Save Money on Insurance

Insurance, I’ve found, is a personal thing. Some folks want gobs of it to protect against practically everything. Others insure just the bare minimum or nothing at all. No matter how you feel, making even small changes to your policy can save money on insurance. Depending on your risk tolerance and the size of your emergency reserve fund, make bigger changes and save even more.

Insurance Deductibles

If you take my advice and avoid the new car trap, you’re already saving big money on your automobile insurance. You can save even more by raising your deductibles on both your auto insurance and your homeowner’s/renter’s policy. When you exchange a higher deductible for a lower premium, you’re sharing more of the risk with the insurance company. That’s why the size of your emergency reserve fund is important.

Insurance is regulated by your state of residence, so rates vary, but even a small change from a $250 deductible to a $500 deductible can save you hundreds of dollars in insurance premiums. Raise the deductible higher and save even more. You can raise them on all the “schedules,” which is what insurance companies call the different sections of a policy.

The higher the deductible the lower the premium. You may not hear this as an alternative from your insurance agent but raising your deductibles can save money on insurance and free money up in a hurry. It’ll make you a better driver as well as a more concerned homeowner or renter when you share more of the risk.

No Deductible on Liability Section

Be aware that almost all the liability sections of automobile and homeowner’s/renter’s insurance policies have no deductible. Having no deductible means that if there is a liability claim against you, the insurance company pays all of it, up to the limit of liability. Folks with high deductible policies might automatically assume they’re personally liable for a small insurance claim, and that’s generally true, but not with a liability claim.

A while back a friend of mine’s dog killed his neighbor’s cat. He felt terrible, but luckily his neighbor and he were friends, and they resolved the issue, which included a $2,000 payment to the neighbor. Luckily, he had me as a friend too; Otherwise, he never would have recouped the $2,000 from his insurance company. Knowing he had elected the highest deductibles on his homeowner’s policy, my friend assumed he’d be liable for the entire $2,000 payment and hadn’t even contacted his insurance company about the incident until he talked to me.

Speaking of the liability sections of your insurance policies, let me point out that as you get older and your wealth increases, you’ve got more to lose. Deductibles aside, make sure you beef up the liability sections of your insurance policies commensurate with your level of wealth. Consider a personal liability umbrella policy for even more protection.

Shop Around

Besides tinkering with your deductibles, it’s always a good idea to review your policies and shop for lower rates prior to renewal, another way to save money on insurance. Be sure to report your mileage driven for the year before renewing your automobile policy, especially if you’ve driven less. Besides your zip code, nothing affects your premium more than the number of miles you drive. Since a lot of us are driving less lately, make sure your insurance company has the correct numbers. You might just score an even lower premium.

Term Versus Whole Life Insurance

Term life insurance is pure insurance: If you die, the face amount of the policy goes to your named beneficiary. If you don’t die before a certain age, that’s the end of the contract. There are no premium refunds.

Whole or permanent life insurance covers what term does with its premium, but it also has an investment element. The policy holder has penalty-free access to the policy’s cash value after a certain time, or they can pass it along to the beneficiary.

A big advantage whole life insurance has over term is that it’s a lifetime contract and it can’t be cancelled. If you get terminally ill during the policy, the life insurance company can’t cancel the policy. Unfortunately, if you get terminally ill, say with a 10-year renewable term life policy, I’m afraid the insurance company won’t renew the policy if you make it till the end of the term, nor will anyone else.

However, the premium on a whole life policy is much higher for an equivalent term life policy because of that extra investment element. Going with term rather than whole life can save money on insurance year in and year out with that lower premium for the same life insurance coverage. But what about the investment element?

You may know I’m a big proponent of keeping investing fees low. On average, the insurance industry’s yearly fees for investment are well over 1%. Those high fees really add up over the lifetime of the contract.

Again, insurance is a personal thing, and there are a lot of factors to consider, including potentially not being able to buy life insurance. Beyond that, assuming you’re a confident investor, armed with the knowledge of high performing low-cost investment vehicles and a disciplined investment strategy, I’m putting my money on you clobbering the insurance industry’s after-tax return when it comes to the investment part.

There are lots of factors to consider when it comes to life insurance. Certainly, term life insurance, next to no life insurance at all, is the more economical way to not only save money on insurance but on your investment costs too.

Annunities

Exchanging a chunk of change for monthly payments for the rest of your life. In its purest form, that’s what an annuity is. Take $100,000 down to an insurance company. They will indeed exchange that chunk for monthly payments for the rest of your life, starting next month if you wish.

To determine the monthly amount, the insurance company looks at actuarial tables, which try and predict the average remaining lifespan of people your age. Figuring in their profit margin and the fact that some folks are going to live longer than others, they arrive at what they feel is a fair monthly payment in exchange for that chunk. This is called an immediate annuity and is my favorite type.

With deferred annuities, you make premium payments to an insurance company over time. At some point in the future, like your retirement date, the money collected and invested over the years is then converted to payments for life.

I’ve got nothing against annuities or insurance companies. If you think you’re going to live longer than most and want to guard against running out of money in the latter years of your retirement, an annuity might make sense. What I do absolutely abhor is high investment fees.

Insurance companies have notoriously high investment fees. The longer the insurance company has your money and is investing it on your behalf, the more fees your charged. That’s why I prefer immediate annuities over deferred annuities.

Instead of paying an insurance company to invest your money, do it yourself. Utilize tax-advantaged accounts for retirement, keep your fees low, and invest with a disciplined investment plan. When the time comes and you want to start payments for life, take that extra money and, after doing your research as to which will be best for you, go buy an immediate annuity.

This is another one of those big bang-for-the-buck changes where you can save thousands if not tens of thousands of dollars over the life of that long term investment. Investing money yourself rather than giving it to the insurance company is my number one way to save money on insurance.

Save Money on Insurance

It’s a give and take sometimes between maintaining your savings and blowing your budget. It can be a fine line. Always look for new ways to increase savings by reducing expenses, including lowering your insurance premiums. Money saved is the fuel that powers those financial dreams of yours.

Retiring when you want to retire on your terms with the money you need. Buying a beautiful house you and your family can call home. Continuing your own education or that of a spouse or other loved one. Eliminating your debt. These are good reasons to find new ways to increase savings wherever you can.