There's perhaps no more popular way of saving money on insurance than through something called "bundling."
Also called a multipolicy discount, bundling is a rather simple process of insuring your valuables -- such as your vehicle and home -- with the same company, and the savings can be significant.
But the savings can also vary from state to state. For the second year in a row, insuranceQuotes.com commissioned Quadrant Information Services to examine the average economic impact of bundling auto insurance with either homeowners, condo or renters insurance. Using a hypothetical 45-year-old married woman with a bachelor's degree, excellent credit score and no lapse in coverage, the study compared the average premium discount for three types of bundling in all 50 states plus Washington, D.C. The results were intriguing to insurance analysts and experts.
For example, consumers who bundle auto and homeowners insurance in Georgia can expect an average premium discount of 22 percent. However, bundling auto and homeowners insurance in Florida only results in an average premium discount of 8 percent.
What's more, some states show much more significant bundling discounts this year compared to last. For instance, bundling home and auto policies in Hawaii in 2015 results in a 66 percent greater savings compared to last year. Meanwhile, in West Virginia, savings from bundling is down 26 percent compared to last year.
Why does bundling save you money?
According to Eli Lehrer, president of the nonprofit research group The R Street Institute, many insurance companies offer bundling discounts for one basic reason -- it saves the company money in the long run.
"Bundling insurance saves money on processing, administration and selling costs for insurers, so it's good business sense to encourage customers to do it by sharing some of the savings with them," says Lehrer. Also, "a customer who bundles two products is almost certainly more likely to buy a third. It's all a beneficial business model."
Discounts for bundling home and auto insurance
The most significant discount comes from bundling an auto policy with a homeowners policy. According to the insuranceQuotes.com study, the national average premium discount for bundling is 16 percent (up from last year's 15 percent average discount).
According to James Lynch, chief actuary and director of research and information services for the nonprofit Insurance Information Institute, there are several reasons this discount is more substantial than bundling an auto policy with condo or renters insurance. First of all, home insurance is more expensive than condo or renters, so insurers can remain profitable, even when offfering discounts. On the other hand, Lynch says, "the premium on a rental insurance policy might be as low as $100, so you don't really have a lot of room to give much money back to the consumer."
According to Troy Thompson, owner of Minnesota-based Pinnacle Insurance Agency, there's another correlation to make.
"If you own a home, you're probably more financially stable, which means that you are statistically less likely to file a claim," Thompson says. "The insurer wants your business, and it allows the company to offer a more significant discount."
Nonetheless, this discount varies from state to state. Here are the top five states with the greatest average premium discount for bundling auto and homeowners insurance.
1. Georgia — 22 percent discount.
2. Oklahoma — 22 percent discount.
3. Kansas — 22 percent discount.
4. Arkansas — 22 percent discount.
5. Nebraska — 21 percent discount.
According to Oklahoma Insurance Commissioner John Doak, carriers that write policies in his state want to spread their risk among different kinds of policies, because of the large numbers of catastrophic events in Oklahoma. The same may be true for other midwestern states prone to catastrophic storms. Bundling discounts give consumers an incentive to maintain multiple policies with the same insurance company.
Meanwhile, the following five states, on average, showed the smallest percentage premium discount for bundling auto and homeowners insurance.
1. Florida — 8 percent discount.
2. New York — 11 percent discount.
3. Hawaii — 11 percent discount.
4. West Virginia — 11 percent discount.
5. New Jersey — 12 percent discount.
The reasons for the disparity from state to state (and year to year) are varied and nuanced, Lynch says.
"This discount is just one of many factors that goes into setting a rate. So it might be that insurers in one state are raising prices on auto policies this year while at the same time offering a larger discount for bundling," says Lynch. "Insurers in another state might be doing the exact opposite. There are many, many moving parts."
What's more, certain states have a unique set of variables to consider. For instance, Florida has to contend with hurricanes, which makes it an expensive state for residents to insure homes and vehicles.
Discounts for bundling condo and auto insurance
It may come as surprise to some consumers, but insuring a condo is different from insuring a home.
Condo owners are usually only responsible for insuring everything within the four walls of the unit (and not the structure itself). The condo association generally insures the building and common areas. This means condo insurance typically costs much less than a homeowners policy, and therefore a bundling discount isn't as substantial.
According to the study, the national average premium savings for bundling auto and condo insurance is 11 percent.
The following five states show the greatest average premium discount for bundling auto and condo insurance.
1. Illinois — 16 percent discount.
2. Wisconsin — 15 percent discount
3. Missouri — 15 percent discount.
4. Indiana — 14 percent discount.
5. South Dakota — 14 percent discount.
Meanwhile, the following five states, on average, showed the smallest percentage premium discount for bundling auto and condo insurance.
1. Virginia — 7 percent discount.
2. Rhode Island — 7 percent discount.
3. Florida — 7 percent discount.
4. New York — 8 percent discount.
5. Connecticut — 8 percent discount.
According to Lehrer, another reason for the state-by-state variation comes down to differences between individual regulatory environments across the country.
"Most of the states near the bottom have very strict regulation for either auto or homeowners insurance, which gives carriers less flexibility and thus little ability to offer savings," Lehrer says.
Discounts for bundling renters and auto insurance
A typical renters insurance policy only covers personal possessions, liability and, in some cases, additional living expenses if a tenant suddenly has to relocate. Therefore, like condo insurance, renters insurance is less expensive than a typical homeowners policy.
Because it's less expensive than homeowners and condo insurance, bundling auto and renters insurance results in the least significant savings. According to the study, the national average premium discount for bundling auto and renters insurance is just 8 percent.
The difference in discounts might be linked to the difference between people who own a home and those who rent.
"Statistics show that a traditional homeowner has fewer claims than either a condo owner or a renter," says Keith Balsiger, owner of the Nevada-based Balsiger Insurance. "A homeowner has a vested interest in the property and is more likely to maintain it."
The following five states show the greatest average premium discount for bundling auto and renters insurance.
1. Minnesota — 13 percent discount.
2. Indiana — 12 percent discount.
3. Wisconsin — 11 percent discount.
4. Iowa — 10 percent discount.
5. Missouri — 10 percent discount.
Meanwhile, the following five locations, on average, showed the smallest percentage premium discount for bundling auto and renters insurance.
1. New Jersey — 5 percent discount.
2. Virginia — 6 percent discount.
3. New York — 6 percent discount.
4. Washington, D.C. — 6 percent discount.
5. Oregon — 6 percent discount.
How to save money bundling your insurance
Here are three tips on how to save money by bundling auto and home coverages.
1. Pay attention to policy details. According to Lynch, it's important to find the best policy for your circumstances, which means looking at more than just the multipolicy discount. For instance, if you are concerned about sewer backup or the replacement costs for personal property, some insurance companies may provide this while others don't. Getting the best coverage for your home situation should be your top priority.
2. Consider the net price. Most of the time, bundling insurance is a smart choice for consumers. However, sometimes it's cheaper to purchase insurance from different carriers. So be sure to shop before making a decision.
3. Shop different companies. "The multipolicy discount isn't the only thing that should be considered," Lynch says. "So don't just go with the first company to offer it."
Since quotes from different companies vary considerably, savvy consumers always get multiple quotes. Comparing at least three different carriers is the best way to make sure you never overpay for insurance.
Study methodology: insuranceQuotes.com and Quadrant Information Services calculated the average economic impact of purchasing auto insurance with either home, condo or renters insurance using data from the largest carriers (representing 60-70% of market share) in each U.S. state and the District of Columbia.
Averages are based on a 45-year-old married, employed female with a clean driving record. The hypothetical driver has a bachelor’s degree, an excellent credit score, no lapses in coverage and the following limits: $100,000/$300,000 (bodily injury), $100,000 (property damage), $100,000/$300,000 (UI/UIM), $10,000 (PIP) and a $500 deductible.
Home: based on single family, 2-story, 1800 square foot, frame home, built in 1976 and the following limits: $140,000 (dwelling), $70,000 (personal property), $300,000 (liability), $5,000 (medical), and a $500 deductible.
Condo: based on $50,000 (personal property), $100,000 (liability), $5,000 (medical), and a $500 deductible.
Renters: based on $20,000 (personal property), $100,000 (liability), $5,000 (medical), and a $500 deductible.