Five Ways to Lower Home and Auto Insurance
The purpose of insurance is to protect against significant financial losses. It preserves your nest egg against major accidents that occur. Whether a car wreck or water damage to your home, unpredictable financial catastrophes happen. Insurance allows for the continuation of life without depleting retirement funds and liquid savings. Some home and auto coverages should be maximized, such as Liability, Flood, and Uninsured Motorist, but other coverages should be minimized or eliminated. Below are the five ways to lower your home and auto insurance.
1. Cancel Comprehensive and Collision Coverages
The first actionable item to lower premiums is to cancel your auto policy’s Comprehensive and Collision coverages. I know this sounds crazy; however, if you have more cash in a savings or checking account than your car is worth, there is no reason to insure it. Losing a car to a wreck or a natural event would not be a severe loss where insurance is needed to cover it. An individual would sell the wrecked vehicle and buy a new one or use the emergency fund to fix the damaged car.
2. Raise the Deductibles
If step one seems like a bit of a leap, a smaller step would be to raise the deductibles for Comprehensive and Collision to as high as your cash savings. This can be $1,000, $2,000, $3,000 etc. Most auto policies come with $250 or $500 deductibles—the lower the deductible, the higher the premium. The insurance company can charge more and prey on a loss aversion psyche. A well-funded savings account will help mitigate this decision, where you do not need to depend on a low deductible.
3. Eliminate Coverages
Do not insure trivial things like roadside assistance or iPhone replacement. Each time a Roadside assistance claim gets filed, it affects a person’s auto insurance history. Use another company like AAA, which does not affect the auto policy history. Also, some credit cards provide roadside assistance as part of their perks. Check with your credit card company to see if they provide coverage.
4. Opt-Out of Home Riders
On your homeowner’s policy, opt out of all riders. There are independent companies where you can insure your property that will not affect your home policy in case of a claim. If you require a jewelry rider and have plenty of cash in your account to cover a loss, you do not need to insure it. However, seek another insurance company if you want to insure personal property where a claim will not affect our home insurance coverage. Jewelers Mutual is a quality company to insure your jewelry.
5. Shop Around
It would be best to look every three years to get a better rate. If you see your insurance company raise your rates, call them and see if they can reverse it. They do not want to lose a customer. Also, see if your car’s anti-theft alarms or low annual mileage can lower your premiums. I only drove 4,000 miles in 2020; thus, I should not have to pay equal premiums as a person who drives 20,000 miles.
Additional Tip: Is Umbrella Insurance a Good Idea
The answer is YES! Liability coverage helps when you get sued by someone involved in an accident related to your auto or home. Umbrella insurance adds extra liability coverage to your current auto and home liability amounts.
We all know that today, the world is thrilled to sue people. You can easily Google another person and find details about them, like their occupation (like a physician) or where they live (nice neighborhood). For this reason, umbrella insurance adds another layer of protection for your assets. Let’s run through a quick example:
You are driving in Dallas and get into a car wreck. Unfortunately, it is your fault, but both cars only have cosmetic damage. You exchange paperwork with the other driver, and they seem to be healthy from the accident. After a few days, you discover they are not and have sued you for damages inflicted upon them that sound a bit exaggerated. The suit is for $1M. However, your auto liability coverage is only $300,000. What happens if the court rules in favor of the other driver?
A. $1,000,000 damages minus $300,000 auto liability coverage = $700,000 you owe
But what if you had a $1M umbrella policy?
B. $1,000,000 damages minus $300,000 auto liability coverage minus $700,000 umbrella liability coverage = $0 you owe.
Wow, I will take option B. As you can see, it protects your assets from a potential financial disaster. However, this seems too good to be true. How much can this life-saving policy cost? The answer is $300-800 yearly for $1M in coverage. The coverage is cheap because it rarely gets used.
We hope the actionable steps above can help reduce your home and auto insurance premiums. Remember, the central point of insurance is to insure against a catastrophic loss. An established emergency fund allows you to pay for minor, less disastrous accidents. Self-insuring is one of the best methods to reduce expenses and increase wealth. Insurance can protect the nest egg you worked hard to ascertain from a substantial accident. Now, get out there, make some calls and save money!
About The Author
Jordan Benold, CFP® provides fee-only financial planning and investment management services in Frisco, TX. Benold Financial Planning serves clients as a fiduciary and never earns a commission or sells a product.