Hello one and all, and happy Fourth of July! Today we are going to start a four part series addressing common mistakes people make while attempting to save money on their insurance. Rather than quick blurbs, Sammy’s idea was to go a bit more in depth each week. Off we go!
This week we are going to cover one of the main ways that we all attempt to save money – by adjusting the coverages on our policies. We’re going to cover both general and specific tips, and we DEFINITELY would like some feedback – questions and comments are invited!
Sammy suggested that we should title this week’s installment “Adjusting the wrong coverages,” and while it may be a bit negative, it does hit on our central focus. There are many changes that you can make to your policy to save money. The problem arises when the money that you save, versus the reductions in coverage you are accepting, do not make it worth while.
In general, when reviewing potential reductions in coverage, always consider what you are losing. Does the amount of premium you are saving really pay for itself, when compared to the coverage you lose? For example, if you are increasing your deductible from $500 to $1,000 to save $50 annually, is it worth it? In order to make up for the extra $500 you will pay in the event of a loss, you would have to save $50 a year for ten years to make up the difference! And that’s just to break even!
In addition, if you are looking at removing a coverage completely, make sure that you are comfortable that if you were to have a loss, you would be able to pay for it out of pocket. For example, if you remove comprehensive coverage on your car, and it’s stolen – could you afford to buy another car to replace it?
Other things to consider BEFORE making changes:
- If you are going to increase your deductible on your auto policy, make sure that you increase the right one. Increasing your comprehensive deductible, in general, will not save you NEARLY as much as the collision deductible. In addition, it will dramatically increase your out of pocket cost on smaller claims like cracked windshields.
- If you are going to remove physical damage coverage completely, consider at least leaving comprehensive on the policy. It doesn’t cost much, and provides lots of good coverages for the price – repairing cracked windshields (usually for free) or replacing them if necessary, hitting an animal, if your vehicle is stolen, vandalized, or catches fire. It also covers unusual claims like if your vehicle is damaged or lost in a flood, hail damage, trees falling on vehicles, animal damage (such as a rodent taking up residence in your vehicle!), or if your vehicle gets painted accidentally by a line crew. If you heard about the paving truck on the PA turnpike who leaked tar all over the road and damaged hundreds of vehicles – comp claim!
- If you are considering reducing the building limit on your homeowner’s policy, you might do better by increasing your deductible. Oftentimes, when you jump from one deductible level to the next, the building coverage rates drop dramatically more than if you just reduce your coverage. Thus, you will accomplish two things – save more money on premium, and have better coverage in the event of a total loss – you will pay more for the deductible, but will not have diminished limits to contend with! And, there is the nasty possibility of a co-insurance penalty – which I can address in comments, if you have questions!
- If you are considering reducing the liability limit on your homeowners, look at a smaller reduction, but on the auto policy instead. This one is “hairy”, though – it’s not often a good idea to reduce your liability limits – this is the protection you have in the event someone else sues you. If you are dead set on reducing liability limits, get information on how much you would save by taking a smaller reduction on the auto policy. In other words, you will likely save more money by reducing your auto liability limit by $50,000 ($100K to $50K) than reducing your homeowners by $200,000 ($300K to $100K). Again, though, this is a LAST RESORT recommendation ONLY.
This is a lot of information. Bottom line – when looking to save money on your insurance, spend an extra 20 or 30 minutes to discuss your options with your agent. Most agents are more than willing to see what they can do to keep their clients happy! And if you end up saving money, while not losing much coverage-wise – all the better!