We’ve all done it. We look at our bank account balance and wonder where all the money went! You weren’t robbed, but you feel broke. That’s when you start really looking at your budget. You’re trying to find where you can get leaner and more fiscally fit. All the usual suspects are investigated: cable company, cell phone plan, and eating out. How about 5 steps to an efficient insurance plan?
Your list may be different, but you’ve done it, right? At the top of most people’s list of bills that they think can be reduced is their insurance bill. After all, Starbucks and Netflix are staples necessary for navigating life with any hope of sanity. Plus, we watch an endless parade of television commercials telling us we are paying too much for insurance and need to switch to save a bunch of money.
But shopping around and switching insurance companies every year in search of a cheaper price is not a practical thing to do. In most cases, the money you save may be enough to buy a large cheese pizza once a month. I am not saying that a person should not compare plans and pricing from time to time, but there is a better way to have confidence that your insurance is adequate and efficient without switching insurance companies.
Here are five steps to an efficient insurance plan.
1. Take advantage of discounts.
Let me get this one out of the way first. Every insurance company sells their insurance by promising more discounts. While every company will have some unique discounts, bundling multiple types of policies with the same company is smart and efficient. Having your home and car insurance with the same company is a huge discount factor. Ask your insurance advisor about all discounts available, even if you don’t qualify for them all. At least you’ll know.
2. Carry a higher deductible.
Claims cost the insurance company money even if they deny the claim or if the loss does not exceed the deductible. When you have a higher deductible, you are less likely to file a claim on a small loss. When the risk of paying for small losses is put on you, the insurance company will reduce the premium because the larger losses are much less likely to occur. This is a psychological hurdle for many people. I think most of us are pessimists and assume we are going to be filing a lot of claims. The reality is, we don’t.
3. Build an emergency fund
If you follow the high deductible advice in number 2, you must have a savings account that serves as an emergency fund of $1,000 to $5,000. Think about it. You will have only a few insurance claims in your lifetime, yet you will probably have many financial emergencies. Save on your premium by carrying a high deductible and commit the money you will save to your emergency fund.
4. Practice loss prevention
Home insurance is not a maintenance plan. Your house is going to wear out. The roof is usually the first thing to go. This is the number one most common claim filed by homeowners. Your roof is exposed to the elements 24 hours a day. Have it inspected every three to five years to make minor repairs that will extend its life and delay your need to file a claim. Defensive and attentive driving will not guarantee the avoidance of an accident, but it’s your responsibility when you get behind the wheel.
5. Review your insurance plan
I know, who wants to talk about their insurance? A meeting with your insurance advisor at least every other year will help you stay familiar with the coverage you are paying for. It also keeps your insurance company updated on any life changes that your policy needs to address. If your agent or company does not proactively review your plan with you, go somewhere else! Too harsh? See the bonus tip.
Here’s a bonus tip. Insurance is a product/service that has the potential to change your life for good or bad depending on the quality of your policy. If you are a do-it-yourselfer there is a tremendous amount of information on the internet about insurance products, coverage explanations, and purchasing advice (like this blog). Buying your insurance online may seem like it would be cheaper. It’s usually not. When it is, have you really saved money by having to educate yourself and then do all the shopping and comparing? Use an insurance advisor that will take time to help you develop an insurance plan that is tailored to your needs.
I certainly encourage people to regularly audit their budget. Insurance is not a frivolous expense. Creating and maintaining sound financial habits is harder than it sounds. When it comes to your insurance plan, make sure it’s one that you understand and believe in and not something in the same category as where to eat for dinner.