One of the major elements of household budgets is the cost of insurance. This post takes ideas from my book on cash savings ideas to help you find ways to save on insurance costs.
You use insurance to protect against the financial cost of the unexpected in your life. There are certain financial risks each person must identify, eliminate or minimize in their lifetime. An individual needs to understand the risks they are facing (e.g., premature death, health, disability, longevity) and what they can do to deal with each situation. Insurance can provide a cost-effective solution to protect against these risks.
Here are some ideas to reduce insurance costs:
Drop vehicle collision coverage on older models. The Insurance Information Institute suggests that comprehensive and collision coverage doesn’t make sense when a car’s value is ten times or less of its annual cost to purchase collision coverage. This move could save you a good chunk of change.
Buy renters insurance to protect your possessions. You should always buy renters insurance even if you don’t have many possessions. Renters insurance covers theft of personal property even if it occurs outside the home and, most importantly, liability protection in the event someone is injured and sues. If that major fire or storm hits your area, having this coverage could pay off for you.
Look for discounts on when and how you pay your premiums. Many times insurance companies will offer discounts if you pay your premiums by bank account auto-pay or if you just pay semi-annually or annually. You may be surprised on what you save.
Understand the income tax advantages of life insurance. Life insurance has been designed, and Congress has bestowed upon it, the ability to provide tax-free death benefits to beneficiaries, tax-deferred accumulation and tax-free access to cash value using loans or withdrawals. Most consumers do not understand these advantages, nor do they use them to their advantage.
Look to raise the deductibles or coinsurance amounts for all of your coverages. You could be paying large premiums in order to have small deductibles and could save dollars by increasing those amounts. Raising your deductible or coinsurance amounts can often significantly reduce your annual premiums, easing the monthly strain on your bills. Just be sure you have the funds in your emergency fund to pay the amounts.
Life insurance can generate cash accumulation and savings. Permanent policies (not term insurance) are designed to build cash value, like whole life and universal life. These forms of permanent life insurance give the owner access to cash by being surrendered, loaned against or having cash withdrawn before the insured person passes away. The key for the consumer is that the cash value taken from the policy is not restricted and can be used for any purpose, including funding college costs, funding wed- ding costs, supplementing retirement income, starting a business or fulfilling another personal need.
Bundle your coverages with one insurance company. Most insurance companies will offer you a significant (i.e., 5% or more) discount for having multiple policies with them. This is called bundling your policies. Consider this when you place your cover- age with a carrier.
Audit your own driving habits and mileage. Have you recently moved out of an urban area? Did you just switch jobs? Are you working from home? Given how our lives have changed with the pandemic, you might be surprised with the savings you will find. In particular, know how many miles you drive each year. Driving less will reduce your car insurance rates because the less you drive, obviously, the less chance you have of getting into an accident. The premiums should be much lower.
Select a lower-grade (higher out-of-pocket) health insurance plan. Understand the deductibles, coinsurance and monthly costs for your coverage and make choices that make economic sense. Overall, I look at what my total out-of-pocket cost would be for each option and make my selection based on that. If you don’t have enough in your emergency fund to cover higher out- of-pocket medical costs, you should probably stick to those plans that give you the most coverage.
Look into disability insurance. You need to protect yourself against the loss of employment income and premature death. Without an income you cannot save or provide for your house- hold. A basic concept in financial planning is to protect against your downside risks. For most people, the main risks are the loss of their income or life. Protections for these risks can be purchased today at the most affordable rates in decades with life insurance and disability income products.
Shop for your homeowner’s insurance and auto insurance at least every two years. You can save money and possibly improve the coverage you have by shopping around. If you haven’t had losses, have a great driving record or if your credit score is strong or much improved, you might be able to save money spent on premiums.
Tell your insurer about your home upgrades. Stay in touch with your general insurance agent or company about changes in your home. If you installed smoke detectors, a new monitored alarm system or new impact-resistant windows in a hurricane prone area, your insurance company might discount your premiums. Check with the Insurance Information Institute for information and ideas on which improvements can save you premium dollars and generate the most discounts.
Think twice before submitting an insurance claim. My rule of thumb is that I won’t submit a claim on a loss that is less than twice my deductible. So, for a $500 deductible on an auto loss, I’ll pay out of pocket any loss up to $1,000. Why? The $500 I’d receive from my insurance company is not worth the increased premiums I’m likely to pay. You may want to call your insurance agent to find out how a claim will impact your premiums before filing the claim.
Avoid being unconsciously over insured. Some consumers want to reduce their exposure to risk to the maximum extent they can. You should only buy the insurance coverage you need for your financial situation. Work with an insurance professional to make sure you are properly covered but not over covered.
Get the discounts available for your teenage drivers. Young drivers almost always pay more for coverage, but sometimes you can get substantial discounts if your teen maintains good grades, takes a behind-the-wheel driving course or completes mandated online classes.
Have all of your teenagers use the same car. You can usually save money if you have your new drivers use the same (hopefully your safest and oldest) least-expensive vehicle.
If you directly pay for your own health insurance, do an annual coverage and price check. Perform a full search on your state’s health insurance exchange or use one of the available apps such as eHealth. Whether you currently have health insurance or you’re thinking of applying for it, it’s always a great idea to shop around to make sure you’re getting the best deal.
Ask for discounts to lower your auto insurance premiums. There are many ways to get discounts on your policy, including taking a defensive driving class, installing an anti- theft device or installing a safe-driving device. Asking for available discounts could save you money.
Choose a replacement cost policy. When you buy homeowners and renters policies, elect replacement cost coverage that pays if you have a loss. This will ensure you receive the newest model of an item if it needs to be replaced.
Discuss changes in your life with your insurance provider at least annually. Be sure to review your insurance coverages after life events such as getting married, having/adopting a child, changing jobs or using your vehicle for a side gig. You need to make sure your coverage is appropriate for your changed life circumstances.
See if you qualify for group insurance coverage. For example, accountants who are CPAs may be able to get discounted life, home and personal liability coverages through the American Institute of Certified Public Accountants.
Summary
Carefully managing the costs of your insurance coverages can save money and also make sure you have the proper, most up to day coverages in place for the financial risks you are protecting against. It pays to review these costs and coverages at least once per year.
If you're looking for ideas on where to find cash savings, please check out The FinancialVerse Guide to Savings – 600 Cash Savings Ideas. Cash Savings provides practical suggestions on where you can save money in your day-to-day life. For most households, I believe they will find at least $600 in annual savings.