk drivers. They will take drivers with really great risk portfolios, those who would be a perfect fit for anyone, and they’ll give you a really good deal, but you’re pooled with all of the high-risk people. This typically leads to lowball claim offers and outright claim denials – which is one of the main complaints we see from CONNECT.
Doing the research for yourself is key. You know what you need, so make sure that matches up with the rate you will be paying. What should you be asking yourself?
- Does it have everything I need to be adequately covered for me?
- Is this the lowest possible rate that includes everything I need?
- Are the customer ratings decent – good, without any red flags in those ratings?
For some, Costco auto insurance will tick all of those boxes. For others, it will be somewhere else.
The auto insurance offered through Costco, underwritten by CONNECT by American Family Insurance, will likely save you money on your premiums. It might even be the best deal for you and your particular circumstances. The above reasons are why to use caution, the things to search for, and ask yourself before making the switch. Because this is all about you, your life, and what the best balance is for you. As always, with insurance, it’s best to shop around. You can be sure there’s a policy out there that fits you perfectly, though it may not come with the jumbo cheese and bag of organic peppers.
*While we make every effort to keep our site updated, please be aware that “timely” information on this page, such as quote estimates, or pertinent details about companies, may only be accurate as of its last edit day. Huntley Wealth & Insurance Services and its representatives do not give legal or tax advice. Please consult your own legal or tax adviser.