Want to save money next year on your insurance? Try these eight tips from Stephen L. Nelson, the author of Quicken for Dummies and a CPA.
By following the eight rules in this article, you can save money and, more importantly, avoid making serious mistakes when shopping for and buying insurance policies.
Rule 1: You should only buy insurance for financial risks that you can't handle on your own.
The point of insurance is to protect you and your family from disasters that would be very bad for you. Don't think of insurance as a way to cover all your losses, no matter how big or small. If you do, you'll waste money on insurance you don't really need. For example, you would be glad you had homeowner's insurance if your house caught fire and burned down. Homeowner's insurance is important because you probably can't cover the cost of rebuilding your house, and you definitely don't want to. On the other hand, it's a waste of money to insure an old junker that's only worth $800. You would be wasting money on something that you could take care of on your own if you had to.
Rule 2: Buy from insurance companies that A.M. Best rates as A or better.
Insurance companies go bankrupt, are bought and sold, and have the same financial problems as all other businesses. From 1989 to 1993, 143 insurance companies went out of business. You should choose a company you can trust and that has a good track record.
A.M. Best is a service that keeps an eye on insurance companies and rates them based on how reliable they are. Look for insurers with an A or better rating from A.M. Best, and check on your insurer from time to time to make sure it keeps its high rating. If your insurance company gets worse, you might want to look for a new one. You can probably find A.M. Best's list of insurance companies at your local public library. You can also visit www.ambest.com to learn more about A.M. Best.
Rule #3: Look around.
There are a lot of different types of insurance, and insurers don't advertise by price. You have to put in some work to find the policy that fits your needs and costs the least. Start by talking to at least two brokers. Look for "no-load" insurance companies, which sell policies directly to the public without taking a commission from a broker. These companies usually have lower prices.
Rule 4: Never lie on an application for a policy.
If you lie and the company finds out, your policy could be cancelled. If you lie on your life insurance application and die within the first three years of having the policy, the company will cancel it and your beneficiaries won't get anything. The Medical Information Bureau does background checks on people who want to get health, life, or disability insurance, so you can get caught lying. When you get a life insurance exam, it can also catch you in a lie. For example, if you smoked tobacco in the last year, the test will ask you about it.
Rule 5: Don't buy policies for specific risks. Instead, buy general policies.
You want the most coverage possible when it comes to insurance. Buying insurance against cancer or a driver who isn't covered by insurance defeats the point of having a policy. Your cancer insurance won't help you if you have ulcers. Instead, you should get full medical coverage.
Uninsured motorist insurance is supposed to protect you if you get hit by someone who doesn't have car insurance or doesn't have enough car insurance. But I don't think you need it if you have good car insurance and health, disability, and life insurance on your own. Some lawyers will tell you to get uninsured motorist insurance so that you can get "pain and suffering" damages if you get hurt by someone who doesn't have insurance.
Rule 6: Don't cancel one policy until you have another one ready to go.
If you cancel a policy without getting a new one, you won't have insurance until you get a new one. And if something bad happens during this time, your money could be ruined. This rule applies to everyone, but it is especially important for older people because it can be hard for them to get health and life insurance.
Rule 7: Get a policy with a high deductible.
When you have insurance with a high deductible, you save money. A policy with a high deductible will always have a lower premium. Not only that, but if you have a high deductible and don't need to make as many claims, you save yourself the trouble of filing a claim and haggling with insurance company representatives.
Most people who buy policies with low deductibles do so because they want to be covered no matter what. But, for example, the cost of a $400 fender-bender is usually worth paying out of your own pocket rather than paying for insurance to cover it. Most people have a minor car accident once every ten years, according to statistics. It hurts to pay $400, but the cost of insurance for these kinds of accidents over ten years is much more than $400.
Also, if your deductible is low, you will make more claims. That means you cost the insurance company a lot of money and give them a lot of trouble. Your rates will go up, which is something you don't want to happen.
Rule 8: Put the money you save on insurance payments into a savings account for bad times.
If you follow the rules we've already talked about, you can save money on your insurance premiums. However, it's probably a bad idea to use that money for something like a trip to Hawaii. Instead, use your savings to build up a big emergency fund that you can use to pay your deductibles. If your rainy day fund is big enough, it can cover both times when you're out of work and your insurance deductibles.
