Most American drivers start out using the same insurance company their parents had and never really think to switch. Some drivers may have changed insurance companies somewhere along the way to save a few bucks, but for the most part, they've made no conscious choices about their insurance provider. Many first-time homeowners get their homeowners insurance in the same way—it's probably the company their real estate agent or title company recommended. Life insurance purchases usually follow a similar path.

People buy insurance based on convenience as well as initial price. As a result, a lot of people end up with a hodgepodge of insurance carriers with no reason for doing so. This is fine if you enjoy opening extra mail, paying bills to three separate insurance carriers every month, and possibly overpaying for your premiums, but you probably don't. Read on to find out how bundling your policies can help you save big on insurance.

The Benefits of Bundling Insurance

Many of the big insurance companies price their insurance rates to attract a particular segment of the market. They usually price their insurance to attract homeowners who need to insure not only their cars, but also their homes and their lives (among other things). Many other companies can beat them on price if a single type of insurance is being compared (such as auto or home), but these big companies want customers who will stay with them for years instead of shopping around for a better deal every six months. To accomplish this, companies give the best deal to clients who will use their company for the three main lines of insurance. (For related reading, see: 6 Ways to Save on Insurance.)

Companies offer multi-line discounts to attract customers who will need more than one type of insurance. These companies offer a cheaper rate to insure your house, car and life than if you insured each one separately. The same goes if you add a second car or other type of insurance, like RV or motorcycle insurance—the discounts keep adding up.

When combining auto, home and life insurance, it wouldn't be unusual for many families to spend between $3,000 to $5,000 or more each year. Of course, these rates depend on where you live, the value of your home and car(s), driving habits, personal health and so forth.

What's the Catch?

For just one line of insurance, most large companies aren't extremely price-competitive. After all, those thousands of people on staff can really add up. By combining your policies under one roof, the companies benefit from economies of scale and can justify more discounts.

As for life insurance, people who have a life insurance policy are much less likely to switch insurance carriers because of the difficulty (or even impossibility) of changing policies. This difficulty is due to medical issues, age and the possible need for further medical exams, among other factors, so people usually keep their life insurance policies in place. For this reason, many large insurance companies emphasize to their sales teams that life insurance sales are a critical product. (For related reading, see: Getting Life Insurance Without a Medical Exam.)

Companies also give discounts to retain customers because it is expensive for companies to continually process (also known as underwriting) a revolving door of new customers. Due to the added expense associated with customer turnover, insurance companies prefer to have customers who carry multiple lines of insurance and keep these policies in place for years.

The Bottom Line

Combining all of your policies with one insurance company can save you money compared to having a variety of carriers. It's also important to remember when one company is handling all of your insurance policies, that's less time you must spend sorting through and paying each policy. And as they say: Time is money. (For related reading, see: What are some examples of when insurance bundling is a bad idea?)