Think about all the money you spend insuring your house, car, health, and life. If you’re like most people, it’s thousands of dollars. Now think about how much time you spend making sure you’re getting the biggest bang for your buck. If you’re like most people, it’s measured in minutes.
There’s probably no other area of most people’s financial lives where less attention is paid in relation to money spent. Maybe it’s time to learn something about insurance: especially how to pay as little as possible.
Golden Rule No. 1: Don’t buy more than you need
The insurance industry wants you to insure against financial inconvenience, rather than financial catastrophe. The problem? If you buy enough insurance so you’ll never lose a dime, you might be paying so much you won’t have a dime to lose.
If you want to pay less for insurance, the first thing to do is assume more risk yourself. That means having a deductible as high as you can comfortably afford, and even doing without insurance where it makes sense.
Call your existing insurance company and ask them what would happen to your premiums if you raised your car, home, or health deductibles. Then use an insurance search and call another company and see what they say. If your deductibles are low now, you’ll probably find that you can save at least 10 percent by raising them.
The deductibles on my home and car policies are $1,000 – $5,000 on my health insurance. Being forced to pay the first $1,000 of damage to my stuff and $5,000 for my health is unpleasant, but it’s not going to send me to McDonald’s for a second job. Insuring for catastrophe, rather than inconvenience, makes my insurance more affordable.
Does that mean you should do the same thing? That depends on you. If you’d rather trade the additional premium for additional peace of mind, that’s your decision. But at least make it an informed one.
Golden Rule No. 2: The person who’s selling you insurance isn’t your friend
When you buy a house, car, dress, or virtually anything else, the more you spend, the more the salesperson and their employer makes. This is also true of insurance.
It makes no sense to base your insurance-buying decisions on the advice of a person who directly benefits from its sale. Unfortunately, this is precisely what most people do when they call an insurance agent and ask them what kind and how much insurance to buy.
This can also be true online when you go to an insurance company’s website and use an insurance “calculator” to determine how much insurance you “need.” Because as far as a salesperson or company is concerned, the amount you “need” is enough to protect against inconvenience, not catastrophe.
How do you really know what kind and how much insurance you need? By understanding it. Which leads us to…
Golden Rule No. 3: Learn what you’re paying for
Pull out one of your current insurance policies and write down the pertinent information: what’s covered, deductibles, phone numbers, policy due dates, etc. Having this information in one place will not only give you the big picture, it will make comparison shopping a snap.
I use Microsoft Excel to create spreadsheets for the various policies I have, but you can use anything from Google Docs to a simple piece of paper – anything that will allow you to write stuff down and keep it straight. Call the toll-free number on your insurance policy and sit on the phone with a customer service representative, ask questions about your policy, and write down the answers.
Golden Rule No. 4: Never stop shopping
If you have any semblance of a life, you have things you’d rather do than shop for insurance – a fact not lost on your insurance company. So they’ll raise your rates, hoping you’ll simply send in a bigger check rather than shopping for a better deal. Hopefully, they’re wrong.
My health insurance company had raised my rates annually for so many years that they were actually selling new customers identical insurance for nearly $4,000 less per year than they were charging me.
Here’s what I’ve done ever since: I shop my insurance every other year. One year I’ll shop insurance for stuff – home and car – and the next for my body – health and life.
Golden Rule No. 5: Avoid gimmick insurance
Credit life is a type of insurance tied to a specific debt. For example, it will pay off your mortgage, car loan, or credit cards if you should die. Term life insurance is typically a less expensive and more comprehensive way to do the same thing.
Specific disease insurance, as the name implies, is health insurance tied to a specific illness, like cancer. A comprehensive health policy is typically a better idea.
Whole life insurance combines a life insurance policy with a savings account. For most people, buying a less-expensive term life insurance policy and investing the difference makes more financial sense.
These types of policies typically carry high commissions for insurance salespeople, so they’re often sold using high-pressure tactics. Avoid being steered into something you don’t need by understanding what you do need.
Knowledge is the best policy
Most people spend more time trying to save a buck or two on groceries than they do shopping for something that could save them hundreds. Don’t be one of those people. Create a few spreadsheets, ask some questions, take some notes, understand what you’re paying for, don’t buy what you don’t need, and shop your coverage early and often.