The purpose of insurance is for protection from a significant financial loss. It preserves a person’s nest egg against major accidents that can occur. Whether it is a car wreck where people are injured or flood damage to your home, unpredictable financial catastrophes happen. Insurance allows for the continuation of life without depleting retirement/investment funds and real property. Some home and auto policy coverages should be maximized, such as Liability, Flood, and Uninsured Motorist, but other coverages should be eliminated or decreased.
Steps to Reduce Premiums
1. Cancel Coverages…what? – The first actionable item to lower premiums is to cancel the Comprehensive and Collision coverages of your auto policy. 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. Your. Deductibles. – If step one seems like a bit of a leap, a smaller step would be to raise the deductible 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 which raise the premiums. The insurance company can charge more and prey on a loss aversion psyche.
3. Unneeded Insurance – Do not insure trivial things like roadside assistance or iPhone replacement. Each time a roadside assistance claim is 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 card to see if they provide coverage.
4. Opt-Out of Riders – On your homeowner’s policy, opt-out of all riders that come with it. 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. There are independent companies where you can insure your property that will not affect your home policy in case of a claim.
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 anti-theft alarms or low annual mileage on your car can lower your premiums. I only drove 4,000 miles on my car last year (COVID), but I should not have to pay as much as a person driving 20,000 miles.
These actionable items can help reduce your premiums. Remember, the central point of insurance is to insure against a catastrophic loss. An emergency fund should help cover everything else. Self-insuring is one of the best methods to reduce expenses and increase wealth. Now, get out there, make some calls and save some money!