Insurance is an important tool to help you manage risks and protect the things of value in your life. However, the premiums for all the different types can add up quickly and put a squeeze on your budget. So, how can you save money without dropping some of your insurance coverage? It depends on the details of your policies and what they cover.
To start, there are three things that factor into the amount of premiums you’ll pay on almost every insurance policy you buy:
Bundling. Buying several different insurance policies from the same company (such as your homeowners and auto) is a great way to save. Buying from the same insurer saves the insurance company time and money on processing and administration and they can pass some of those savings on to you.
Credit score. Insurance companies calculate an “insurance score” for each person that tries to predict your future claims, which they use to price your premiums. That score includes your credit score as a way of understanding how you manage your finances. Having a poor credit history and low score tells an insurer that you’re a higher financial risk so they will charge you higher premium rates. Read more here about how improve your credit score.
Deductible. The amount you select for your policy is the amount you will pay before the insurance company starts to pay on a claim. The lower the deductible, the higher the premiums and vice versa. If you select a high deductible (and lower premiums), make sure you keep the amount of the deductible in your rainy day or emergency fund accounts so you will have it when you need it.
Here are a few more policy specific items that may help you lower the cost of insurance:
Homeowner’s insurance: Some insurance companies will give you a discount on your premiums if you install fire extinguishers, sprinklers and alarm systems in your home. You may also consider removing any large trees that may be close to your home since they have the potential of damaging your property.
Auto insurance: The more expensive the car you own, the more your insurance will cost (makes sense, right?) since the potential claim will be more. To save on auto insurance you can buy older, less expensive cars; take defensive driving classes, pay premiums annually (instead of monthly) or put them on auto draft. There are also discounts for students with good grades, safe driving records and safety features (air bags, monitoring devices, etc).
Life insurance: Taking care of yourself is important for many reasons, including the cost of life insurance. A few ways to lower your premiums include keeping a healthy weight and good bio-metrics like blood pressure and cholesterol, not smoking (very impactful), not participating in high risk activities (sky diving), and paying premiums annually instead of monthly.
Disability insurance: To save money on disability insurance, you can increase the waiting period on the policy. This pushes out the time before the insurance company would start paying your claim (ex. from 60 to 90 days). You can also integrate the policy benefits with social security disability payments and reduce the period of time you would receive the benefit. You may also find better pricing from an organization you’re affiliated with (like your employer or professional organizations) if they offer group discounts.
Product insurance: Many stores sell product insurance and extended warranties (which is essentially insurance) on appliances and electronics. These are usually not a good use of your money. For things like this, it is better to “self insure”, which means retaining the risk and setting money aside in case something happens. Take the money you would spend on product insurance and put it in a separate account instead of buying the warranty, and if nothing goes wrong, you still have the money. If something does go wrong, you pay out of pocket from this account.
You should revisit all your insurance needs every few years (some sooner, such as auto insurance) to determine if you still need the same amount and shop around for the best prices.