Save Money on Insurance

How to ensure high premiums don’t drain your budget.

Insurance isn’t one of those expenses you can just decide to live without – you have to have insurance if you want to buy a car and own a home. So it’s definitely a necessity in your household budget. Still, there are ways to minimize the cost so the necessity doesn’t become a necessary evil that completely drains your budget every month.

By shopping around for insurance regularly and comparing rates, you can keep the cost as low as possible to help maximize the cash flow you have available for other things, like saving for retirement. Here is what you need to know to minimize your insurance costs so you can maximize your savings…

Tips for cutting auto insurance costs

Auto insurance costs are determined by how the underwriter assesses your risk as a driver, combined with the risk of the vehicle you own. In some cases, depending on where you live, the insurer may also consider your credit-based insurance score, which means your ability to manage debt and maintain good credit can also impact your premiums.

When assessing your risk, auto insurers look at your gender, age, driving record, marital status, prior coverage, and how urbanized the area is where you live. In states were credit-based insurance scores come into play, the also make look at your credit. Then they take into consideration the make and model of the vehicle to be insured and the mileage on it.

The amount you pay varies based on the type of coverage you have, which in turn varies by state. Some states have no-fault auto insurance standards where the insurer pays directly for any losses. Other states have a tort insurance which offers different types of coverage based on what you need – these are the states where you see everything from comprehensive coverage to collision coverage.

In either case, there are some steps you can take to minimize your auto insurance costs:

  • Talk to your agent often.
    • Pay attention to correspondence – even things that look like general ads and spam in your inbox – because your insurance company may have a new discount they’re offering that could help you save.
  • Shop around once every year.
    • Statistics show about one in four drivers hasn’t shopped around for auto insurance in the past 16 years or more.
    • Even if you don’t change vehicles or don’t have any change in your situation, you could qualify for lower premiums simply because the underwriter’s rating system has some hidden factor that you don’t know that qualifies you for cheaper coverage.
    • When you comparison shop for insurance, don’t just call your agent – talk to different companies to insure you’re getting the coverage you need at the best price.
  • Check to see if your state allows insurers to use credit-based insurance scores.
    • If so, then improving your credit score and building better credit can lower your premiums.
    • Take six months to build your credit, then shop around for rates once your credit history is clean and you’ve made progress building a better score.
  • Maintain a clean driving record to ensure your bad habits don’t drive up your premiums.
  • Make sure when you’re ready to purchase a new car that you factor in potential increased insurance costs.
    • Safer cars mean lower insurance costs, while things like sports cars have higher insurance costs.
  • Don’t pay for more insurance than you need.
    • Having full comprehensive coverage may not make sense if you have a car that’s over 10 years old. Again, talk to your agent to make sure your coverage matches what you need… and what you drive.

Tips for cutting homeowners insurance

The amount you pay for homeowners insurance is really based on two key factors (or one, depending on where you live):

  1. Location, location, location. Costs vary by state, and certain areas require extra insurance like flood, wind, or fire.
  2. Credit-based insurance score. As with auto insurance, your credit rating may have a significant impact on your insurance payments depending on where you live.

The easiest way to lower your premiums is to find and apply discounts. During the underwriting process the insurer will assess your home based on the condition it’s in at the time of purchase. However, as you own the home and renovate or make upgrades, you may qualify to pay less for your homeowners insurance. Always check with your agent before you make any home improvements to ensure: (1) they won’t end up costing you more in insurance; (2) that you might qualify for a new discount.

Another way to lower your monthly payments is to increase your deductible. This means more of a loss would come out of your pocket when losses are incurred, but the amount you pay each month would be lower. So, if you can afford a deductible of $1,000 but your current deductible is set at $500, then you should talk to your agent to raise it.

The final recommendation for lowering your homeowners insurance cost is to bundle it with other insurance. Often, getting all of your insurance from the same provider and bundling them in a multi-policy plan can save you money. According to Bankrate, you can expect to save about 5-15 percent.

Tips for cutting life insurance costs

The first recommendation is to decide if you really need life insurance or not. If you’re in your 20’s, unmarried with no kids, then there isn’t much reason for you to need substantial life insurance at all. Even if you’re married with kids, but you don’t work or your income isn’t required to support the household, you may not need it.

Life insurance is there to help your family in case you can’t provide the necessary income that you usually provide to the household. It can also be used to cover things like funeral expenses, but you don’t need a $50,000 policy to pay for that – in general, funeral costs typically range from $8,000 to $10,000.

In general, your life insurance should be based on what you make, how long your family would need that income to continue living comfortably before they can adjust to that loss of income and what other assets you have to support them if you’re not there.

Once you decide if you need life insurance and how much you need, then the next way to save is to decide if you want term life insurance or whole/universal/permanent life insurance. The former is called term life insurance because it has a term applied – a period of time where the policy is valid at that premium. Terms vary from one year to up to 20 years.

Whole/universal life insurance is permanent – you have it for as long as you’re around and it may even provide “living benefits” if you have a serious accident or injury. It can also grow as an investment and earn dividends (term doesn’t do this). This is the more expensive of the two.

The easiest way to reduce the cost of life insurance while still ensuring your family is properly covered is to opt for term life insurance. Of course, each time you renew a term life insurance policy, keep in mind you can expect your rates to increase as you keep the policy for longer and longer periods of time.