Insurance Scams: Auto Clubs

The average person can save and accumulate literally HUNDREDS OF THOUSANDS OF DOLLARS over a lifetime just by understanding insurance better. We will discuss the big-ticket items, such as health insurance and auto insurance, in later articles; but for now, there are some other sneaky insurance scams that are worth noting. One of the reasons I refer to them as “sneaky” is because they give their products creative names to hide the fact that they are really just offering insurance under other names.

Auto Clubs Towing Services
Auto Clubs have developed a couple of secondary services to disguise the fact that they are really just selling towing insurance. For example they will tell you the fastest route to take on a road trip, or where the hotels are. But nearly everybody knows about MapQuest, where we can obtain essentially identical information for free, at the snap of our fingers.

After we brush away the façade, the primary product that Auto Clubs offer is Towing Service. In essence they will tow your car for free if it should break down. They also offer to fix a flat tire or jump-start your car if you should need those services. The annual fee for “Towing Insurance” is around $100.

Insurance policies always come with plenty of fine print and there is plenty of it in a towing policy. For example the insurer decides who the towing company will be and they have limits on how far they will tow you. So if your favorite mechanic is 30 miles away but they have a repair shop in their network that is only 3 miles away, they may only tow you to there. You have to pay any additional costs to get your vehicle to your friend’s shop.

If you are like me, you do not trust repairmen you do not know. If the mechanic over charges you, you could lose all of the money you paid for the towing insurance or more, so the Auto Club was a net-problem, not a net-benefit. Other times you have to pay the tow truck driver up front, and then send in copies of the bills for reimbursement. Obviously that leaves you vulnerable to the whims of the Auto Company if you failed to dot an I or cross a T somewhere,

These policies are especially dubious if you have a fairly new car. For starters, your vehicle is simply less likely to break down. And, in some cases, the manufacturer offers the same free service (yeah, right!) as an incentive to buy the vehicle in the first place. Or you might already have a Roadside Assistance program with somebody like OnStar. Therefore, the customer already has towing insurance, whether they know it or not.

There are a couple of cases where towing insurance is nearly justifiable. 1) If you own a large motor home, changing a flat tire can be a major undertaking. Furthermore, the towing cost to you, should you need it, and not have towing insurance, is much higher because it takes bigger tow trucks to complete the task. Therefore, consumers in this category get more bang for their buck when they do file a claim. 2) Older vehicles (more than 10 years old) and high mileage vehicles (over 75,000 miles) simply have a higher probability of something going wrong.

However, people in either of those two categories will still be net-losers over a lifetime of paying for this insurance; but, I can appreciate the fact that some people are willing to accept that loss, in exchange for knowing they have a workable solution when they need it most. For the rest of us paying for this service is simply enriching the insurance company.

If you still want to look into some of the possibilities, Amoco, AAA and Allstate are among the more well-known companies offering this service but there are dozens more. Index of the Web offers a very good list of options and The Dollar Stretcher has some specific recommendations.

The bottom line is insurance companies do not continue to offer services like these because they lose money on them. On the contrary; they are very profitable programs. That is because very few consumers get back as much as they pay in.

What say you?

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By the way. I am inviting some guest articles. Let me know if you know somebody who would be interested in writing one.