Are You Paying Too Much For Insurance?
Insurance saves lives. It’s a valuable device to have in place to keep your family and your finances safe. You never know when disaster might strike, so it’s important to have a safety net.
Simply put, insurance is the deferral of risk. When you pay an insurance premium, you’re paying that company to take on risk for you. A big car accident without insurance can be financially devastating. The medical bills alone can send you into bankruptcy if you don’t have a solid insurance plan in place.
Even though insurance is vital, there are a lot of ways you can save money while still staying protected. Here are my top 5 tips for saving on insurance:
1. Get Term Life Insurance
There are a variety of life insurance plans available, but two of the main ones are Whole Life and Term Life insurance.
Whole Life insurance is a plan that covers you for the rest of your life (hence the name whole life). While you don’t have to worry about your insurance running out before you die, the monthly premiums are expensive.
A much cheaper alternative is Term Life insurance. Term Life is sold in various terms such as 10, 15, or 20 years. Yes, this does mean that your insurance will end after the term is up. However, your monthly premiums are lower; a lot lower. Some term policies are around $100 a month cheaper than Whole Life premiums, depending on your age and health. This frees up your cash flow and allows you the opportunity to self-insure.
By taking the amount you save on premiums and investing it, you can grow enough money to be self-insured. This means you have enough assets to pass on to your loved ones and they won’t need the life insurance money.
2. Life Insurance Isn’t for Everyone
Is life insurance important? Absolutely. Does everyone need it? Well, that depends.
Life insurance is designed to take care of your family financially after you die. How will your family pay the bills when you’re no longer bringing home a paycheck? If you have a family and don’t have life insurance, stop reading this article and get some! However, if no one else relies on your income, you may not need life insurance.
I recently worked with a client that was single and in his mid 60’s. All three of his kids were grown and out of the house, yet he still had a substantial life insurance policy. In his case, it didn’t necessarily make sense to pay the premiums since no one depended on his income. No one would be left financially stranded if he passed. There was no risk for the insurance company to take on.
I’d recommend taking those premiums and using that money to spend time with his family now. Save up and take the kids on a vacation, or treat them to dinner once a month. The time they spend together is going to be more valuable than the check they receive when he’s gone.
If you don’t have enough in savings to cover your funeral costs, then it might be a good idea to take out a small life insurance policy so that weight doesn’t fall on your family’s shoulders.
3. Raise Your Auto Insurance Deductible
Another way to save money on insurance is to consider raising your deductible on your auto insurance. I only recommend doing this if you have enough in your emergency fund to cover the new deductible.
Let’s say you accidentally back your car into a tree and the repairs will cost $1,000. If you have a $250 deductible, then you’d pay the $250 and insurance would cover the remaining $750. However, if you raise your deductible to $500, then you would pay $500 and insurance would pay the other $500.
Wait a second; it sounds like I’d be losing money in this scenario.
Not necessarily. By raising your deductible, you are taking on more of the risk. This lowers your insurance premiums. Over a longer period of time you can actually save money. Analyze your insurance plan and see how much your premium will drop if you raise the deductible. If the change is significant, and if you’re willing to take on the risk, you may end up with extra cash in your pocket.
4. Say Goodbye to Roadside Assistance
Roadside assistance is an add-on option to most auto insurance plans. In the event that you have a flat tire, or need your car towed, your insurance will send someone to assist you if you have this policy in place.
So why should you say goodbye to this? While it may only cost $3-5 per month, you are spending more than you think. Often times your insurance only covers towing for a limited distance before you are charged for extra mileage.
Also consider how often you use roadside assistance. I had this on my policy for years and never used it. The amount I paid for this add-on far exceeded the amount I would have spent on a tow truck. If you have friends and family that are close by, consider using them as your roadside assistance. I know a lot of people that would be willing to help my wife or me out with changing a tire or bringing us a couple gallons of gas. Then I’m only out $15 after I take them out to dinner to say thank you.
5. If you're renting, Get Renter’s Insurance
This last one is a policy you should carry if you’re a renter. Renter’s insurance can protect you and your belongings in the event of a disaster. If your landlord has homeowner’s insurance, your personal belongings are not covered if something were to happen. So, if the house burns down, your personal items are gone with no financial compensation.
Renter’s insurance is typically inexpensive and definitely worth having in place. Having to replace all of your furniture and personal items will drastically set you back from reaching your financial goals.
A lot of these suggestions are going to be fact dependent. Be sure to look into your policies to see if they fit your situation. If any of these ideas make you nervous, then don’t try them. Remember, insurance is the deferral of risk. If you don’t want to take on the extra risk, you may find the extra you pay in premiums is worth it.
Interested in more money saving ideas? Click here for my Top 10 ways to save money!
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